The Global Marketplace

Global Marketing in the 21st Century

The world is shrinking rapidly with the

advent of faster communication, transportation, and financial flows. International trade is booming and accounts for 25% of U.S. GDP. Global competition is intensifying. Higher risks with globalization.

15-2

U.S. Globalization
Many U.S. companies have made the world their market.

15-3

Major International Marketing Decisions

15-4

Looking at the Global Marketing Environment

Restrictionstariffs, quotas, embargos, exchange controls, and non-tariff trade barriers.

The International Trade System:

Helps Tradereduces tariffs and other international trade barriers.

The World Trade Organization and GATT:

Groups of nations organized to work toward common goals in the regulation of international trade.
15-5

Regional Free Trade Zones:

Discussion Question

What types of U.S. companies would

like to see higher tariffs and what types would like to see lower tariffs or no tariffs? Why is this the case?

15-6

Industrial Structure
Shapes a countrys product and service needs,
income levels, and employment levels.
Subsistence Economies Raw Material Exporting Economies

Industrializing Economies
Industrial Economies

15-7

Political-Legal Environment
Attitudes Toward International Buying Government Bureaucracy

Political Stability
Monetary Regulations
15-8

Cultural Environment
Sellers must examine the ways consumers
in different countries think about and use products before planning a marketing program. Business norms vary from country to country. Companies that understand cultural nuances can use them to advantage when positioning products internationally.
15-9

Cultural Differences
When Nike learned that this stylized Air logo resembled Allah in Arabic script, it apologized and pulled the shoes from distribution.

15-10

Deciding Whether to Go Global

Reasons to consider going global:
Foreign attacks on domestic markets Foreign markets with higher profit opportunities Stagnant or shrinking domestic markets Need larger customer base to achieve economies of scale Reduce dependency on single market Follow customers who are expanding
15-11

Deciding Which Markets to Enter

Before going abroad, the company should try to define
its international marketing objectives and policies.

What Volume of Foreign Sales is Desired?

How Many Countries to Market In?

What Types of Countries to Enter? Choose Possible Countries and Rank Based on Market Size, Market Growth, Cost of Doing Business, Competitive Advantage, and Risk Level
15-12

Colgate Goes to China

Using aggressive promotional and educational programs, Colgate has expanded its market share from 7% to 35% in less than a decade.
15-13

Market Entry Strategies

15-14

Market Entry Strategies

Exporting:
Indirect: working through independent international marketing intermediaries. Direct: company handles its own exports.

15-15

Market Entry Strategies

Joint Venturing:
Joining with foreign companies to produce or market products or services.

Approaches:
Licensing Contract manufacturing Management contracting Joint ownership
15-16

Joint Ownership

KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi.
15-17

Market Entry Strategies

Direct Investment:
The development of foreign-based assembly or manufacturing facilities. This approach has both advantages and disadvantages.

15-18

Deciding on the Global Marketing Program

Standardized Marketing Mix:

Selling largely the same products and using the same marketing approaches worldwide.

Adapted Marketing Mix:

Producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

15-19

Marketing Mix Adaptation

In India, McDonalds serves chicken, fish, and vegetable burgers, and the Maharaja Mactwo all-mutton patties, special sauce, lettuce, cheese, pickles, onions, on a sesame-seed bun.
15-20

Five Global Product and Promotion Strategies

15-21

Global Product Strategies

Straight Product Extension:
Marketing a product in a foreign market without any change.

Product Adaptation:
Adapting a product to meet local conditions or wants in foreign markets.

Product Invention:
Creating new products or services for foreign markets.
15-22

Global Promotion Strategies

Can use a standardized theme globally,
but may have to make adjustments for language or cultural differences. Communication Adaptation:
Fully adapting an advertising message for local markets.

Changes may have to be made due to

media availability.
15-23

Global Pricing Strategies

Companies face many problems in setting their

international prices. Possible approaches include:

Charge a uniform price all around the world. Charge what consumers in each country will pay. Use a standard markup of costs everywhere.

International prices tend to be higher than

domestic prices because of price escalation. Companies may become guilty of dumping a foreign subsidiary charges less than its costs or less than it charges in its home market.
15-24

International Pricing

European Union countries have adopted the euro as a common currency, creating pricing transparency and forcing companies to harmonize their prices throughout Europe.
15-25

Whole-Channel Concept for International Marketing

15-26

Deciding on the Global Marketing Organization

Organize an export department Create international divisions
Geographical organizations World product groups International subsidiaries

Become a global organization

15-27

The Nestle Way

Nestl sells more than 8,500 products produced in 489 factories in 193 countries

Nestl is the worlds biggest marketer of infant formula, powdered milk, instant coffee, chocolate, soups, and mineral water

(1) (2) (3) (4)

The Nestl way is to dominate its markets can be summarized in four points: think and plan long term decentralize stick to what you know, and adapt to local tastes

15-28

Benefits of Global Marketing

The merits of global marketing include:

Economies of scale in production and marketing can be important competitive advantages for global companies Unifying product development, purchasing, and supply activities across several countries it can save costs Transfer of experience and know-how across countries through improved coordination and integration of marketing activities Diversity of markets by spreading the portfolio of markets served brings an important stability of revenues and operations to many global firms

15-29

Planning for Global Markets

Planning is a systematized way of relating to the future
It is an attempt to manage the effects of external, uncontrollable factors on the firms strengths, weaknesses, objectives, and goals to attain a desired end

Structurally, planning may be viewed as (1) corporate, (2) strategic, or (3) tactical International corporate planning is essentially long term, incorporating generalized goals for the enterprise as a whole Strategic planning is conducted at the highest levels of management and deals with products, capital, and research, and long- and short-term goals of the company Tactical planning, or market planning, pertains to specific actions and to the allocation of resources used to implement strategic planning goals in specific markets
15-30

The Planning Process

Planning, which offers a systematic guide to planning for the multinational firm operating in several countries, includes the following 4 phases: Phase 1: Preliminary Analysis and Screening Matching Company and Country Needs Phase 2: Adapting the Marketing Mix to Target Markets Phase 3: Developing the Marketing Plan

Phase 4: Implementation and Control

The answers to three major questions are sought in Phase 2: (a) Are there identifiable market segments that allow for common marketing mix tactics across countries? (b) Which cultural/environmental adaptations are necessary for successful acceptance of the marketing mix? (c) Will adaptation costs allow profitable market entry?
15-31

GLOBAL BUSINESS INVOLVEMENT: MARKET ENTRY STRATEGIES

Entry strategies vary in terms of control, risk, commitment, and reward. The marketing options open to firms are in part determined by mode of entry.

15-32

Key Globalization Decisions

Selecting country market Choosing entry mode Deciding entry timing Making marketing decisions

15-33

Entry Mode Selection

Exporting Contractual Agreements Joint Ventures Wholly-owned Subsidiaries

15-34

Exporting and Internationalization

Firm-level stages of internationalization

Stage Stage Stage Stage Stage Stage 1: 2: 3: 4: 5: 6: The The The The The The completely uninterested firm partially interested firm exploring firm experimental exporter experienced small exporter experienced larger exporter

15-35

Motivations to Internationalize
Proactive Motivations Profit advantage Unique products Technological advantage Exclusive information Managerial urge Tax benefit of a Foreign Sales Corporation (FSC) Economies of scale

Reactive Motivations Competitive pressures Overproduction Stagnant or declining domestic sales Excess production or service capacity Saturated domestic markets Proximity to customers and ports

15-36

Change Agents

Internal change agents

Enlightened management New management Significant internal event

External change agents

Foreign demand Other firms and distributors Banks and other service firms Chambers of commerce Export agents Governmental activities
15-37

Exporting
Direct exporting - firm handles all tasks
to sell within host countries Indirect exporting - firm delegates the exporting tasks to an intermediary

15-38

Exporting
Advantages
Minimizes political risk Useful when market potential is hard to assess Offers channel flexibility Prepares firm for greater involvement Offers ease in market withdrawal

15-39

Exporting
Disadvantages
Exchange rate fluctuations and governmental intervention can affect earnings Lack of market presence can affect response time Loss of marketing control can affect corporate image

15-40

Potential Export Problems Logistics Legal Procedure Servicing Exports Promotion Foreign Market Intelligence
15-41

Exporting Government Programs That

Support Exports

Tax Incentives Subsidies Governmental Assistance

15-42

Exporting
Government Programs That Discourage Imports
Tariffs Ad Valorem Duties Specific Duties Nontariff Barriers Quotas Discriminatory Procurement Policies Restrictive Custom Procedures Selective Monetary Controls Restrictive Administrative and Technical Regulations

15-43

Exporting
Government Programs That Discourage
Imports Duties and Import Charges Antidumping Duties Countervailing Duties Temporary Import Surcharge Compensatory Import Taxes

15-44

Export Intermediaries
Specialize in bringing firms or their products and
services to the global market. Cover the international marketing knowledge and performance gaps of firms Provide contacts with buyers abroad, call on customers, and handle delivery of goods

15-45

Export Intermediaries
Examples of facilitating intermediaries
Export Management Companies (EMCs) Webb-Pomerene Associations Trading Companies

15-46

Export Management Companies

Domestic firms that specialize in performing
international marketing services as commission representatives or distributors As commission representatives Develop foreign marketing and sales strategies Establish contacts abroad As distributors Purchases products from the domestic firm, takes title to goods and assumes all trading risks; operating internationally on their own.
15-47

Export Management Companies

Compensation for EMCs
Fee or retainer for market development Compensation for direct expenses of foreign market penetration Discounted pricing from the manufacturer

Power conflicts between EMCs and

clients
Retaining firm as client once market presence is established
15-48

Webb-Pomerene Associations
Associations of firms which are legally
permitted under an antitrust exemption to cooperate in market allocation, quota fixing, and selection of distributors and brokers in international markets so long as such activities do not reduce competition within the United States.

15-49

Trading Companies
Early trading companies
East India Company of the Netherlands British East India Company French East India Company

15-50

Trading Companies of Today

The sogoshosha of Japan
Sumitomo, Mitsubishi, Mitsui Reasons for the success of the sogoshosha Development of information systems to identify market opportunities Economies of scale in the vast transaction volume to obtain preferential treatment Large internal global markets creating opportunities for barter trade Access to vast quantities of capital on a global scale
15-51

Export Trading Companies in the U.S.

ETC legislation has improved the performance of small- and medium-sized firms. An ETC can
deliver a wide variety of services. be an agent. purchase products. act as a distributor abroad. An ETC must balance the demands of the market and the supply of the members to be successful.

15-52

Export Trading Companies in the U.S.

better access to capital more trading transactions easier receipt of title to goods a wide variety of possible structures

Bank participation in ETCs allows ETCs

Possible activities for ETCs in addition to

exporting
Importing Countertrade International management and consulting
15-53

Service Requirements for American ETCs

Products Exported Suppliers Represented Low Export Volume Undifferentiated
Requires a LessThan-Average Capability in Promotion, Market Contact, and Consolidation
Requires a LessThan-Average Capability in Promotion, but an Average Capability in Market Contact and Consolidation

Differentiated
Requires a AboveAverage Capability in Promotion, but an Average Capability in Market Contact, and Consolidation
Requires a AboveAverage Capability in Promotion, Market Contact, and Consolidation

High Export Volume

15-54

Where to Enter?
Location-Specific Advantages Location-Specific Advantages
Geographical features difficult to match by others. Singapore, Austria, Turkey, Miami Clustering of economic activities (agglomeration). Knowledge spillover among closely located firms

that attempt to hire individuals from competitors.

A regional skilled labor force available to work for

different firms. A regional pool of specialized suppliers and buyers.

15-55

Where to Enter? Cultural/Institutional Distances and Foreign Entry Locations Cultural Distance The difference between two cultures along some identifiable dimensions (such as power distance). Institutional Distance The extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries. Firms from common-law countries are more likely to be interested in other common-law countries Colony-colonizer links boost trade by 900% (e.g. Great Britain Commonwealth countries and France West Africa)

15-56

Where to Enter? Cultural/Institutional Distances and Foreign Entry Locations (contd)

Two schools of thought have emerged:

Stage models in which firms enter culturally similar countries during the first stage of internationalization and, as they gain confidence, enter culturally more distant countries in later stages. Critics of stage models argue that considerations of strategic goals such as market and efficiency are more important than cultural/institutional considerations as suggested by stage models
15-57

When to Enter?

First or Late Mover Advantages

While evidence supports first mover advantages, there is also evidence supporting a late mover strategy.

Although first movers may have an opportunity to gain advantage, pioneering status is not a birthright for success

Entry timing, although important, is not the sole

determinant of success and failure of foreign entries.

15-58

How to Enter?
Scale of Entry: Commitment and Experience Large-Scale Entries
Benefits A demonstration of strategic commitment to
certain markets, which both assures local customers and suppliers and deters potential entrants.

Drawbacks Large-scale entry limits strategic flexibility

elsewhere. Entrants must incur sizable losses if the largescale entry bet turns out to be wrong.
15-59

How to Enter? (contd)

Scale of Entry: Commitment and Experience
Small-Scale Entries
Benefits Less costly if entry is unsuccessful. Organization learns through hands-on experience
in host countries.

Drawbacks A lack of strong strategic commitment, which may

lead to difficulties in building market share and capturing first mover advantages.

15-60

How To Enter? Modes of Entry: The First Step

Factors Affecting the Choice of Entry Mode:

Among numerous modes of entry, strategists are unlikely to consider all of them at the same time.

Given the complexity, strategists must prioritize by considering only a few manageable key variables first and then consider other variables later.

A hierarchical model shown in Figure 6.3 and

explained in Table 6.4 is helpful.

15-61

The Choice of Entry Modes: A Hierarchical Model

Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535554.

Figure 6.3

15-62

How To Enter? Modes of Entry: The First Step (contd)

The crucial first step: equity or non-equity modes This is what defines a multinational enterprise (MNE) and

a non-MNE Equity modes: Through foreign direct investment (FDI) Direct control and management of value-adding activities overseaskey word is direct, as opposed to foreign portfolio investment (FPI) If a firm does not have FDI, it can still engage in international business (through non-equity modes), but it is not an MNE.

15-63

Global Product Strategies

Local and International Environment Firms Internal Situation

Competitive Situation

Product Strategies

Customer Needs & Price Elasticity

15-64

Global Product Decisions

Existing Products
Product Product Product Product phase-out modification introduction into new markets performance management

New Product
Product development Product introduction Product performance management
15-65

Global Product Development

Standardization- developing same
product for multiple countries Premise-- consumes share some common values, beliefs, and consumption patterns Advantages: economies of scale and scope, price competitiveness, uniform image
15-66

Global Product Development

Product Adaptation- modifying
product to reflect characteristics of a market Premise-- consumers are not the same Advantages: improved fit between product and consumer, expanded penetration
15-67

Global Product Development

Mandatory product adaptations
Governmental regulations Technological considerations (e.g., voltage, infrastructure) Cultural imperatives - is it acceptable to consumers Measurement standards: volume, length, weight, quantity

15-68

A Testable Framework of Product and Promotion Adaptation

Product and Industry
Technology Orientation of Industry Cultural Specificity of Product

Product Uniqueness

Type of Product

EXPORT MARKET COMPANY

Firms International Experience Product Adaptation - Upon Entry - After Entry Product Adaptation - Upon Entry Promotion Adaptation - After Entry - Positioning Promotion Adaptation - Packaging/Labeling Positioning - Promotional Approachh Packaging/Labeling

Similarity of Legal Regulations

Export Sales Goal for the Venture

Competitiveness Of Export Market

Entry Scope

Product Familiarity Of Export Customers

Source: S.T. Cavusgil, Shaoming Zou, and G.M. Naidu. Product and Promotion Adaptation in Export Venturs: An Empirical Investigation, Journal of International Business Studies 24, no 3, (1993,485. 15-69

A Framework to Integrate Markets, Platforms and Competencies

Markets
Tiers of PriceT Performance 1 through N .

Segments 1 through N ...

Derivative Products or Services

with Development Time/Cost Efficiency and Attractive Price-Performance Positioning

Product or Service Platform Subsystem A

Interface i.n

Subsystem C

Subsystem B
Commondesign Design Rules and Tools Common Rules and Tools

Competencies

Market Insights

Product Technologies and Design Processes

Production Processes and Technologies

Organizational Capabilities and Infrastructure

Source: Mark Meyer, personal communication

15-70

Globalizing Palmolive Soap

Combination of competitive packages fragrances shapes

25 20 15 10 5 0

After Before

Shapes

Fragrances

Packages
15-71