KIT Skript-IntMarketing PDF

International Marketing
Lecture | Fall term 2014 Martin Klarmann
Institute of Information Systems and Marketing (ISSM)

Marketing & Sales Research Group
KIT Universitt des Landes Baden-Wrttemberg und

nationales Forschungszentrum in der Helmholtz-Gemeinschaft www.kit.edu
Team
Lecture:
Prof. Dr. Martin Klarmann
Lecturer: Prof. Dr. Martin Klarmann
Email: martin.klarmann@kit.edu
Homepage: http://marketing.iism.kit.edu/
Office hours: Mondays, 4 p.m. 6 p.m. (appointment required, please contact Juliane
Bayer at juliane.bayer@kit.edu)
Dr. Sven Feurer (Lecture October 27)
Phone : 0721 608 4 1796

Email: sven.feurer@kit.edu
Adresse: Zirkel 2, Gebude 20.21, Raum 103
MSc. Isabella Kindersberger (Lecture and student support)
Office Hours: Tuesdays 3 p.m.-5 p.m.

Phone : 0721 608 4 1798
Email: isabella.kindersberger@kit.edu
Adresse: Zirkel 2, Gebude 20.21, Raum 102
2 20-Oct-14 Martin Klarmann, Fall 2014 Institute of Information Systems and Marketing (IISM)
Organization
Times: Monday, 9.45 a.m. 11.45 a.m.

First lecture: October 20, 2014
Last lecture: December 1, 2014
Room: HS 20.13/ 001
Slides: Available online on ILIAS
Exam:
Type: Written exam (no exceptions), 60 min. + 10 min. reading time
Probable date: December 15, 2014, 5.50 p.m. 7.00 p.m.
Room: tbd
Resit: 16 May 2015
Old exams: Previous exams will be provided on ILIAS in November
Contact:
Lecturer: Prof. Dr. Martin Klarmann
Email: martin.klarmann@kit.edu
Homepage: http://marketing.iism.kit.edu/
Office hours: Mondays, 4 p.m. 6 p.m. (appointment required, please
contact Juliane Bayer at juliane.bayer@kit.edu)
Agenda
I. Introduction
II. Understanding International Markets: Culture
III. Understanding International Markets: Buyer Behavior
IV. Market Entry Decisions
V. International Market Research
VI. International Marketing Mix Management
VII. Marketing in Emerging Markets
This course has two sets of goals
Course goals
Content-related goals Language-related goals
Understanding of the concept of Familiarity with key English

culture and its application to marketing marketing terminology
Familiarity with particular aspects Ability to formulate an international
of international buyer behavior marketing strategy using the appropriate
Ability to evaluate countries regarding vocabulary
their market potential and knowledge
of appropriate market strategies
Ability to apply market research
techniques to international contexts
Knowledge of particularities that need to
be considered in the international design
of the marketing mix
Knowledge of options in designing
the international marketing organization
Recognition of business opportunities
in emerging markets
Reasons for studying international marketing:
World trade is continuously growing (I)
Source: WTO World Trade Report 2013
World trade is continuously growing (II)
Source: WTO 2013
Foundations of International Trade:
Classical Trade Theories
Mercantilism
Foreign trade arises because countries want to increase their wealth at the expense of other
countries: The ordinary means to increase our wealth and treasure is by foreign trade,
wherein we must ever observe this rule: to sell more to strangers yearly than we consume of
theirs in value. (Thomas Mun, 16th century)
Theory of Absolute (Cost) Advantage (Smith)

Foreign trade arises because countries specialize in the production of goods where they
have an absolute cost advantage. These goods are exported to the countries which import
goods they can not produce without incurring a cost disadvantage.
Theory of Comparative (Cost) Advantage (Ricardo)

Foreign trade arises because countries specialize in the production of goods where they
have a comparative cost advantage and import goods they can not produce without incurring
a cost disadvantage.
Factor Proportions Trade Theory (Heckscher/Ohlin)
A country that is relatively abundant in a factor of production should export goods that use a
lot of that factor in the production process, and import other goods.
(Kutschker and Schmid 2006, pp. 375; adapted from Hagelstam 1991; Smith 1776; Ricardo 1970; Heckscher 1949; Ohlin 1952)
Example:
The Theory of Comparative Advantage (Ricardo 1817)
(Kotabe and Helsen 2010, p. 26)
Exports are a key factor in German business models (I)
Source: WTO World Trade Report 2013
Exports are a key factor in German business models (II)
Total: 68.8 Bil. Total: 6.00 Bil.

Germany: 12.9 Bil. (19%) Germany: 1.37 Bil. (23%)
Abroad: 55.9 Bil. (81%) Abroad: 4.63 Bil. (77%)
Total: 106 Bil. Total: 2.02 Bil.

Germany: 20 Bil. (19%) Germany: .59 Bil. (29%)
Abroad: 86 Bil. (81%) Abroad: 1.43 Bil. (71%)
Total: 73.5 Bil. Total: 4.24 Bil.

Germany: 28.7 Bil. (39%) Germany: .53 Bil. (13%)
Abroad: 44.8 Bil. (61%) Abroad: 3.71 Bil. (87%)
Source: Firm homepages, all numbers for 2011
Evolution of international marketing (I)
Domestic Marketing Export Marketing International Marketing
Type of
Marketing Domestic Country Modify Country 1
Export
Focus Choice Marketing
Strategy
Timing and Country 2

Sequencing Develop and
of Entry Acquire New
National Brands
Country 3
Share Advertising,
Promotional, and
Distribution Costs Country 4
Orientation Ethnocentric Ethnocentric Polycentric
Product
Product Product development Local product
Planning
development determined primarily development
for home by the needs of home based on
customers country customers local needs
Marketing
Mix Made at Made at Made in each Source: Kotabe and
Decisions headquarters headquarters country Helsen (2011, p. 15)
Evolution of international marketing (II)
Multinational Marketing Global Marketing
Type of Region 1 Coordinate

Marketing Modify
Marketing Mix
Marketing
Country 1 Across Countries
Strategy
and Regions
Country 5
Integrate
Develop and
Sourcing and
Acquire New
Production with
National Brands
Region 2 Marketing
Country 6 Allocate Resources

Share Advertising,
to Achieve
Promotional, and
Portfolio Balance
Distribution Costs Country 4 and Growth
Orientation Regiocentric Geocentric
Product
Standardize Global product
Planning
within regions, with local
but not across variations
Marketing Made jointly
Mix Made regionally Source: Kotabe and
with mutual
Decisions consultation Helsen (2011, p. 15)
The international marketing trajectory for Bosch
Siemens Hausgerte (BSH)
Domestic Marketing Export Marketing Multinational Marketing
1967 1990 2012

3 Factories in Germany 13 Factories in Germany, 42 Factories in Germany, China, France, Greece, Peru,
Greece, Spain Poland, Russia, Slowakei, Slovakia, Spain, Thailand,
Turkey, USA
Subsidiaries 7 Subsidiaries 41 Subsidiaries 70 in 50 countries

Employees 14,000 Employees 23,000 Employees 46,925
Revenues .5 billion Euros Revenues 3.3 billion Euros Revenues 9.8 billion Euros
The international marketing challenge
Walmart in Germany (I): Background
Short history: 1962: Sam and James Walton open first store in Rogers, Arkansas
1967: 24 stores with US$ 12.6 million revenues overall
1970: Walmart goes public and opens distribution center at
Bentonville, Arkansas
1975: Sam Walton introduces Walmart cheer
1980: 270 stores (USA)
1985: 882 stores (USA)
Today: 10,390 stores in 27 countries (3,925 stores in the USA)
2012 revenues estimated to be US$ 444 billion
Superlatives: - 2011 third largest firm (revenues) in the world (behind Shell and Exxon)
- 2011 largest retailer in the world
- 2011 largest employer in the world (more than 2.2 million employees)
Key elements of the business model:

- Everyday low pricing policy
- Superior logistics
- Strong in analyzing Big data
- Low wages and strict anti-union policies
Walmart in Germany (II): Timeline
Walmart announces intention to enter European

market
Plans to establish Germany (at the time the third-
1997 largest retailing market in the world) as base for
entering Eastern Europe
Walmart buys 21 Wertkauf hypermarkets
Walmart buys 74 Interspar hypermarkets
1998 (estimated US$ 1.6 billion payment for all
95 markets)
1999 Estimated US$ 200 million loss in Germany
2001 Fourth CEO appointed (Kay Hafner), the

second German after Volker Barth
Introduction of the Euro in Germany results

2002
in strong decreases in consumer spending
Only official profit figure from Walmart Germany:

2003
Loss of 487 million Euros
Six weeks after announcing to stay in the German

market for good, Walmart sells its remaining 85
2006 markets to the Metro Group (real) for an unknown
sum, leading to depreciations in the US balance
sheet of almost $US 850 million
Walmart in Germany (III): Cultural
misunderstandings
Expatriate top managers The Walmart Cheer

Four CEOs in first Highly publicized after
four years Walmarts entry on The no romantic
First two CEOs from the German market relationsships at the
USA and UK without Earns the firm a lot workplace rule
international experience of ridicule in Germany 2005: Walmart Germany
and German skills Generally: High introduces new ethics
Lack of cultural skepticism towards guidelines
sensibilities: requirement rituals based on One element: Employees
for managers to share totalitarian abuse in are not allowed to date
hotel rooms German past each other or have
Remaining high potentials Employees not willing romantic relationships
leave the firm to adopt this practice Highly publicized
Revoked by court
Walmart in Germany (IV): Unexpected consumer
behavior
High degree of price

consciousness
No one stop shopping Empirical show that
German shopping German customers
behavior different Germans bring own bag are highly price-
Many groceries German consumers concscious
(e.g., bread, meat, tend to bring own McKinsey 2002:
fruit, vegetables) are bags when shopping 45% of German
bought the day they High irritation at the consumers rank
are consumed use of plastic bags by price as most
Specialized non-food Walmart important criterion
retailers (particularly Packaging services (vs. 13% for quality)
drugstores such as dm in the stores not
highly successful) appreciated
Smaller shopping baskets
at Walmart
Walmart in Germany (V): Legal troubles
Restricted opening hours Labor regulations New rules of competing

At the time of Walmarts German legislation US managers
entry opening hours makes traditional simply ignored German
still highly regulated anti-union policies competitive legislation
Maximum 80hrs possible impossible to uphold High fines because milk
Strongly reduced Reluctance to sign and other products were
shelf productivity a global wage arrange- sold for less than costs
compared to US ment leads to strikes Hesitation to publish
Less time for buyers to Walmart learns that balance sheet and Win/
drive out to hypermarkets they are required to Loss statements costly
No superior service allow employee councils for firm and managers
against promise
Walmart in Germany (VI): Flawed entry strategy

Internal culture clash No growth opportunity
Bad locations Interspar and Wertkauf US growth strategy
Acquired hypermarkets markets have a of simply opening
from Interspar and completely different new stores not
Wertkauf not profitable background applicable to Germany
Key reason: Locations Wertkauf: Highy Rigorous legislation on
Typically located in centralized zones where retailers
socially difficult areas Interspar: Decentralized can open new stores
of major metropolitan decision making in Generally German
areas regions regulatory bodies very
Not well-aligned with Strong cultural differences reluctant to allow new
Walmarts focus on and major rivalries zones for hypermarkets
conservative rural between managers from Only growth opportunity
America both firms M&A, but no seller willing
to sell to Walmart
Walmart in Germany (VII): The tough competive
environment
High degree of
concentration Generally low margins
Home of hard discounters German retailing market Margins in German
With Aldi, Lidl, and Penny highly concentrated retailing are often
hard discounters already In 2002 top five firms considered to be
have a strong foothold made almost two-thirds of among the lowest
on the German market all revenues worldwide
Hard discounting: KPMG (2010) expects that In many markets 1% or
Few items in a very the concentration will less
simple store environment increase even further Only highly efficient
Walmart cannot become to 75% retailers can become
price leader Much better bargaining profitable
Consumers consider power with suppliers
additional services waste for these firms
of money
The international marketing challenge
Tesco in the USA (I): Background
Short history: 1919: Founded by John Cohen as a group of market stalls
1924: Name Tesco first appears (T.E. Stockwell [Tea] + COhen]
1929: First store in Burnt Oak, Middlesex, England
1939: More than 100 stores, focus on groceries
Business motto: Pile it high and sell it cheap
1990s: About 500 stores, increasingly wider product portfolio,
including books, CDs, clothing (3rd largest retailer in the UK)
1997: Sir Terry Leahy appointed as CEO: Aggressive expansion
nationally and internationally
2006: First UK retailer with profitable grocery online business
2011: Philip Clarke appointed as CEO
Today: 6,800 stores in 14 countries (3,146 stores in the UK)
2012 revenues 72.4 billion pounds, 2 billion profits
Superlatives: - 2012 third (second) largest retailer based on revenues (profits) world-wide
Key elements of the business model:
- Wide range of store brands (ranging from discount to luxury)
- Wide range of store formats
- Online presence
- Loyalty program (Clubcard)
- Process optimization
Tesco in the USA:
fresh & easy The Vision
USA very competitive retail market
Very successful players at the value level (WalMart)
and the premium level (Whole Foods)
No need for another supermarket chain
By some estimates eight times more retails space
per head of the population than the UK
Only a retail innovation can be successful Sir Terry Leahy (*1956)
Tesco invents a new format
Niche strategy: In a market as vast as the USA, a big niche
allows you to build a very big business (Leahy 2012, p. 91)
Focus on high quality fresh food
o European know how advantage
o Just-in-time delivery directly onto the shelves
o 30% of the products produced directly in the distribution
center (e.g., juice, salads, ready-made meals, meat, produce)
Low cost concept
o Self-service checkouts
o Small stores, only 4,000 products
o Mostly store brands
o Economies of scale start with 400 stores
Source: Leahy (2012, p. 90-95)
Tesco in the USA:
fresh & easy What happened (I)
Tesco announces plans to open fresh & easy chain in the US Southwest
2006 Expected to break even in 2009, 250mn Pound investment
Spring: Opens headquarters in El Segundo (California)

2007 Autumn: First stores open
Expansion continues
2008 Financial crisis creates very challenging environment
2009 Expansion continues: Opening 1 store in every two weeks
2010 Mothballing of 13 stores, more stores opened
Strategic relaunch after accumulated losses > 500m Pounds

2011 Store remodeling to include bakeries
May: New store openings put on hold

Expected losses > 100m Pounds
2012 December: Internal review regarding closure or sale of fresh & easy
Tesco CEO Philip Clarke: The business has failed, lets face it.
September: Yucaipa (US investment group) takes over 150 stores

2013 September: Closure of the remaining 50 stores, layoff of 1,000 employees
Writedown of about 1bn Pounds plus overall loss of more than 1bn Pounds
Tesco in the USA:
fresh & easy What happened (II)
Key problems (Financial Times, 5-Dec-12/7-Dec-12/4-Apr-13)
Problems in securing an adequate supplier base
Requires multi-stop shopping (no bread, no coffee)
Not enough frozen food (against US shopping habits)
Lack of familiar US brands (customers unprepared for store brands)
Produce wrapped in plastic, against fruit-shopping habits of US customers
Self-service checkouts not appreciated
Summary: The major challenges in international
marketing compared to national marketing
Even more More information is necessary because of unknown market

need for environments
information Access to information more difficult
Less information and less transparency lead to higher risks

Higher risk
Many countries less stable than Western home markets
Coordination Need to align national activities

requirements (e.g., consistent brand image)
More contingency factors need to be taken into account

Higher task
Additional qualifications are necessary
complexity
(e.g., understanding of foreign cultures)
Agenda
I. Introduction
Fundamentals (I)
Concept of culture difficult to define

Multitude of definitions in the literature
Straub et al. (2002) distinguish three types of definitions
Definitions based on shared values:
Patterned ways of thinking, feeling and reacting, acquired and transmitted
mainly by symbols, constituting the distinctive achievements of human
groups, including their embodiments in artifacts; the essential core of culture
consists of traditional (i.e., historically derived and selected) ideas and
especially their attached values (Kluckhohn 1951, p. 86, emphasis added)
Shared way a group of people view the world (Erez and Earley 1997, p. 23)
Definitions based on problem-solving:

Traditional problem solving through accepted responses that have met
with success. It consists of learned problem-solutions (Ford 1942, p. 546)
A group problem-solving tool that enables individuals to survive in a

particular environment (Moran and Stripp 1991, p. 43)
All-encompassing definitions
The man-made part of the human environment. (Herskovits 1955, p. 305)
Fundamentals (II)
Working definition for this class:

Culture is the pattern of basic assumptions that a given group has invented, discovered, or
developed in learning to cope with its problems of external adaptation and internal integration, and
that have worked well enough to be considered valid, and, therefore, to be taught to new members
as the correct way to perceive, think, and feel in relation to those problems
(Schein 1984, p. 3, emphasis in the original)
Characteristics of culture:
a multi-level
phenomenon
sometimes described in
Culture is
perceived inaccurately dimensions
a group-level
learnt
phenomenon
The levels of culture
Artifacts
e.g., Technology, Art, visible and audible Visible but often

behavior patterns not decipherable
Values and norms

Greater level
Values: beliefs as to how the world should be of awareness
Norms: behavioral rules how to get there
Basic Assumptions
e.g. regarding
- nature of reality, time and space - Taken for granted
- nature of human activity - Invisible
- nature of human relationships - Preconscious
- nature of human nature
- relationship to the environment
Adapted from Schein (1984, p. 4)
Some exemplary artifacts of culture
Firm cultures as artifacts of national culture
Confidence in the American Dream

USA Bias for action
Factual planning and process

Germany Hierarchical bureaucracy
German Ordnung
Face protection, honour

Japan Company is sacred
Ultra-courtesy
France France- centred self esteem

Sense of intellectual superiority
Ideal welfare system

Sweden Focus on human rights
Source: Hammerich, Lewis 2013

Four important approaches to determine the
dimensions of culture
Hofstede
Power Uncertainty Long-

Individualism Masculinity
distance avoidance terminism
Trompenaars (1996)
Internal
Achievement Individualism Universalism Affective Specifity
Orientation versus
versus versus versus versus neutral versus
towards time external
ascription collectivism particularism relationships diffuseness
control
Hall Low-context
versus high-
context
cultures
GLOBE Project (House et al. 2004)
Power Institutional Gender Uncertainty Future Humane
distance Collectivism Egalitarianism avoidance orientation Orientation
Performance In-Group
Assertiveness
Orientation Collectivism
The Hofstede (2001) dimensions of culture:
Empirical background
Original publication Cultures consequences (book) in 1980

Revised version (same data) in 2001
Almost 15,000 citations since 1980 according to Google Scholar
Database from employee survey at IBM
Collected between 1967 and 1973
Geert Hofstede (*1928)
Within IBM subsidiaries in 66 countries
In retrospect Hofstede selected some questions as
indicators of cultural values
In-depth data-analysis revealed four dimensions,
later a fifth dimension was added based on additional data
Popular criticisms:
Age of data
Only collected from IBM employees
High status and high income individuals particularly in third world countries
No controls for IBM corporate culture
Ad hoc nature of the analysis
GLOBE project response to these criticisms
The first dimension from Hofstede (2001) is the
degree of power distance
Definition Characteristics
Characteristics Tips
Centralized companies Acknowledge a leader's
power.
Power distance refers to the degree of inequality Strong hierarchies
that exists and is accepted among people with Be aware that you may
High
and without power. Large gaps in need to go to the top for
PD compensation, authority answers.
Power distance plays an important role in all types and respect
of groups (e.g., in families and organizations).
A high score indicates that the culture accepts

Flatter organizations Use teamwork.
an unequal distribution of power, and people
understand their part in the system.
Supervisors and Involve as many people
employees are as possible in decision-
Asian countries are typically characterized by strong Low considered almost as making.
power distance, while Western countries show lower PD equals
levels of power distance.
Source: Hofstede (2001)
Distribution of power distance across the planet
Power Distance Index:

Austria 11
Germany 35
USA 40
France 68
China 80
Russia 93
http://geert-hofstede.com/index.php
The second dimension from Hofstede (2001) is the
degree of individualism
High valuation on Acknowledge

peoples time and their accomplishments.
Individualism refers to the strength of the ties need for freedom Dont ask for too much
people have to others within the community. High An enjoyment of personal information.
IND challenges and an Encourage debate and
A high score indicates a loose connection with expectation of rewards expression of ideas.
other people. for hard work
Respect for privacy
Individualism and collectivism are concepts that
are relevant whenever groups of individuals Emphasis on building Show respect for age and
interact (e.g., in family and work situations). skills and becoming the wisdom.
master of something Suppress feelings and
Asian countries are highly collectivist, while Work for intrinsic rewards emotions in order to work
Low
Western countries (especially the USA) are highly Harmony more important in harmony.
individualistic. IND
than honesty Respect traditions and
introduce change slowly.
Recent results on individualism
Source: http://www.pewglobal.org/2014/10/09/emerging-and-developing-economies-much-more-optimistic-than-rich-
countries-about-the-future/pg_14-09-04_usindividualism_640-px/
The too much talent effect in collective team
sports compared to individualistic team sports
Individualism Index:
General belief that top-talented individuals are the key to performance USA 91
France 71
Reality: U-shaped team performance in collective team sports like football or
Germany 67
baseketball, opposite effect in individualistic sport teams like baseball Austria 55
Effect due to status related conflicts of top players that affect team coordination China 20
Source: Swaab et al. 2014
The third dimension from Hofstede (2001) is the
degree of masculinity
Men are masculine and Be aware that people may

woman are feminine. expect male and female
Masculinity refers to how much society sticks with There is a well defined roles to be distinct.
and values traditional male and female roles, High distinction between Advise men to avoid
MSC mens work and womens discussing emotions or
High MAS scores are found in countries where work. making emotionally based
men are expected to be tough, to be the provider, decisions or arguments.
to be assertive, and to be strong,
Japan is an example of a masculine country, while A woman can do Avoid an old boys club
Thailand is characterized by strong femininity. anything a man can do. mentality.
Powerful and successful Ensure job design and
In Europe, Germany and Great Britain are more women are admired and practices are not
Low
masculine whereas France and Sweden respected. discriminatory to either
are not MSC
gender.
Treat men and woman
equally.
Female employment rates differ according to
masculine and feminine role model distribution
Masculine cultures feature traditional role model distribution of duties
Typically the female employment rate differs due to the fact that women tend to stay at
home and take care of the familiy instead of being employed
Femine cultures show a more differentiated role model distribution with overlaps
Female Employment Rate
Masculinity Index: 70%
Austria 79 60%
China 66
50%
Germany 66
USA 62 40%
Italy 70
Netherlands 14 Italy
30%
Netherlands
Year
Source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdec420
http://geert-hofstede.com/
The fourth dimension from Hofstede (2001) is the
degree of uncertainty avoidance
Very formal business Be clear and concise

conduct with lots of rules about your expectations
and policies and parameters.
Uncertainty avoidance refers to the degree of
High Structure is needed and Plan and prepare
tolerance for uncertainty and ambiguity with the
expected Communicate often and
society; i.e., unstructured situations. UNC
Sense of nervousness early
spurs high levels of Be calm and consider
The uncertainty avoidance index indicates whether
emotions and expression carefully what you say
the country has a low tolerance for uncertainty and
Differences are avoided
ambiguity, resulting in a rule-oriented society that
institutes laws, rules, regulations and controls to Informal business Do not impose rules or
reduce uncertainty. attitude structure unnecessarily.
More concern with long- Express curiosity when
Japan and France are examples of countries with term strategy than what you discover differences.
Low
high uncertainty avoidance, while China is is happening on a daily
characterized by low uncertainty avoidance. UNC basis
Accepting of change and
risk
Up to 53% variance in mineral water consumption across
Europe due to different uncertainty avoidance
Since 1970s comparable tap water quality across Europe

Significant differences in mineral water consumption correlated to uncertainty avoidance
index
Uncertainity Avoidance
Index:
USA 46
France 86
Austria 70
Germany 65
China 40
UK 35
Source: De Mooij 2010
The fifth dimension from Hofstede (2001) is the
degree of long-term orientation
Family is the basis of Show respect for tradition
society Do not display
This cultural dimension was not identified in the
Parents and men have extravagance or act
original study from Hofstede but in a later validation
High more authority than frivolously
study in Asia.
young people and Reward perseverance,
LTO women loyalty, and commitment
Long-term orientation refers to the degree the
Strong work ethic Avoid doing anything that
society embraces or does not embrace long-term
High value placed on would cause another to
devotion to traditional, forward-thinking values.
education and training lose face
A high LTO ranking indicates the country Promotion of equality Expect to live by the same
subscribes to the values of long-term commitments High creativity and standards and rules you
and respect for tradition. individualism create
Treat others as you Be respectful of others.
Low
China is an example of a country with strong long- would like to be treated Do not hesitate to
term orientation, and the US is a country with low LTO Self-actualization is introduce necessary
long-term orientation. sought changes
Long-term orientation results in total higher saving
rates
The higher saving rate is based on the future driven perspective
Rather short term oriented cultures indulge spending in the present instead of saving
Long-term orientation:
China 118
Hong Kong 96
Germany 31
USA 29
Source:http://www.oecd-ilibrary.org/
Hall distinguishes communication cultures by the
importance of implicit meanings
Low-context cultures High-context cultures

Most emphasis on the written or spoken word Interpretation of messages heavily rests
on contextual cues:
Context, within which messages are Nature of relationship between
communicated, is largely discounted sender and receiver (gender, age,
balance of power)
What is meant is what is said!
Time and site of communication
Typical examples:
What is left unsaid is often as (if not
Scandinavia more) important as what is said!
United States
Germany Typical examples:
Confucian cultures
(China, Korea, Japan)
Latin America
Source: Hall 1989
Low context versus high context cultures
High context Japanese

IMPLICIT Arabian
Latin American
Spanish
Italian
English (UK)
French
English (US)
Scandinavian
German
Low context
Swiss EXPLICIT
Source: Kotabe and Helsen (2011)
Globe Study
Goal: Analysis of the effectiveness of management styles in different cultural contexts

Derived cultural clusters
Germanic Europe Confucian Asia

Performance Performance
Orientation Orientation
Uncertainty Avoidance Assertiveness Uncertainty Avoidance Assertiveness
In-Group Collectivism Future Orientation In-Group Collectivism Future Orientation
Power Distance Humane Orientation Power Distance Humane Orientation
Gender Egalitarianism Institutional Collectivism Gender Egalitarianism Institutional Collectivism
Practices Values Practices Values
(House 2004; Javidan, House, and Dorfman 2004, p. 33)
Overview country cluster of Globe Study
Cluster Nations High characteristic Low characteristic
Anglo Saxon Australia England, Ireland, Canada, New Performance oriented Group-based collectivism
Zealand, South Africa, USA
Germanic Germany, Austria, Switzerland, Performance oriented, certainty, future Human-oriented, group-based
Netherlands oriented, uncertainty avoidance collectivism, institutional collectivism
Confuzian China, Japan, Singapur, South Korea, Performance oriented, institutional
Taiwan collectivism, group-based collectivism
Latin America Argentina, Brasil, Bolivien, Costa Rica, Group-based collectivism Performance oriented, future
Ecuador, El Salvador, Guatemala, oriented, uncertainty avoidance,
Columbia, Mexico, Venezuela institutonal collectivism
Latin Europe France, Israel, Italy, Portugal, Spain Human-oriented, institutional
collectivism
Middle East Egypt, Qatar, Kuweit, Morocco, Turkey Group-based collectivism Future oriented, uncertainty
avoidance, gender equality
Northern Europe Denmark, Finland, Norway, Sweden Future oriented, uncertainty avoidance, Certainity, group-based collectismus,
institutional collectivism, gender equality uncertainty avoidance
Eastern Europe Albany, Georgia, Greece, Poland, Certainity, group-based collectivism, Performance oriented, future
Russia, Slowenia, Czech Republic, gender equality oriented, uncertainty avoidance
Hungary
Sub-Saharan Namibia, Nigeria, Sambia, Zimbabwe Human-oriented
South Asian India, Indonesia, Iran, Malaysia, Human-oriented, group-based

Philippines, Thailand collectivism
Source: Engelen/ Tholen 2014
Culture is a group-level phenomenon (I)
National culture descriptions always

relate to the group level.
Culture A Culture B
Individual members of the culture are
not described.
The means of natural cultural

characteristics vary according to
national culture.
Consequently, there can be

substantial
overlap between national cultures, A B
despite mean differences
Source: Trompenaars/Hampden-Turner (2008)
Culture is a group-level phenomenon (II)
Overlays of National culture Stereotyping
How Americans see How the French see

the French: Americans:
Arrogant Naive
Flamboyant Aggressive
Hierarchical Unprincipled
Emotional Workaholic
French culture American culture French culture American culture
Norms and values Norms and values
Source: Trompenaars/Hampden-Turner (2008)
Cultural learning in a foreign country: The concept
of acculturation
Acculturation refers to
how individuals react to
high Separation Integration
foreign cultures.
Cultural
Migration is the most maintenance/
intense form of identity
acculturation. low Marginalization Assimilation
Milder forms of
acculturation exist, such
low high
as through exposure to
global mass media. Willingness to adopt another culture
Source: Berry (1990)
Perceiving culture: The psychic distance paradox
Difficulties in
cross-national
projects
True cultural distance
Source: OGrady/Lane (1996)
Examples of small cultural differences between
Applying toilet paper
Germany and the USA
Celebrating birthdays
Expressing criticism
Party!
Feier! Having lunch on workdays Attitude towards squirrels
Party Time
Good Morning
Agenda
I. Introduction
Concepts of individual buying behavior in an
international context
What do individuals prefer to buy? How do they prefer to buy?
Levitts convergence hypothesis: Empirical investigations on what

Customer preferences are assimilating European consumers expect from their
internationally shopping environment shows fairly
Country-of-Origin: homogenous preferences.
Stereotypes about countries influence
the purchase decision
Social Identity Theory:
Sense of group membership and
discrimination
Ethnocentrism:
Patriotism influences the purchase
decision
Levitt (1983) posited that consumer needs are
converging internationally
Socio-demographic development Standardization of

In many industrial nations, there is a trend
towards small families and older people products
&services
Education
Early confrontation with foreign cultures
Convergence of Centralization of
Transport technology customer needs decisions
High distances can be overcome accompanied
by decreasing costs
Low costs and

Communication technology
therefore, low
Better information sources for customers
prices
Examples supporting the convergence hypothesis
International proliferation of the television

format Who wants to be a millionaire?
International
proliferation
of McDonalds
Country-of-Origin effects
Country associated with the product
Country of headquarters
Country of manufacture or assembly

What is the country-of-origin?
Country of product design
Country associated with the brand name (e.g., French fries, French
mustard)
When consumers are unfamiliar with a product (e.g., product

quality), country image has a halo effect on their evaluation
of the product (Han 1989)
A positive country image may allow marketers to introduce

new products that quickly gain consumer recognition and
What is the country-of-origin effect? acceptance. (Agarwal/Sikri 1996)
Products made in developing countries are only marketable

when they are priced far less than products offered by
regional or global competitors (Hulland/Todino/Lecraw 1996)
Country-of-Origin effects II
Country-of-origin effects are not stable over time
Country images can change when consumers become more

familiar with the country Example: Japanese-made cars image
took a 180 turn during the last couple of decades.
(Wood/Darling/Siders 1999, Nagashima 1970)
When consumers are more knowledgeable about countrys
products, country image may be less important in forming their
beliefs about product and brand
Country-of-origin influences are particularly strong among the
elderly (Shimp/Sharma 1987), less educated, and politically
What does the effect depend on?
conservative (Anderson/Cunningham 1972)
Country-of-origin effects depend on product
COO effects are more relevant for products like cars or

consumer electronics (+), while COO effects would be less
relevant for cosmetics or designer clothes (Roth/Romeo 1992)
Using the country-of-origin effect: The case of
moods of norway
Source: http://store.moodsofnorway.com/
Country images (quality)
Based on a global survey in 2008 (n=8,007)
(Reinecke, Feige, and Fischer 2009, p. 51)
127 years Made in Germany
To beginn of industrial revolution German products were of inferior quality but offered at a
lower price
Rivalry of British quality productus and cheaper German plagiarised products
Need for more transparency
Britain introduced Merchandise Marks Act in 1887, requirement to label country of origin
German quality campaign in order to keep up with international standards
Late 19th century contrary effect of Made in Germany as a quality indicator
(http://www.br.de/themen/wissen/made-in-germany-100.html)
Country-of-Origin effects revisited: Country images
Quality image of products made in various countries

(Percent (%) of respondents rate xxx products as being high quality)
Hong Kong Taipei Seoul Bangkok Shanghai Moscow Frankfurt
1 Japan
(86.4%) (94.3%) (29.6%) (54.3%) (49.6%) (70.4%) (64.2%)
2
(74.1%) (78.3%) (28.9%) (45.8%) (39.2%) (42.6%) (38.6%)
3
(60.5%) (61.0%) (19.3%) (34.4%) (33.6%) (24.8%) (24.2%)
4
(38.0%) (28.3%) (11.8%) (20.3%) (26.9%) (15.4%) (9.4%)
5
(6.0%) (2.1%) (2.5%) (11.6%) (16.0%) (1.0%) (7.9%)
Source: Hakuhodo Global HABIT 2008 survey, found by Kotabe and Helsen (2011, p. 382)
The relevance of country-of-origin effect: Brand
origin recognition accuracy in the USA
Question: Do customers actually know, where a product comes from?
Survey in the USA with 480 participants
Participants were asked to state the country-of-origin for 84 brands from 7 countries
Hong Kong was included as option, although no brand was from there
Additional options: Country not listed and dont know
Results:
Source: Samiee et al. 2005
Social Identity Theory Examples of different
social groups and corresponding identities (I)
Social Identity Theory (II)
Social identity theory is an analysis of an

individual's perceived concept derived from group
What is the key learning of membership:
the social identity theory? social reference group
group process
intergroup relation
1. People want to create a positive self-assessment

What are the axioms of the 2. People derive their self assessment, the social identity,
social identity theory? ..from group membership and group assessment
3. Group assessment is a comparison of the group with other
..relevant groups
Potential group members are able to identify with ingroup

categories
What are the conditions of
the social identity theory? Importance of category and connected social identity are
dependent on situation
Source: Turner 1979
Social identity & consumer ethnocentricsm
Consumer ethnocentricsm
What does the strength of ethnocentrism

What is ethnocentrism?
depend on?
The belief that ones own culture is superior Ethnocentrism has been seen to increase
to another culture. when there is a perceived threat to the own
nation
As an example, purchasing managers often
prefer to deal with sales managers who
speak the same language and come from the
same country.
As another example, consumers often prefer
domestic products over imports.
Ethnocentrism may result in an
overestimation of the attributes and overall
quality of domestic products and an
underestimation of the quality of foreign
products
Source:Sharma et al. 1995
Ethnocentricsm in the USA
Ethnocentricsm in Germany
Percentage of Germans who highly trust or rather trust the following brands
VW 77
Audi 73
Nivea 73
Adidas 70
Mercedes-Benz 69
BMW 69
Samsung 64
Sony 62
Esprit 53
Coca-Cola 53
Hugo Boss 49
Nike 49
Apple 44
Deutsche Bank 35
(GPRA-Vertrauensindex, TNS Emnid Horizont 49/2012)
Agenda
I. Introduction
Market entry decisions
Decisions concerning the internationalization process

Four key decision areas:
Internationalization
Strategy
Country Market
Exit Mode Decision areas
Selection
Entry Mode
Two basic internationalization strategies
Waterfall strategy Sprinkler strategy
Principle of concentration Principle of diversification

Extensive market research Activity in as many markets as possible in a
Customization of marketing activities relatively short time
Very often: Selection of the geographically High standardization of marketing activities
closest market from the home country Failure and withdrawal from some markets
accepted
Market entry
Market entry Markteintritt
Market entry
Country A Country A Land A Country A

Country B Country B
Land B Country B
Country C Land C
Land C Country C
Country D Land D
Land D Country D
0 01 12 23 3years Jahre
0 0 1 12 2 3 3 Jahre years
Wasserfallstrategie
Wasserfallstrategie Sprinklerstrategie
Sprinklerstrategie
Waterfall strategy leads to extension of product
life cycles
Product life cycle in each country Comparison of sales volumes
Sales
Country1
Simultaneous
Sales market entries
Years
1 Waterfall
Sales entry
Country2
Years Years
Sales
Country3
The waterfall strategy artificially extends the
overall life cycle of a product.
Years
Source: Kotabe/Helsen (2011)
Advantages and disadvantages of the two
strategies
Strategy of
Waterfall
Criteria simultaneous
strategy
market entry
Low resources + -
Company- + -
related Low risk propensity
criteria Little experience in foreign countries + -
Competitive advantage is only temporary - +
Market-related
High market entry costs + -
Low homogeneity of consumers preferences + -
External Competition
criteria High competitive intensity in countries -/+ -/+
Strong overall degree of globalization in the industry
Short product life cycle stage
- +
- +
+ Strategy is more appropriate
- Strategy is less appropriate

Waterfall strategy: The case of the group
Egypt
Kazakhstan
Pakistan
30 Number of country markets Sweden
No. of Outlets Serbia
(* selling of the format Moldavia
** leaving after first tests) (06/2010) in
Vietnam Ukraine
Germany: 121 Japan India
Foreign countries: 543 Russia
Slovakia
Croatia
Czech. Rep. Bulgaria
20 Romania
Poland China
Hungary
Switzerland
Morocco
Greece
Turkey
Portugal
10 Luxembourg *
USA **
Denmark
126 / Belgium
France Spain
Austria 15
Italy
Great Britain 345 / Poland, Turkey, Romania, Russia
86
Nether- 353 / Austria, Belgium, France, Greece, Hungary, Italy, Lux.,

lands 355 Netherlands, Poland, Portugal, Russia, Spain, Sweden,
Germany Belgium Switzerland, Turkey
1964 1967 1970 1973 1976 1979 1988 1991 1994 1997 2000 2003 2006 2009
Zentes et al. (2011)
Waterfall strategy: store openings in Europe
No. of Outlets (10/2014) in

Germany: 1.480
Foreign countries: 1.413
http://www.dm.de/de_homepage/unternehmen/zahlen-fakten/unternehmenszahlen/
Sprinkler strategy: and
Source: wikipedia.org
Born Globals as new type of international company
Drivers of born globals
Managers with a strong background in

international activity will foster
1 Management international expansion.
Products with short life cycles (particularly

those of high-tech firm) need to be
2 Products brought to foreign markets in a timely
Born Globals refer to firms
that adopt an international or fashion.
even global approach right
Born globals often operate in niche
from birth or very shortly
markets
thereafter.
3 Markets Demand in the home market is too low to
permit expansion
Recent technology developments enable

born globals to expand to international
4 Technology markets with reasonable investments.
Source: Hollensen 2011
Example Born Globals-
German Start Up of the Year 2013

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Country market selection: Possible process for
selecting attractive country markets
Exclusion
Ranking
All
countries
20
acceptable
Selection
countries
6
countries
in the short list
2 target countries
Important criteria for strategic country market
selection
General attractiveness
Ease of entry
of a country market
Political, legal, and technological criteria Political, legal, and technological barriers
Availability of skilled labor (+) Import duties (-)
Wage level (-) Different technical norms (-)
Political stability (e.g., BERI-Index) (+) Logistical costs (-)
Quality of infrastructure (+) Local content laws (-)
Extent of price regulations (-)
Possibility to use market as a Demand-related criteria
platform market, e.g. Singapore, Hong Cultural barriers (-)
Kong (+) Language barriers (-)
Switching costs of customers (-)
Demand-related criteria Customer loyalty to competitors (-)
Number of customers (+)
Market volume (+) Competition-related criteria
Market growth (+) Scale advantages / cost advantages of
Growth of population (+) incumbents (-)
Purchasing power per capita (+) Technological advantage of incumbents
(-)
Competition-related criteria
Intensity of competition (-)
Assessing country risk: The BERI index
Provided by Business Environment Risk Intelligence S.A.

1 and 5 year forecasts for 50 countries and 5 regions
Evaluation through management executives, political scientists, and sociologists
Two-stage scoring model in which the total score is an aggregation of the three following sub
indices:
R factor: Remittance and
ORI: Operation risk index PRI: Political risk index
repatriation factor
E.g., E.g., Legal framework (dividend, profit, and

Attitude: Foreign investors and profits Fractionalization of the political spectrum
salary remittances, repatriation of
and the corruption, nepotism, willingness capital)
Degree of privatization
to compromise Foreign exchange
Bureaucratic delays
Fractionalization by language, ethnic International debts
Economic growth and(or density and wealth distribution
Labor cost productivity
In addition to the indices for each country, two-page summaries for each of 50 countries,
including the outlook and tables with historical and forecasts for ratings and economic and
financial information, are provided (see following pages for summarized examples of country
reports)
Comparable indices provided by other agencies, e.g., Business Monitor International or
Economist Intelligence Unit
Source: Business Risk Intelligence S.A. 2001
Assessing country risk: An example of the BERI-
index for selected countries
Country Political risk Operations risk Remittance & Average +5 years forecast
index (PRI) index (ORI) repatriation factor score average score
(R factor) 2001
Major Germany 64 71 78 71 72
advanced United States 68 74 68 70 73
economies
France 60 64 72 65 66
United Kingdom 63 66 57 62 65
Other Spain 62 64 61 62 64
advanced Italy 41 53 60 51 53
economies
Israel 36 53 45 45 47
Countries in Estonia 44 46 38 43 44
transition Russia 41 37 46 41 44
Ukraine 37 36 38 37 40
Developing China 56 49 66 57 57
countries Egypt 44 45 45 45 46
India 39 48 47 45 46
Syria 46 42 44 44 44
Brazil 42 40 37 40 42
Indonesia 36 36 44 39 42
Interpretation of the ratings:

70-100: Stable environment typical of an advanced industrialized economy. Problems for foreign businesses are offset by the countrys efficiency, market opportunities,
financial system, and advanced infrastructure.
55-69: Moderate-risk countries with complications in day-to-day operations. Usually the political structure is sufficiently stable to permit consistent operations without
serious disruption. Dynamic economic expansion often has the potential for attractive profits.
40-54: High risk for foreign-owned businesses. Only special situations should be considered, e.g., scarce raw materials for unusual profit potential. Selection of
management is critical to success in this risk range.
0-39: Unacceptable business conditions for foreign-owned businesses.
Source: Business Risk Intelligence S.A. 2001
Assessing market size: Method of analogy
Starting point: Selection of comparison standard (base country)

Country that is at the same stage of economic development as the country of interest
Market size is known in base country
Premise: Relationship between the demand for a product and a particular indicator (e.g., the
demand for a related product) is similar in both countries
Example:
Electronics company wants to estimate the market size for DVD players in the Ukraine
Base country: Poland
Proxy that correlates highly with DVD players demand: Number of color TVs in use
() ()
Assumption: =
() ()
2001 data: Color TVs in Use* DVD Player Sales*
Poland 14,722.64 69.17
Ukraine 15,626.15 ???
* in thousands
Market size: 73,400

Challenges: Finding a comparable country and a good proxy variable
Source: Kotabe and Helsen (2011, p. 209)
Assessing market size: Longitudinal method of
analogy
Analogy may also exist between time periods
E.g., economic state of country A is similar to economic state of country B ten years back
Formula changes to:
2012 2002
=
2012 2002
Both analogy methods produce misleading estimates whenever:
Consumption patterns are not comparable due to strong cultural disparities
Other factors (competition, trade barriers) cause actual sales to differ from potential
sales
Technological advances allow use of product innovations in a country at an earlier
stage of economic development (leapfrogging)
Use of the analogy method at
Fortune reported in 1994 that McDonalds uses a variant of the analogy method to
derive market size estimates

. = =
(21,629) ($41,800)
Market potential estimates (based on 2006 data):
Country 2004: Number of Restaurants 1996: Number of Restaurants Market Potential
Japan 3,774 2,004 4,284
Canada 1,362 992 1,190
Germany 1,262 743 2,707
UK 1,249 737 2,064
France 1,034 540 2,004
Australia 729 608 711
China 639 117 8,958
Brazil 549 214 1,750
Sweden 244 129 295
Poland 207 65 542
Argentina 186 88 594
Malaysia 164 129 (1999) 275
Source: Kotabe and Helsen (2011, p. 210-11)
Assessing market size: The chain ratio method
Typical process:
Starting point: Very rough base number (e.g., population size)
Systematic fine-tuning by applying a string (chain) of percentages to come
up with the most meaningful estimate for total market potential
Illustration: Potential market size in Japan for Nicorette gum (2002 figures)
Base number: Total population 127 million
Smoking rate: 31%
Nicorette targets adult smokers: 15 to 64-year old age group is about 67.5% of
Japans total puplation
Survey data: 64% of adult smokers in Japan would like to quit or cut smoking
Survey data: 25% of smokers that intend to quit would like to start immediately
Japan
Total population 127 MM people
Adult population (15-64) 85.6 MM =.675 127 MM
Adult smokers 26.5 MM =.31 85.6 MM
Smokers with intention to quit 17.0 MM =.64 26.5 MM
Smokers with intention to quit and
4.3 MM = .25 17.0 MM
wishing to start immediately
Entry modes: Different ways to market products in
a foreign market (I/II)
Exports Franchising Licensing
Two Types Transferring right to use Licensor offers intellectual

Direct: Without intermediary the franchisors business model property (e.g., brand name) to
Indirect: With intermediary to the franchisee the licensee in exchange for
Direct exports Royalties (and/or lump sum) royalty fees
Access to customers
Franchisor often operates as Advantages
Control over marketing mix
supplier to the franchise outlets Light on resources (attractive
(especially the price)
Advantages for smaller companies)
Requires some investments
Reduced risk Possibility to enter closed markets
Indirect exports Fast implementation
Very small risks Fast growth
Control over marketing mix Facilitates differentiation
No need of know-how concerning
Disadvantages Disadvantages
regulations in other countries
Dependence on franchisees Reduced commitment of licensee
Limited access to customers
Spillover effects in case of Possibly nurturing of future
Limited control over marketing mix
crises competitors
Entry modes: Different ways to market products in
a foreign market (II/II)
Sales representation Joint venture Subsidiary
Selling products directly to Co-managed firm Two Types

the customer without Both partners contribute capital, Greenfield
intermediary know-how and possible existing Acquisition
Representation staffed with companies Limited to sales & services or
own employees Advantages including manufacturing
Advantages Possibility to enter closed Advantages
Little risk, reduced investment markets Control
Acquisition of market knowledge Know-how synergies (e.g., product Acquisition of market knowledge
Supports standardization expertise + market expertise) Possibly country-of-origin effects
strategies Risk sharing Supports differentiation strategies
Disadvantages Disadvantages Disadvantages
Distance to mother-firm Often source of conflict Full country risk
Little product know-how Danger of hijacking through High investments required
one of the partners Possibly negative country-of-origin
effects
What entry mode is appropriate? (I)
Key issue: Control versus autonomy

Control is always associated with large investments in terms of time and other resources
Two theoretical approaches to make decisions in this environment
Transaction Cost Economics Resource-Based View
Key idea: Desirable governance structures Resources itself do not create competitive
depends on the comparative transaction costs advantage, organization is required for this
Market entry = transaction If resources are imitable (e.g., knowledge),
In highly competitive markets no need of high then high control entry modes are
control structures recommended
If transaction-specific assets are valuable
(e.g., patents, know-how), high control
structures are preferred
Three differences between perspectives (Kotabe and Helsen 2011, p. 298)

TCE predicts high-control entry modes because of opportunistic behavior, RBV
predicts high-control entry modes to facilitate cooperation
TCE focuses on one-time events, RBV looks at a chain of events
TCE assumes exploitation, RBV cooperation
Source: Anderson and Gatignon (1986)
in South Korea
Lessons learnt in international retailing:

Importance of local know how
Process know how can only be partially transferred
Joint Ventures explored as alternative entry mode
Tesco in South Korea:
Entered the country in 1999
Joint Venture with Samsung (Store chain Home plus)
Samsung required retailing expertise
Tesco required market expertise
80% Tesco / 20% Samsung
Key learnings:
Vertical store format due to limited availability of land:
o 3-4 floors for parking
o 3 retail floors (hypermarket, food court, boutiques)
People are customers and citizens: Extra floor for Culture Centre
Stronger focus on fresh food and convenience food than in UK
Legal protection of small retailers requires omitting some products
Successful experiments with virtual stores in subways
Performance:
Best-performing foreign business of Tesco
Sources: Leahy (2012),
2012: 520 stores, 5.3m Pounds revenues www.tescoplc.com
Exit strategies
Reasons for leaving a market:

Sustained losses (e.g., Walmarts exit from Germany in 2006)
Difficulties in cracking the market (e.g., Nokias exit from Japan in 2008)
Volatility in the markets
Premature entry
Ethical reasons
Intense competition
Resource allocation
Exit barriers:
Exit costs
Damage to corporate image
Low liquidation value
Signal to other markets
Long-term opportunities
Three recommendations:
Assess all other options
Incremental exit > Immediate full exit
Sources: Bea/Haas 2009
Migrate customers
Agenda
I. Introduction
The emic versus etic dilemma in international
market research
Distinction originally from anthropology (science of humanity)
Key question: How relative are human values?
Based on the response to this question two viewpoints can be distinguished:
Emic perspective Etic perspective
Everything that individuals do and say While cultural differences exist,

can only be understood by other it is possible to establish universal
individuals raised in the same truths about human behavior
cultural environment If appropriate methodological
It is not possible for external observers care is taken, cross-cultural
to accurately understand the behavior market research is possible
of individuals in other cultures Implications for market research:
Highly relativist perspective Emphasis on establishing
Implications for market research: cultural invariance of methods
Emphasis on longitudinal Quantitative approaches
qualitative projects and qualitative approaches
No generalizations across Mainstream perspective in
cultures business practice
Rarely adopted by practitioners
Sources:Engelen/ Tholen 2014
Challenges associated with international market
research based on secondary data
Measurement reliability
Data accuracy and age
over time
Problems with
secondary data
Measurement
Data lumping and
comparability across
degree of aggregation
countries
Be sure to check: 1. When were the data collected? Over what time frame?
2. How were the data collected?
3. Have the variables been redefined over time?
4. Who collected the data?
5. For what purpose were the data gathered?
Sources of secondary data
Non-commercial Commercial
National statistical offices National market research
Scientific institutes institutes
National Chambers of commerce Publishing companies (e.g.
and industry (CCIs) Gruner + Jahr)
United Nations information International market

service research institutes (e.g.
Worldbank Nielsen)
International
International Monetary Fund international agents

World Trade Organization Data bases (z.B.
Organization of ECD International Market
European Union Identifiers)
Source: Schopphoven 1991, p. 31; Schulz-Rinne 1989, p. 14ff
Eurostat is the EUs initiative to make national
statistics comparable
Basic facts about Eurostat From national to European statistic
Established in 1953 as Statistics Division to
meet the requirements of the Coal and Steel
Community Statistical Authorities of the Member States
collect data. They verify and analyze national
Areas of Eurostat activities: data and...
Economic statistics
Economic and monetary convergence
External and intra-Community trade statistics
Business statistics ...send them
Social statistics to Eurostat.
Agricultural, environmental, food and regional
statistics
Staff & Budget:
In 2011 around 900 people worked in
Eurostat Eurostats role is to consolidate the data and
Eurostat had a total budget of around 61 ensure they are comparable, using harmonized
million in 2010, this budget was used for methodology.
the implementation of the Community
Statistical Programme (CSP) and the
Modernisation of European Enterprise and
Trade Statistics (MEETS).
Source: http://europa.eu.int/comm/eurostat
Challenges associated with international market
research based on primary data
Different cultural Different cultural responses

response styles to the form of data collection
Sources of the lack of

comparability of international
interview results
Lack of linguistic similarity of questions and response scales
The suitability of survey methods in intercultural
market research studies
Mail Telephone Face-to-Face Online

Requires literacy Problematic for Very expensive Requires literacy
Only applicable surveys in less- Allows for Problematic for
in some countries developed countries: surveys among surveys in less-
with working High and middle households developed countries:
postal systems incomes over- that cannot be High and middle
Great reluctance represented accessed through incomes over-
to participate in In high context telephone or online represented
surveys initiated cultures prone In high context Problems with
from abroad to cause social cultures prone censoring in
(return address desirability biases to cause social some countries
in own country In Japan and other desirability biases Can be organized
needed) countries considered Native speaking and managed from
to be an extreme interviewers a must one country
intrusion into
private lives
Native speaking
interviewers a must
Can be organized
and managed from
one country
Establishing the linguistic equivalence of questions
A standard process for establishing the linguistic equivalence of survey questions exists
It is called the translation back-translation process:
Adapt the translated

questionnaire until
Master questionnaire
the back-translated
is translated into
version is sufficiently
the foreign language
similar to the
original version
Translated questionnaire
Identification of
is back-translated into
difference between
the original language
the original questionnaire
(by a native speaker
and the back-translated
not involved
questionnaire
in the project)
Establishing the linguistic equivalence of response
scales (I)
Original scale
Englische in English
Originalskala
Mode- Rea-
Extremely rately sonably Unusually
poor poor Fair good good
1 2 3 4 5
Distortion Distortion
Distortion Verzerrung
Verzerrung Verzerrung
Perceived valence
Empfundene
of the judgment
Wertigkeit des
0 4 8 12 16 20 Urteils
1 2 3 4 5
Terriblement Faible Lgre- Honnte Merveilleux
mauvais ment
bon
Franzsische bersetzung
French translation
Source: Bauer (2002, p. 303)
Establishing the linguistic equivalence of response
scales (II)
Examples for equivalent rating scales
Source: Angelmar/Pras (1978), p. 67
Response styles in intercultural market research (I)
Response styles: Tendency of survey participants to favor certain responses regardless

of the content of the question
Different types of response styles are observed in practices
Particularly problematic in intercultural market research
Most response styles are negligible if everyone is affected the same
Cultural differences make even comparison of averages difficult
Acquiescence bias
Tendency to respond positively to survey statements (e.g., agree with statements)
Can be discovered by adding reversed survey items to a questionnaire
Some empirical evidence of a link between acquiescence bias and a high degree of
cultural collectivism
Strongly Strongly
Disagree Agree
To what extent do you agree with the following statements? 1 2 3 4 5 6 7
Most products I buy are overpriced.
Businesses could charge lower prices and still be profitable.
Most prices are reasonable considering the high costs of firms.
Most prices are fair.
Response styles in intercultural market research (II)
Extreme response style
Tendency to prefer endpoints of the scale over the middle of the scale
Some empirical evidence of a link between extreme response styles and the degree of
power distance in a country (more extreme response if power distance is high) (Johnson et al. 2005)
Strongly Strongly
Disagree Agree
Most prices are fair.
Midpoint response style
Tendency to prefer the middle of the scale over the endpoints
Strongly Strongly
Disagree Agree
Most20-Oct-14 Martin Klarmann, Fall 2014
prices are fair.
Testing for measurement equivalence (I)
The general question of invariance of measurement is one of whether or not,

under different conditions of observing and studying phenomena, measurement
operations yield measures of the same attribute. (Horn/McArdle 1992, p. 117)
Goal in primary international market research: measurement equivalence

Also referred to as measurement invariance
Can be statistically tested using confirmatory factor analysis
Requirement: A phenomenon (or construct) is measured through three or more
questions (or items, or indicators) in a questionnaire
Idea: The shared variance of the items represents the essence of the
construct () that is supposed to be measured
Graphically: Formally:
x1 1 1 = 1 + 11 1 + 1
11 xk: Response for item k
21 1: Construct/phenomenon behind responses
1 x2 2 2 = 2 + 21 1 + 2 k: Expected response for item k, if 1=0
31 k: Random measurement error for item k
x3 3 3 = 3 + 31 1 + 3 k1: Strength of link between item k and 1
The parameters of these equations can be estimated using a Maximum Likelihood

approach (not considered in this lecture)
Testing for measurement equivalence (II)
Different types of measurement invariance can be distinguished

Three types are typically the most important:
Can the construct be measured

1. Configural invariance through the same indicators in all
contexts?
Are the relationships between

2. Metric invariance indicators and construct equally
strong in all countries?
At the same level of the

3. Scalar invariance construct, are indicator values
equal in all countries?
Source: Steenkamp and Baumgartner (1998)
Testing for measurement equivalence (III)
Starting point: equation system from before
1 = 1 + 11 1 + 1 xk: Response for item k

1: Construct/phenomenon behind responses
2 = 2 + 21 1 + 2 k: Expected response for item k, if 1=0
k: Random measurement error for item k
3 = 3 + 31 1 + 3 k1: Strength of link between item k and 1
Configural invariance between the measures from two countries A and B is given, if
all k1 that are different from zero in A are also different from zero in B
all k1 that are zero in A are also zero in B
Metric invariance between the measures from two countries A and B is given, if
D1 = 1 for all k items
Scalar invariance between the measures from two countries A and B is given, if
= for all k items
Source: Klarmann (2008)
Outcomes of lack of measurement equivalence
Is
configural Yes
invariance
present?
Is
metric Yes
invariance
No
No present?
Is
No scalar
invariance
present?
Yes
Mean values are Mean values are Mean values
not comparable not comparable are comparable
Correlations are Correlations Correlations Source:
not comparable are comparable are comparable Klarmann (2008)
Agenda
I. Introduction
I. Product Management
II. Pricing
III. Communication
IV. Sales
The importance of international product
management
IKEA with problems on the US market, Audi has problems selling the A6 in
Ford Taurus too large for Japanese because European bed sizes were China, because space in the back is
parking spaces (sales reportedly <1500) considered too small not sufficient for buyers with drivers
Source: Business Week (1999) Source: Kotabe and Helsen (2011) Source: Mller and Gelbrich (2004)
For each aspect of the product, a decision between standardization and differentiation is required.
Reasons for standardizing and for differentiating
the product offering
Factors speaking for standardization Factors speaking for differentiation
Cost-related considerations Customer-related considerations

Economies of scale Possibility to address taste differences
Economies of simplicity Possibility to make use of country-of-origin
Critical mass for brand recognition effect (patriotism, nostalgia)
Economies of flexibility (e.g., logistics) Necessity to avoid country-of-origin effect
Need to avoid cross-cultural misunderstanding
Customer-related considerations of names and symbols
Anticipation of converging customer needs
Requirements of internationally expanding Environmental considerations
customers and distributors Different climate conditions
Bargaining power vis--vis international Different technical norms
customers and distributors Different legal norms
Strategic considerations
Possibility to spin-off and sell brands
Occupying niche markets
Supporting price differentiation and fighting
gray imports
Differences in customer tastes: Automotive color
popularity in Brazil, China, and Europe
Source: DuPont Perfomance Coatings 2012 Global Color Popularity Report
Product differentiation at
Country Sandwich Description

France Croque McDo A grilled ham and cheese sandwich on toast
India Maharaja Mac Two grill chicken patties with smoke-flavored mayonnaise,
onions, tomatoes, and cheddar cheese
Taiwan Rice Burger Shredded beef between two rice patties
Japan Teriyaki Burger A chicken cutlet patty marinated in teriyaki sauce
Middle East McArabia Sandwich A marinated grilled chicken sandwich in flatbread
New Zealand Kiwi Burger A hamburger with a fried egg and a slice of pickled beet
Poland McKielbasa Kielbasa (Polish sausage) patty topped with ketchup, mustard,
and onion
Pakistan Spicy McChicken A chicken sandwich with chutney
Thailand Samurai Pork Burger A pork burger flavored with teriyaki sauce
South Korea Bulgogi Burger Pork patty marinated in soy-based sauce
Netherlands McKroket A deep fried roll containing beef ragout and potato
Greece Greek Mac A pita bread sandwich with two beef patties and some yoghurt
Israel McShawarma Shawarma served in flatbread
The challenge in managing differentiation is to combine
product differentiation with production standardization
Levels of product standardization
Differentiated
1
products
2 Modular design
3 Built-in-flexibity
4 Standardized
products
A special modular design success study: the new
beetle
The story of the new beetle

Early 90s Market Research detects that old beetle is most know and appreciated VW car in the US
1991 Secretly US engineers start working on a design remake of the old beetle
1992 VW Concept 1, as the project is called as a code name is presented to leading designers
1993 Volkswagen AG design chief Dr. Helmut Warkuss presents the first scale
model to Ferdinand Piech, chairman of VW AG
1993 First full size model is developed
1994 North American International Auto Show unveiling of the Concept 1 version of the
New Beetle and later the same year Volkswagen Board of Management approves development of
New Beetle
1998 New Beetle goes on sale and becomes an instant success
Source: Kiley 2002
The special case of brand standardization: Global
brands
A truly global brand is one that has a consistent identity with consumers across the
world (Kotabe and Helsen 2011, p. 362)
What conditions favor launching a product with a single brand identity worldwide?
Advantages of global brands Advantages of local brands
Customers value global brands No negative spillover effects from a

(Holt, Quelch, and Taylor 2004) crisis in one country to other countries
Global brands signal quality and offer The name does not need to work
higher prestige internationally
Global brands give customers the Can be adapted to cultural particularities
sense of belonging to something bigger Allows firms to draw on patriotism and
Global brands are held to higher buy-local attitudes
ethical standards No negative country-of-origin associations
Economies of scale
Higher brand awareness, even without
entry in a specific country market
Analyze costs , economies of scale and value creation of a global brand compared to a
local brand
Naming products internationally: Some car stories
Ford Pinto Rolls Royce Silver Mist
Reportedly never aimed at the Brazilian market. In Germany (and elsewhere) sold as Silver Shadow
Chevy Nova Mitsubishi Pajero
Reportedly quite successful in South America Sold in Spain (and some other countries) as
(despite the name) Mitsubishi Montero
Source: Haig (2011) and the Internet
Three options for standardizing local brand names
Fade-in/fade out or
Transparent forewarning Hard cut
Dual branding
The new global brand is The customers are intensely The local brand name is
combined with the existing informed about the changed dropped almost overnight and
brand name. After a transition brand name. replaced by the global brand
period, the old name is name.
dropped:
Examples: Examples: Example: Fairy Ultra

Morgan Grenfell Raider became Twix becoming Dawn
Deutsche Morgan Grenfell (Raider heit jetzt Twix,
Deutsche Bank sonst ndert sich nix)
D2
D2 Vodafone
Vodafone D2
Vodafone
A failed Hard Cut strategy, the case of
Introduction on the German market in 1992, to replace the traditional brand Spli
Large TV budget for introduction, campain surrounding two Spanish villages
(Villariba und Villabajo) competing for the cleanest Paella pan
At a time more than 90% of German consumers were able to remember these
spots, with 61% linking them to Fairy (Source: wikipedia.de)
2000: Brand standardization initiative
by Procter and Gamble, Fairy Ultra
(market share of nearly 12%) renamed
overnight to Dawn
2001: Dawn market share of 4.7
2003: Reintroduction of Fairy Ultra on
the German market, now called
Fairy by Dawn
Today: Product only called Fairy
Source: Kotabe and Helsen 2011
Importance of congruent branding in international
context
Web-bases survey of consumers In New Zealand, because a developed country with a high level of
foreign trade , N=577
Online invitation to survey where brand name, price and short description were provided in a fictitious
advertisement
Participants indicated likelihood of purchase
Luxury watch was used as hedonic product, whereas sports watch was used as utilitarian
Source: Melnyk et al. 2012
Product plagiarism and brand counterfeiting as
threats in international marketing
Product Piracy
Product Plagiarism Brand Counterfeiting
Estimates of the total value of counterfeit and
pirated products in 2008 and 2015
OECD Category Estimate in $ billions (2008) Estimate in $ billions (2015)

Internationally traded counterfeit and
285 360 770 960
pirated product
Domestically produced and consumed
140 215 370 570
counterfeit and pirated products
Digitally pirated products 30 75 80 240
Sub total 455 650 1,220 1,770
Broader economy-wide effects1 125 125+
Employment losses in G20 economies 2.5 million 2.5 million+

1 Effects on government tax revenues, welfare spending, costs of crime fighting services, FDI flows
Source: Frontier Economics 2011

Scope of the problem for German firms
Are your products plagiarized or counterfeited? How strongly is your firm affected by these actions?
Very strongly
No 8% Rarely
16%
24% Strongly
Sometimes
25%
19%
76%
32%
Yes Often
Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)
Product piracy: The case of Stylus shoes
Stylus: A south European mid-range to premium shoe manufacturer

Moved its production to Taiwan
Partnership developed well, in 2004 entry of the Chinese market was considered
In 2007: 60,000 pairs of shoes sold in China
Taiwanese partner proposed production of 250,000 pairs of shoes in 2008
Stylus managers skeptical, worked with normal growth rate
2008:
Stylus managers observe that their supplier had bought material
to produce 460,000 pairs of shoes
Japanese distributor observes that a Japanese discounter is selling
Stylus shoes for $20 per pair
Stylus immediately ends the business relationship
2009: Retailing outlets of the supplier were still operating and pirated shoes were
also sold in Europe (Switzerland, Spain, and Italy)
Collaboration with the China State Administration leads to raids and the confiscation
of 100,000 pairs of shoes
Supplier markets shoes under new (but very similar) name
Different variants of product piracy
high Counterfeits that are Counterfeits of high quality

considered to be originals that are considered to be
sold at a low price originals
Example: Example:
Counterfeited spare Apparel that was secretly
parts of a car produced in addition to the
Degree of numbers ordered
deception Low quality plagiarized Plagiarized products of high
products that customers quality that customers
buy in full knowledge of buy in full knowledge of
the product piracy the product piracy
Example: Example:
Imitated luxury watch from Imitated machines
cheap material sold at a
low bargain price
low high
Quality of the pirated product
Source: Wildemann et al. (2007)

Customer reactions to brand counterfeiting
Flight Reclamation Abranding

Key response to Flee brands popularly Offer evidence of pioneering Disguise information on brands
proliferation of counterfeited brand affiliations and fashion patronized
counterfeits leadership
Motivation behind key Fear of conforming to Dissonance arising out of two Desire to sustain high social
response stereotypes factors: (1) others not distance from others not
similarly stationed are similarly stationed
dressing as these consumers
do, and (2) the inability to
change wardrobe on account
of substantial investments
already made and lower
discretionary incomes
Profile Young Older Very affluent
Newly rich Well-established brand Mean age: 40 years
Transitioning social classes loyalties
Mean age: 25 years Mean age: 47 years
Pepe
Ralph Lauren Giorgio Armani
Diesel
Coach Versace
Dolce & Gabanna
Brands patronized Tommy Hilfiger Hermes
Gucci
DKNY Anderson & Sheppard
Nike
Fendi Escada
Armani Exchange
How will I be able to tell the
Topic that engaged When you see counterfeits, Tell us about your last
difference between you and
these consumers most how does that make you feel? purchase of a fashion item.
someone wearing a counterfeit?
Source: Commuri 2009
Activities of German firms to protect their
intellectual property
Activities pursued Departments involved
Legal measures 91% Legal 77%
Customer-related
43% Board 46%
communication
Internal communication 38% Marketing 33%
Active involvement in
34% Other 17%
industry associations
Technological solutions 34% None 4%
Lobbying 28%
Nothing 2%
Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)
Counterfeiting protection through pricing
Counterfeiting protection through electronic
certificates of originality
Sennheiser Knauf George Gina and Lucy Canada Goose
Combination of
open and hidden Introduced in 2010:
security features Certificate of
Seal of quality on authenticity in every
every Knauf product bag
Individual product ID Security paper seal ID allows accessing
allows Internet check, tightly glued to the information through
whether the product package RFID chips: Where Individual Product
is authentic Seal changes color should the bag be ID Hologram on paper
Similar information upon touching right now? certificate
through QR-Code (special ink), from Customers can
Paper changes color blue to transparent check authenticity
under light and last Training videos for using smartphone
figure of ID becomes foreign markets with in a store
larger piracy problems
Agenda
I. Introduction
II. Pricing
III. Communication
IV. Sales
Challenges in international pricing
Defining sales and

Price differentiation
delivery terms
Challenges in
Setting transfer prices international Currency fluctuations
pricing
Inflationary
Price escalation
environments
Price differentiation: The Economist BigMac Index
Introduced by the Economist in 1986 as a

guide to compare currencies according to the
theory of purchasing power parity for homogeny goods
Definingcurrencies
Displays under- overvalued sales and
delivery terms
Challenges in
pricing
Inflationary
Price escalation
environments
Source: The Economist 2014
Regional price discrimination : Examples of car
prices in the EU
Model Germany France UK Denmark Poland in (%)
Fiat Panda 9.050 8.319 6.764 7.270 7.577 34%

Kia Picanto 8.437 8.269 7.112 7.700 6.378 32%
Ford Fiesta 11.345 10.661 8.983 9.110 8.898 28%
Mazda 2 13.113 12.205 9.712 9.977 11.159 35%
Opel Astra 15.261 14.737 12.309 12.562 12.446 24%
VW Golf 13.866 13.076 10.738 11.031 10.687 30%
Peugot 407 24.196 23.411 17.373 17.062 20.067 42%
Toyota Avensis 22.017 20.818 15.262 17.023 15.721 44%
Audi A6 38.412 35.812 26.371 32.847 31.443 46%
Mercedes E220 34.500 34.555 23.387 34.500 27.293 48%
BMW 730d 59.244 56.970 40.332 66.431 46.713 65%
Audi A8 66.655 66.816 43.105 61.920 60.840 55%
Alfa Romeo Brera 26.849 28.052 21.897 27.833 27.934 28%
Volvo XC 90 36.815 36.573 24.413 34.091 29.481 51%
*(without taxes )
(Source: Backhaus/Voeth 2010, S. 151)
Profit maximization as key benefit of international
price differentiation (I)
Exemplary calculation for the two country case

Notation:
q: Quantity sold
p: Price
Country A: Country B:
Large market Small market
High price sensitivity Reduced price sensitivity
Price demand function: = 400 2 Price demand function: = 150 .4
Cost function: = 10000 + 20( + ) Cost function: = 10000 + 20( + )
qA qB
pB
pA
Profit maximization as key benefit of international
price differentiation (III)
One price for all countries
Sales: S qA p qBp 400p 2p 150p .4p 550p 2.4p
2 2 2
Costs: K 10000 20(qA qB ) 10000 8000 40p 3000 8p 21000 48p

Profit: G S K 550p 2.4p 2 21000 48p 598p 2.4p 2 21000
Optimum price: p* 598 / 4.8 124.58
Sales
Costs
Profit
Overall profit: G S C 598 124.58 2.4 124.58p 2 21000 16250.42

About 2550 less profit compared to the situation with price differentiation
Arbitrage as key risk of international price
differentiation
Country A (production site)

Price level:
authorized authorized
exports parallel exports
reimports
imports
Country B Country C
Price level: Price level:
lateral gray imports
Source: Simon and Wiese (1992, p. 250)
Arbitrage: The case of Levis
Levis pricing problem Reasons for price

differences
Diverters buy Levis 501s at Retail prices are typically more
retail prices (usually during competitive in the US than in
sales) and then resell them to Europe.
foreign buyers. Some of the difference can be
The US retail price is about attributed to price escalation
$40/pair; in Germany a pair is (e.g., because of tariffs,
sold for $40 to authorized shipping).
wholesalers and retailed for
$80.
The difference of about $40
makes it possible to buy a pair
in the US and sell it for about
$65 in Europe.
Solution:
Levis first sued Tesco and won after four-year court battle.
Levis developed a new brand, Levis Strauss Signature for about $20 less than ordinary Levis
for value-channel retailers such as Tesco.
Arbitrage: Supap Kirtsaeng and the Supreme Court
The arbitrage opportunity:
Supap Kirtsaeng
Thai math student at USC
Relatives in Thailand buy international versions of US textbooks
Resale over ebay: estimates of revenues up to $US 1.2m
First court case
Wiley sues for damages Supap Kirtsaeng
Student asked to pay over $US 600,000 in damages
Everything he owns is confiscated, because of potential money transfers abroad
US Supreme court decision March 2013
No one can forbid resale of legally acquired goods, new interpretation of first sale doctrine
Student gets his money back Source: Business Week (10/26/2012), The Economist (03/23/2013)
Strategies for dealing with arbitrage buying
Responding through Responding through

Responding through
products, services, and customer relationship
pricing
communication management
Buying all reimports and Creation of country Increasing distributors
gray imports oneself specific products or loyalty
Harmonizing prices brands Segmenting national and
Lead country pricing Limiting guarantees and international customers
Introduction of price
service for unauthorized and establishing a cross-
corridors imports and making that country relationship
known in the market management for
Do nothing (maintain
international customers
price differences while
tracking product flows)
Lead country pricing as instrument to avoid
arbitrage
Price
Prices must be set in a way

such that arbitrage does not pay
off
Arbitrage
costs
Lead country concept National

Country Country Lead Country Country markets
A B Country D E
Source: Simon and Fassnacht (2009)
International price differentiation and harmonization
are a matter of degree: Idea of the price corridor
Desirable evolution if
Worst case of price harmonization
harmonization is necessary
International prices International prices
Highest Highest
Future price corridor
Lowest Lowest
Time Time
Today Tomorrow Today Tomorrow
Source: Simon and Fassnacht (2009)
Reasons for standardizing and for differentiating
prices
Factors speaking for price differentiation Factors speaking for price standardization
Low interdependence Cost-related considerations

Customers are local High costs of implementing price
Customers have little transparency of differentiation
foreign prices
Insulating market sub-segments is High interdependence
possible Low costs of transporting the product
Products are differentiated Low trade barriers
Products can be easily customized Low currency risks
Existence of international key accounts
High differences High degree of international M&A activity
Heterogeneous customer needs between customers
Heterogeneous willingness to pay Centralized procurement of customers
Competitive intensity is lower in some High price transparency
countries
Other considerations
Legal restrictions on price differences
Customer emphasis on price fairness
Currency fluctuations: The Dollar/Euro exchange
rate since 1999
Defining sales and

delivery terms
Challenges in
pricing
Inflationary
Price escalation
environments
Source: European Central Bank
Pricing optimization considering for currency
fluctuations
A European company selling in the USA
Quantity: q a bp $
with q: quantity sold in USA, p$: price in $US, a,b: response parameters
Costs: C C fix kq C fix ka kbp $
with Cfix: fixed costs, k: variable costs per unit
Sales in $: S$ q p$ ap $ bp $2
Sales in : S w(q p$ ) wap $ wbp $2
with w: exchange rate expressed in /$
Profit in : G S C wap $ wbp $ C fix ka kbp $
2
Optimum price:
dG
wa 2wbp $ kb
dp $
1a k
p$*
2b w
Some generalizations:
Impact of currency fluctuations larger, if k is large compare to a/b (maximum price)
Increasing exchange rate reduces the optimum price in $
Source: Simon/Fassnacht 2009
Example: Impact of the exchange rate on the US
optimum price in and the US quantity sold
Example
Quantity sold in the USA q = a- bp$ = 200 -10 p$
Variable costs in C = C fix + kq = 5q
16
Profit in G = 200 p$w-10 p$2w-1000 + 50 p$
Profit in $ G$ = 200 p$ -10 p$2 -1000w-1 + 50 p$w-1
14
12
p* in $
10
8
q/10
6
0
.5 .6 .7 .8 .9 1.0 1.1 1.2 1.3 w [/$]
2.00 1.67 1.43 1.25 1.11 1.0 .91 .83 .77 w-1 [$/]
Example: Impact of the exchange rate on profits in
$ and
Example (continued)
Quantity sold in the USA q = a- bp$ = 200 -10 p$
Variable costs in C = C fix + kq = 5q
900 Profit in G = 200 p$w-10 p$2w-1000 + 50 p$
Profit in $ G$ = 200 p$ -10 p$2 -1000w-1 + 50 p$w-1
800
Profit in
700
600
500 Profit in $
400
300
200
100
0
.5 .6 .7 .8 .9 1.0 1.1 1.2 1.3 w [/$]
2.00 1.67 1.43 1.25 1.11 1.0 .91 .83 .77 w-1 [$/]
Determining the right amount of Pass-through
Strong assumptions for price optimization on previous charts:

Price demand function remains unaffected (no competitive effects)
Costs remain unaffected (no imports necessary for production)
In business practice the question becomes much more complex
With appreciation, local competitors offer relatively better prices
With depreciation, local competitors are disadvantaged
Price variation should be reduced
Question: To what degree should exchange rate changes be passed through to the
customer?
Two basic alternatives:

Maintain the foreign price (Local currency price stability)
Maintain the price in (Home currency price stability)
Sources: Kotabe and Helsen (2011), Simon and Fassnacht (2009)
Example: Impact of maintaining the price in $/ on
profits
Example (continued)
Quantity sold in the USA q a bp$ 200 10p$
Variable costs in C C fix kq 5q
Profit in G 200p$ w 10p$ w 1000 50p$
900
800
Profit in with optimum price in $
Profit in with a constant
700
price of $ 13.33
600
500
Profit in with a constant price of 10
400
300
200
100
0
.5 .6 .7 .8 .9 1.0 1.1 1.2 1.3 w [/$]
2.00 1.67 1.43 1.25 1.11 1.0 .91 .83 .77 w-1 [$/]
Source: Simon and Fassnacht 2009
Pass through behavior in the 1990s car industry
Retail Price Changes during Dollar Appreciations:

Japanese and German Exports to the U.S. Market
Real Dollar Real Retail Price Change
Model Appreciation in U.S. Market
Honda Civic 2-Dr. Sedan 39% -7%
Datsun 200 SX 2-Dr. 39% -10%
Toyota Cressida 4-Dr. 39% 6%
BMW 210i 2-Dr. 42% -8%
BMW 733i 4-Dr. 42% -17%
Mercedes 300 TD Station Wgn. 42% -39%
Source: Gagnon and Knetter 1995, reproduced form Kotabe and Helsen 2011
The problem of inflation for pricing
Inflation, measured as annual change in consumer prices in %

Country 2007 2008 2009 2010 2011
Belarus 8.4 14.8 12.9 7.7 53.2
Defining sales and January 1990: First
Brazil 3.6 5.7 4.9 5.0 Price
6.6 differentiation
delivery terms shop in Moscow
China 4.8 5.9 -.7 3.3 5.4 Price of a BigMac meal:
Egypt 9.3 18.3 11.8 11.3 10.1 6 rubles
January 1993: Price of
Germany 2.3 2.6 .3 1.1 2.3
Challenges in a BigMac meal: 1100 rubles
India Setting6.4 8.4
transfer prices 10.9 12.0
international 8.9 Currency fluctuations
Italy 1.8 3.4 .8 pricing
1.5 2.7
Japan .1 1.4 -1.3 -.7 -.3
Russia 9.0 14.1 11.7 6.9 8.4
Serbia 6.4 12.4 8.1 6.1 11.1 Beginning of the 1990s
Inflationary
Price escalation Hyperinflation in Peru
Turkey 8.8 10.4 6.3 8.6 environments
6.5 (up to 7000% per year)
Ukraine 12.8 25.2 15.9 9.4 8.0 Procter required to raise
prices for washing powder
USA 2.9 3.8 -.4 1.6 3.2 twice per week
Inflation as measured by the consumer price index reflects the annual percentage change in the cost
to the average consumer of acquiring a basket of goods and services that may be fixed or changed
at specified intervals, such as yearly.
Sources: World Bank; Kotabe and Helsen 2011; Simon and Fassnacht 2009
Dealing with inflation from a marketing perspective
With free capital markets and without exchange rate controls, inflation is not
a large problem for exporters
Exchange rate reflects inflation
Relative price level
Defining saleslarge
remains and unaffected
delivery terms
Problems especially in two cases
Governments respond with price regulation to inflation
Products are at least partly produced in the country with inflation
The case of government interventions
Typically as price control/price freeze
Price caps for some (or all) industries
Often coupled with wage freezes
Very ineffective due to rumors and anticipatory actions
Options for companies facing price controls
Launch variations of existing markets
Export products from inflationary countries
Predict incidence of price controls
Negotiate with the governments
Sources: Kotabe and Helsen 2011; Simon and Fassnacht 2009
Safeguarding against inflation if products are at
least partly produced in the country with inflation
Five alternative ways to safeguard against inflation
Reduce the time your customers have to

1 Shorten credit terms
pay you for the product
Include escalator- In long-term contracts in B2B settings include

2 clauses in long-term clauses that allow you to raise prices in
contracts inflationary environments
To handle high inflation, companies often quote

Quote prices in a
3 prices in stable currency such as the U.S.
stable currency
dollar or the Euro
Pursue rapid High inflation mandates rapid inventory

4
inventory turnovers turnarounds driven by information technology
Managers from countries with a long history of

5 Draw lessons from
inflation (e.g., Brazil, Turkey) can offer valuable
other countries
insights for other countries
Price escalation
Exporting
requires more steps in the logistic chain from manufacturer to customer
is associated with higher risks than exporting to the home market
Defining
Result: Price escalation, salesfinal
i.e. the and foreign retail price will often be much higher than
delivery terms
the domestic retail price (Kotabe and Helsen 2011, p. 402)
Illustration: Possible local price elements Possible foreign price elements
Manufacturer price Manufacturer price

Challenges in
Shipping (longer distance,
Setting transfer prices Shipping international across water) Currency fluctuations
pricing
Insurance
Tariffs
Inflationary
Taxes
Price escalation
environments
Importer margin
Wholesale margin Wholesale margin
Retailer margin Retailer margin
Some examples for high discrepancies between US
retail prices and German retail prices
USA: $499 USA: $300

D: 499 D: 370
USA: $200000
USA: $60 D: 75000
D: 90 (Exact
configuration
differs)
Options for dealing with price escalation
Distribution channels are often responsible for price

Rearrange the distribution escalation.
channel. Solution: Shorten channel arrangements that provide cost
savings.
Eliminate costly features or

Offer no-frills versions of products.
make them optional.
Price escalation
The final foreign
retail price is often
much higher than Downsize the product by offering a smaller version of the
Downsize the product.
the domestic retail product.
price because of
incremental costs.
Assemble or manufacture Closer proximity to the export market lowers transportation
the product in the foreign costs.
markets. Reduce or eliminate import duties.
Adapt the product to Modify the product to bring it into a different tariff or tax
escape tariffs or tax levies. bracket,
Transfer prices are important when local sales
companies are run as profit centers
Country A Country B Country C

Defining sales and
delivery terms
Sales and
production company
(profit center)
Challenges in
Transfer
Setting price
transfer prices international CurrencyTransfer price
fluctuations
pricing
Sales company Sales company

(profit center) (profit center)
Inflationary
Price escalation
Market price Market price environments Market price
Customer Customer Customer
Alternative transfer pricing policies
Real costs Standard costs Market price
Incentive for sales company to

++ +++ +
achieve high (market) prices
Incentive for sales company to

+ ++ +++
reduce costs
Incentive for production

company to achieve high + ++ +++
(market) price
Incentive for production
+ +++ ++
company to reduce costs
Possibility of tax optimization ++ +++ +
Simplicity / feasibility ++ +++ +
In comparing international price quotations,
particular attention to the Inco terms is warranted
Explanation Carriage Risk transfer from seller to Cost transfer from seller to buyer
arranged by buyer: When the goods...
EXW Ex works buyer are at the disposal of buyer when goods are at the disposal of buyer
FCA Free carrier buyer or seller on have been delivered to the when the goods have been delivered to the carrier at the named
buyers behalf carrier at the named place place
Defininghave
sales and
FAS Free along-side buyer been placed alongside Price
when thedifferentiation
goods have been placed alongside the ship
ship delivery terms
the ship
FOB Free on board buyer pass the ships rail when the goods pass the ships rail
CFR Cost and Freight seller pass the ships rail at port of destination, buyer paying such costs as are not for the
sellers account under the contract of carriage
CIF Cost, Insurance, seller (carriage pass the ships rail at port of destination, buyer paying such costs as are not for the
Freight and insurance) Challenges sellers
in account under the contract of carriage
CPT Setting
Carriage paidtransfer
to sellerprices international
have been delivered to the Currency
at place of destination, buyer fluctuations
paying such costs as are not for the
carrier pricing sellers account under the contract of carriage
CIP Carriage and seller (carriage have been delivered to the at place of destination, buyer paying such costs as are not for the
insurance paid and insurance) carrier sellers account under the contract of carriage
DAF Delivered at seller have been delivered at the when the goods have been delivered at the frontier
frontier frontier
DES Delivered ex seller are placed at the disposal of Inflationary
when the goods are placed at the disposal of the buyer on board
ship Price escalation
the buyer on board the ship the ship
environments
DEQ Delivered ex seller are placed at the disposal of when the goods are placed at the disposal of the buyer on the
quay the buyer on the quay quay
DDU Delivered duty seller are placed at the disposal of when the goods are placed at the disposal of the buyer on the
unpaid the buyer quay
DDP Delivered duty seller are placed at the disposal of when the goods are placed at the disposal of the buyer
paid the buyer
Source: International Chamber of Commerce 1999
Agenda
I. Introduction
II. Pricing
III. Communication
IV. Sales
Standardization in communication is only
sometimes possible
Standardization in communication
Standardized international communication strategies distinguish themselves by assuming
a worldwide standard with no particular consideration for national wishes and needs.
Advantages Disadvantages
Uniform implementation of goals Disregard of differences
Cost saving Empty messages
High control potential Problem of acceptance
Requirements of complete standardization:

Culture-free products (e.g., regarding
utilization)
Homogeneous target group
Similar product life cycle
Media availability
Barriers to standardization in advertising
Cultural differences Cultural gaps may permit many products

(e.g., terms of lifestyle, usage contacts)
Local advertising regulations pose a barrier to

Advertising regulations standardization that affects the execution of
commercials
Barriers to
standardization in
advertising
Gaps in cross-market maturity levels lead to
Market maturity different advertising approaches.
Education of customer may be necessary
Local subsidiaries or local agencies could

Not-Invented-Here Syndrome
stonewall attempts at standardization
Source: Ghauri/Cateora (2005)
Barriers to communication standardization:
Different meanings of colors
Example of different meanings of colors in several countries:
White Black Red Yellow Blue Green

Western Birth, purity Death, Love, Optimism, Coldness, Freshness,
Europe mourning danger, friendliness, authority vitality
power, sun
dynamic
China Death, Fun,
mourning festiveness
Japan Death, Dignity, Future,

mourning aristocracy energy,
virtue
Arabian/ Happiness, Virtue, trust, Religious
Islamic wealth truth color, fertility
countries
Tropical Illness,
countries jungle
Source: Hnerberg 1994
Barriers to communication standardization:
Legal advertising restrictions in selected countries
Spirits Wine Beer Tobacco Medicines
Austria X X O
France X X X O
Greece X O
Italy O O O X O
Turkey X X X X X
The Netherlands X O
UK X O O X O
X - Forbidden O - Highly regulated
Example of a standardized advertising campaign:
Crdit Suisse
China Italy US/UK
Nissans global shift advertising campaign
Shift campaign (2002)

Starting point (2002)
Varying taglines, but all include the world shift.
- Second half of the tagline after shift allowed local variations.
Nissans advertising
- In the US, shift achievement, shift forward, etc.
messages varied across
- In Europe, shift expectations.
markets:
- In Japan, shift the future.
- In Europe, there was no
tagline,.
- In the US, the tagline
was Driven.
- In Japan, the tagline was
Driving more to enjoy Result of a worldwide
your life every day. cooperative process with all
subsidiaries
Shift is not Can be easily Conveys

copyright understood in appropriate
protected in any non-English message for
country. speaking Nissan
countries
Example of a differentiated advertising campaign:
Siemens
Symbol of energy in ...
... Hong Kong ad:

Firework display with a view of
the Hong Kong skyline.
... German ad:

Crowd of enthusiastic youngsters
at a pop concert.
Example of a localized advertising campaign:
Dunkin Donuts in Thailand
General position in
Moms campaign 1999
Thailand
Dunkin Donuts entered Summer 1999: Dunkin Donuts

Thailand in 1981 and now runs five-week campaign
operates130 outlets with around the birthday of
300,000 customers per week. Thailands queen which
The largest Dunkin Donut shop coincides with national mothers
worldwide is in Thailand. day.
Dunkin Donuts portrays itself as Objective: Increase in market
a company that cares for share by two percent
society and honours the family. Cornerstone was that Thais
Restaurants are meeting places came to restaurants and
for families and friends. penned a love note to their
mothers on a special banner.
Dunkin Donuts positioned as a

company that cares about Thai
culture.
5% increase in market share
was achieved.
Agenda
I. Introduction
II. Pricing
III. Communication
IV. Sales
Distribution channels in international markets
can be very complex
Home country Foreign country

The foreign marketer or producer
sells to or through
Domestic producer or Foreign

International channel marketer sells to or
of distribution consumer
through
alternatives varies
according to :
Length of channel
(i.e., number of Open distribution via Foreign agent
parties in the or merchant Foreign
domestic wholesale Exporter Importer
channel) wholesalers retailer
middlemen
Types of
distribution
partner in the
channel
Export management
company or company
sales force
One key challenge in international sales is the control
over marketing activities vis--vis the final customer
Supplier
Exporter Exporter
Country
of origin
Target Country A Country B Country C Country D

country
Own
Importer Importer
subsidiary
Wholeseller
Consumer Consumer Consumer Consumer
If several channels are used to cover one country,
functions and segments have to be carefully separated
Example: Coverage concept for Belgium of one business unit of a large chemical company
Customer International key Large national Small and medium national accounts
segment accounts accounts
Function
Key-account-
Selling,
manager
relationship Belgian field rep none
management
Belgian field rep
Local customer External

Central European E-Commerce
Order handling & service center distribution partner
customer service portal (partially
customer service responsible for for France and
center owned)
Belgium Benelux countries
Central technical
coordinator
Technical service Belgian technician none
Belgian technician
Barriers to global internet marketing
Language Barrier Cultural Barrier Infrastructure
Knowledge Barrier Access Charges Regulations
Source: Kotabe and Helsen 2011, p. 627-633
Digital economy is still only well developed in
economically strong countries
Source: www.economist.com
Negotiation behavior varies greatly between
countries: The example of Japan and America
Category Japanese Americans
Language Most Japanese executives understand English, Americans have less time to formulate answers and
though interpreters are often used. observe Japanese nonverbal responses because of a
lack of knowledge of Japanese.
Nonverbal behaviours The Japanese interpersonal communication style American businesspeople tend to fill silent
includes less eye contact, fewer negative facial periods with arguments or concessions.
expressions, and more periods of silence.
Values Indirectness and face-saving are important. Speaking ones mind is important; buyer-seller
Vertical buyer-seller relationships, with sellers relationships are horizontal.
depending on the goodwill of buyers is typical.
Four Stages of Business Negotiations
1. Non-task sounding Considerable time and expense is devoted to Very short periods are typical.
such efforts in Japan.
2. Task-related exchange of The most important step: High first offers with Information is given briefly and directly. Fair first
information long explanations and in-depth clarifications. offers are more typical.
3. Persuasion Persuasion is accomplished primarily behind the The most important step: Minds are changed at
scenes. Vertical status relationships dictate the negotiation table, and aggressive persuasive
bargaining outcomes. tactics are often used.
4. Concessions and Concessions are made only toward the end of Concessions and commitments are made
agreement negotiations a holistic approach to decision- throughout a sequential approach to decision-
making. Progress is difficult for Americans to making.
measure.
Source: Ghauri/Cateora (2005)
More clichs about negotiations with international
customers
Speak French. Look for pragmatic Bring an interpreter Be on time. Be patient. Negotiations
DO Talk elegantly and solutions. most negotiations are in Define the key terms of may take six times as
eloquently. Practice fairplay. Russian. the project first. long as in the West.
Try to find an abstract Dress conservatively Be serious. Keep it short and Be polite. Always.
approach to your topic Be patient. Negotiations
(e.g., leave your jacket simple. Use middlemen who are
before going into on during negotiations).may take four times as Keep smiling. Be trusted by all parties.
specifics. Be prepared for subtle long as in the West. prepared to talk Build personal
Take delays (up to 30 humor. Restrict drinking to the business after a very relationships.
minutes) of your official toasts. short, casual warm-up. Ask for compensation for
partners into account. Clarify everything Give positive feedback each concession.
Accept contradictions Russians dislike on personal anecdotes. Document all results.
as your partners way to uncertainty. Involve local lawyers. Even written contracts are
show interest. Build personal Put all agreements into subject to later
relationships. the written contract. interpretation.
Translate verbally: Be blunt and rude. Make the other side Talk about religion, Think that nobody
DONT Compromis has a Expect your partner to lose face. sexuality, politics. understands you when
negative connotation. A openly contradict. Look Teach, explain. Use abstract thinking. your delegation is
concept is a vague for implicit concerns Compromise too early Use concrete examples. speaking German among
this is a sign of themselves.
idea, not an elaborated instead. weakness. Display Boast on academic Make the other side lose
proposal. Underestimate strength and titles. face.
Be too relaxed toward understatement. A endurance. Be direct. A no is a no-
managers who are slight problem might Overestimate a go. Circumscribe it in
hierarchically superior. be big. contract. Delivery order not to expose the
Rush into details right Talk politics or guarantees often do not counterparty.
away. ideologies over dinner. mean a lot.
Reduce a conversation Be overly fussy about
to the factual level. details.
Source: Wirtschaftswoche
Some clichs about negotiating with Germans
found on the Internet and elsewhere
DOs: DONTs:
Be on time. A delay of more than ten minutes is Haggle. Germans believe in the concept of a fair
often considered offensive. price. Prices rarely move by more than 10 to 25
Stick to the agenda. Germans prefer crisp percent between initial offers and final
meeting agendas. agreement.
Consider negotiations as a joint problem-solving Feel patronized. The Germans negotiate in an
process. unpleasant, instructor-type style.
Focus on long-term benefits. Waste time by reading between the lines.
Be patient. Negotiations take a long time. Be too enthusiastic. Germans view too much
Bring a translator. English is the likely language enthusiasm and spin as lacking credibility. Focus
at the table. However, Germans tend to speak on the logic and facts of your arguments.
in native language during side discussions. Take blunt, if not brusque, words from the
Focus on the Euro as the agreement currency. Germans personally. Questions come across as
Communicate directly and openly. aggressive. Germans like to debate.
Take hard-and-fast questions regarding Bring gifts.
your offer as a clear signal of interest. Discuss business over dinner.
Keep your distance. People generally converse Ask for exceptions.
standing about three to four feet apart. Bring your lawyer to a negotiation table. It is a
Understand that oral agreements are strong signal of distrust.
considered binding (and often legally so). Question the effectiveness and efficiency of
Be prepared to talk about politics over dinner. German workers.
Sources: Various blogs; Katz (2008); Kotabe and Helsen (2007)
Expatriates in international selling
Expatriates: Home country personnel sent abroad to manage local operations

in a foreign market. (Kotabe and Helsen 2011, p. 486)
Advantages: Difficulties:
Better Communication Cultural
Goal alignment with misunderstandings
headquarter Motivation
Development of Talent Compensation
Family Discord
Security Risk
Sting as Englishman in New York
Using expatriates is generally positive, when communication with the home

country office is at a premium:
Complex operating environments
High cultural distance
Elevated political risk that requires constant monitoring
Highly individualized products manufactured in the home country
Agenda
I. Introduction
What are the emerging markets?
Term coined in 1981

Introduced by Antoine van Agtmael at an investor conference in Thailand
At the time deputy director of World Banks International Finance
Corporation
Idea: To replace Third World label with something more optimistic Antoine van
Agtmael
No clear definition what countries can be counted as
emerging market
Popular: Goldman Sachs classifications by Jim ONeill

BRIC: Brazil, Russia, India, China
(political organization includes since 2011 South Africa)
Next Eleven (N-11): Bangladesh, Egypt, Indonesia, Iran,
Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, Jim O Neill, Goldman Sachs
Vietnam
Related term: Transition economies = Countries changing from planned economy to free
economy
Source: Kotabe and Helsen 2011, p. 598/599
Characteristics of emerging markets
BRIC countries alone:

15% of global GDP in 2007, predicted to overtake G7 in 2050
40% of world population (3 billion people)
Low per capita incomes High income inequalities Rapid pace of

economic development
High rates of emigration Youthful and growing Weak and highly

populations variable infrastructure
Source: Kotabe and Helsen 2011, p. 599

Prediction: The growing importance of emerging
markets
Years, when these countries are expected to have a larger GDP than G7 countries
GB D JAP USA
China
ITA FRA D JAP

India
ITA FRA D
Russia
ITA FRA D
Brasil
G7
BRIC Total
2000 2010 2020 2030 2040 2050
Source: Holtbrgge and Welge (2010)
Average consumer spending for products
per year
Source: Fortune.cnn.com
Product management in emerging markets: The
infrastructure challenge as a source of innovation (I)
No equivalent to 911 or 112 No equivalent to 911 or 112

hotline for ambulances in India hotline for ambulances in India
Taxis used for transport to hospital Access to drinking water difficult
2003: Startup Dial 1298 for in rural regions of Bangladesh
Ambulance in Mumbai 2010 foundation of private-public
Paid private ambulance service partnership Micro Water Facility
Premium services and prices Idea: Combination of micro-
for middleclass subsidize financing with machines for
free fares for the poor
water-purification
Training facilities for staff
Locals get a credit for buying a
Funding through non-profit
foundation accepting donations machine to clean the water and
then sell this water at a small
Today: Fleet of 280 ambulances,
price to others in the village
expanded into other cities
Product management in emerging markets: The
infrastructure challenge as a source of innovation (II)
Strong position of Unilever in middle

class in Latin America
Goal: Target consumers in poor P&G set up an $2 per day initiative in
rural communities October 2009
Development of special washing Goal: Develop product and pricing
powder that is suited if clothes models that target consumers that
are washed in the river earn less than $2 per day
Result: ALA brand Focus on market research in poor
Today: highly rural communities in China
successful in First consequence: Development of*
northern regions hair and body products that do not
of Brazil require much water for rinsing
Pricing in emerging markets: Sachet Marketing
as response to the low income challenge
Low income households cannot afford

standard cartons of washing powder
Strategy of P&G, Unilever, and other
companies: Sachet Marketing
Small packages including washing
powder for one washing at very low
prices (.02-.04)
Distributed through small vendors
Coke popular brand in many emerging

markets and developing countries
However, regular prices often too high
2002: Introduction of a new 200ml bottle
in India
Offer expanded to other markets, such
as Kenya and Tanzania in 2011
Pricing in emerging markets: Reducing costs to
respond to the low income challenge
Bharti group founded in
Bharti Airtel: Largest mobile phone provider in India
Radical outsourcing strategy:
Network operations from Ericsson
Business infrastructure from IBM
Transmission towers from independent Indian company
(Bharti Infratel)
Airtel nothing more than a marketing and sales unit
Cost-reduction through contract design:
Pay-per-minute contract with Ericsson
Prepaid business model with customers (no billing costs, no Sunil Bharti Mittal (*1957)
relationship costs)
186.41 million subscribers in October 2012 (Vodafone India: about 150 million)
Business model successfully exported
Bangladesh and Sri Lanka in Asia
Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana,
Kenya, Madagascar, Malawi, Niger, Nigeria, Rwanda, Seychelles, Sierra Leone, Tanzania,
Uganda, and Zambia in Africa
Source: Meyer and Kirby (2012, p. 21/22)
Distribution and sales in emerging markets: The use
of innovative channel designs in Russia and India
2001: Hindustan Unilever without access

to 500,000 rural communities in India
P&G entered Russian market in 1991 Solution: Project Shakti
Slow growth: 1995 11 P&G employees Target womens self-help groups
Key problem for all multinational (more than a million in India)
FCMG firms: Selling outside Women were trained in selling,
Moscow and St. Petersburg commercial knowledge, and
Adoption of model from P&G Poland: bookkeeping
Training and equipping whole- After completion of training
sellers through P&G (including possibility to become Project
a van and computers) Shakti entrepreneurs
Regional exclusivity Micro-Financing of first stock
Exclusive distribution of P&G Sales to around 500 customers
Access to 80% of the population before Profits of about $22 per month
all competitors -> strong market position 2009: 45000 participants, 135000 villages
Africa: The new emerging market?
Some facts about African economies 2000-2010:

Six of the worlds ten fastest growing countries in Africa
In eight of ten years faster growth than East Asia
(including Japan)
IMF expectations: 6% growth in 2011 and 2012
(similar to Asia)
Still the poorest continent:
most Africans live on less than two dollars a day
food production per person has slumped since the 1960s
the average lifespan in some countries is under 50
highly instable political environment and corruption in many countries
Fundamental numbers going up:
Fast growing middle class: 60 million Africans with more than $3,000 per year
(expected to rise to 100 million in 2015)
1000% increase in foreign investment (often Chinese, but also Brazil, Turkey, and India)
600 million mobile-phone users (more than in Europe)
Tenth of the land mass covered by mobile internet services (more than in India)
Productivity growth by 3% a year
Source: Economist 12/32011
Growth in African markets: The case of
First presence in the 1960s

Today:
4 cement plants: Congo (2x), Gabon, Tanzania
9 grinding plants: Benin, Congo, Gabon (2x),
Ghana (2x), Liberia, Sierra Leone, Togo
2011: 10% growth compared to 2010
Capacities limits reached in nearly all plants
Heavy expansion activities:
Grinding plant in Lom, Togo
New mills in Liberia and Ghana (2012)
New clinker plant at Lom facility in Togo,
new grinding plant in Togo (2014)
New grinding plant in Burkina Faso (2015)
300% Capacity increase in Congo
Capacity increase in Tanzania (2012)
Options in other countries being evaluated
Integrated plant in Dar es Salaam, Tanzania

Source: HeidelbergCement

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International Marketing

Lecture | Fall term 2014 Martin Klarmann

Institute of Information Systems and Marketing (ISSM)

KIT Universitt des Landes Baden-Wrttemberg und

Lecturer: Prof. Dr. Martin Klarmann

Dr. Sven Feurer (Lecture October 27)

Phone : 0721 608 4 1796

MSc. Isabella Kindersberger (Lecture and student support)

Office Hours: Tuesdays 3 p.m.-5 p.m.

Times: Monday, 9.45 a.m. 11.45 a.m.

II. Understanding International Markets: Culture

III. Understanding International Markets: Buyer Behavior

IV. Market Entry Decisions

V. International Market Research

VI. International Marketing Mix Management

VII. Marketing in Emerging Markets

Content-related goals Language-related goals

Understanding of the concept of Familiarity with key English

Source: WTO World Trade Report 2013

Source: WTO 2013

Theory of Absolute (Cost) Advantage (Smith)

Theory of Comparative (Cost) Advantage (Ricardo)

Factor Proportions Trade Theory (Heckscher/Ohlin)

(Kotabe and Helsen 2010, p. 26)

Source: WTO World Trade Report 2013

Total: 68.8 Bil. Total: 6.00 Bil.

Total: 106 Bil. Total: 2.02 Bil.

Total: 73.5 Bil. Total: 4.24 Bil.

Source: Firm homepages, all numbers for 2011

Domestic Marketing Export Marketing International Marketing

Timing and Country 2

Orientation Ethnocentric Ethnocentric Polycentric

Multinational Marketing Global Marketing

Type of Region 1 Coordinate

Country 6 Allocate Resources

Orientation Regiocentric Geocentric

1967 1990 2012

Subsidiaries 7 Subsidiaries 41 Subsidiaries 70 in 50 countries

Key elements of the business model:

Walmart announces intention to enter European

1999 Estimated US$ 200 million loss in Germany

2001 Fourth CEO appointed (Kay Hafner), the

Introduction of the Euro in Germany results

Only official profit figure from Walmart Germany:

Six weeks after announcing to stay in the German

Expatriate top managers The Walmart Cheer

High degree of price

Restricted opening hours Labor regulations New rules of competing

Spring: Opens headquarters in El Segundo (California)

2009 Expansion continues: Opening 1 store in every two weeks

2010 Mothballing of 13 stores, more stores opened

Strategic relaunch after accumulated losses > 500m Pounds

May: New store openings put on hold

September: Yucaipa (US investment group) takes over 150 stores

Even more More information is necessary because of unknown market

Less information and less transparency lead to higher risks

Coordination Need to align national activities

More contingency factors need to be taken into account

II. Understanding International Markets: Culture

III. Understanding International Markets: Buyer Behavior

IV. Market Entry Decisions

V. International Market Research

VI. International Marketing Mix Management