Introduction to

International Marketing

WHO isDr. Daniel M. Boehi? Introducing myself

Educational back-ground Master and PhD in business administration at University of Zuerich, Switzerland

Professional back-ground Corporate environment IBM, Switzerland: IT industry Nestle, Chile and Mexico Danone, Germany: dairy industry Lura/Dukat, Croatia: dairy industry Capri Sonne, Germany/global: beverage industry Danube Foods/Salford, UK/Serbia: beverage, confectionery, dairy industry Salford CIS: beverage

Lecturing Objective
What we will learn today International Marketing is dealing with marketing products/brands outside the home-marketfor other markets The global GDP is concentrated in a few countriescompetition on these markets however is hugeall want a portion of the cake Trade between the countries is 25% of total GDP and increasing rapidlyit show how close the global economies have grown together and what Globalization means International markets can differ significantly from the home marketit is crucial to understand what is different and how they function While WTO/trade-blocks try to standardize rules, procedures, tariffs, etc (= hardware) some key differences will remain such as: Culture, trade, consumersand some things are global regardless of standardization: consumer needs

And what we will learn next lesson: discussion on HOW to enter and attack a new/international market

Agenda
Lession 1 The Nature of International Marketing International Trade what drives global market place: theories, development, integration
The case of USA vs. Europe vs. new tigers (China, India, Russia) The case of Red Bull (local food regulations) The case of Emmi (limited domestic growth) The case of China (difference in culture) The case of Ferrero Kinder Surprise (mothers and kids all over the world are equal) The case of food vs. luxury goodsis taste global?

Trade distortions and marketing barriers what slows down growth: protectionism

Local vs. international I: why the need to go abroad? Local vs. international II: what is different abroad? Culture, politics Consumer behavior in other markets: what separates, what unifies consumers?

Lession 2 Foreign market entry strategies

The case of Capri Sonne (licensing vs direct investment) The case of Danone (global brands vs local brands) The case of XanGo (multilevel marketing) The case of Marlboro and Starbucks Coffemodify image or not? The case of Calgon Germany (price arbitrage)

Product-/Brand-Portfolio decisions (local, regional, global brands)

Distribution/RTM decisions Advertising decisions Pricing decisions Financing international expansion Some comments on ForEx Q&A session

Agenda

Lession 3

Universal principals and truths of consumers Some simple/universal principals that drive marketing decisions
A (almost) universal marketing framework

Lession 4

Case studies of international expansion

The Nature of International Marketing

What is different to local/domestic Marketing? NOTHING in principleits about how to sell products outside homemarket BUT: context is more complex Different environment The more countriesthe more many different environments Key questions: What are entry barriers to the market? Can I import, do I need local production? Trade Policy? Can I buy land/companies? How does product offer look like? Can I standardize or do I need to adapt? Global products/brands vs local? What products (life-cycles) How and how much money can I make? Can I get profit back?

What are we talking about? The world economy 2008

Total GDP (Gross Domestic Product): 33000 Bio Euro 5400 Euro per person per year (>7 Bio peopleAsia/Africa growing) 3,5% growth p.a. >190 countries Top 10 make 56% of ww GDP (high concentrated) Service sector is largest and fastest growing sector: 50% of global GDP (but only 20% of global tradeIndia back office of the world) Agriculture/Industry is larger in less developed countries Emerging markets (Asia, LATAM) will make >70% of GDP in future

What are we talking about? The world economyII

Largest World Economies No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Country USA Japan Germany United Kingdom France China (exc.HK) Italy Canada Mexico Spain Brazil India Korea Netherlands Australia Russian Federation Taiwan Argentina Switzerland Belgium GDP $US billions 10,208 4,149 1,847 1,424 1,307 1,159 1,089 700 618 582 504 481 422 380 357 310 282 269 247 227
United States 27% UK 5% Japan 9% Korea 2% Mexico 2% Rest of the World 21%

Share of World GDP in 2005 (US$ billion)

Australia 2% Brazil 2% Canada 3% China 5% France 5% Germany 6% India 2% Italy 4%

Spain 3%

Russian Federation 2%

TOP 20 make 85% of global GDP!

and what about trade between these countries?

9000 Bio Euro (+/-25% of total GDP)
60% in manufactured goods 13% fuel/gas 7% agriculture 20% services

Global trade growing quickly in last years: 10%->25% of total GDP in 15 years Big potential for services and agriculture (sensitive areaoil price, wheat price, milk price) WTO/Doha are the institutions dealing with how to facilitate trade Critical questions related to world wide trade
Moral/ethical point of view
Ecology Exploitation (where is value added produced)

Economically
High level of balance deficits

Export

Import

 USA with highest negative account/trade balance (import more than export) Japan with highest positive account/trade balance (export more than import)

some words on WTO

The World Trade Organization (following the GATT) >150 countries Defines rules of the games how trade is happening Which are the big free-trade-blocks and their share in global GDP
Americas: NAFTA, Mercosur, Caricom: Europe: EWR, EFTA, OECD: Asia: AFTA, APEC: 25% 25% 35%

With emerging markets growing very fast

WW Top 10 soft drink markets
2002 #1 USA #2 Mexiko #3 China #4 Germany #5 Brazil #6 Japan #7 Italy #8 France #9 UK #10 Spain 24% 9% 7% 5% 5% 3% 3% 3% 3% 2% Mexiko! Brazil! Germany Japan Italy France UK Indonesia! 2007 USA China!

And who generates all this growth and wealth?

The 500 largest companies make 30% of global GDP and are growing fast Energy (oil/gas) are among the biggest WW there are >18000 public companies (traded on stock exchanges) But still >50% of GDP is Generated by the 1000nds of SME

Recent changes affecting world trade

Rise of Asian tigers and especially of China + India End of communism in Eastern Europe Enlargement of the EU (larger trading block) Development in transportation (air, cars, sea) Development in global brands International sourcing (cost pressure) Internet E-commerce 24 hours information And recently: oil pricesbanking system collapsing=> prices and interest rates up

A boundary less world economy is ahead of political facts Integration/consolidation into less, but bigger blocks (more competition) Concentration of growth/wealth in bigger and fewer companies

Some trade theories

trade is one of the oldest and most basic concepts in business Stone-age: simple ex-change (still today with Yanomami in Venezuela) High cultures b.c. (Egypt, Greeks): intensive trade of basic goods Christianity/middle age: first rules/limitations (no dealing with money) Mercantilism (1500-1750): building of nations, gold/silver, positive trade balance, strong governmental control, very mechanical view of how the world functions Adam Smith (1776): believe in homo economicus/self interest, idea of specializing on a competitive advantage, division of labor. 1800-1950: Colonialism and Protectionism Since 2nd world war: Theory off free trade/open markets (WTO, EWR/EU) (political integration did not succeedso economical might do the job) Since 1990: Globalizationbrands/products go global

Case study: USA vs. Europe vs. Asia

What drives this transformation in emerging markets: Macro-economical stability Labor force Capital (highest USD reserves ww) R&D spending foreign investment trade liberalization Urbanization Regional development programs

Marketing environments
Domestic Political/legal set-up and forces Macro economical situation Competitive structure

Foreign Political situation Legal system Macro economical situation Culture/language Infrastructure/distribution Competition Consumer needs Labor force know how/technology Etc.

Little chance of surprise

It is a unknown/hostile environment!

Marketing barriers and trade distortions

What slows down the market entry of a product/company to an other market? Protectionism and entry barriers set up by a country Whymostly named justifications:
To protect consumers (price, health, etc.) To protect home market/industry
dumping prices, jobs, living standard

To protect critical industry for national security (defense, agriculture, commodities) To resist unfair competition

Forms of protectionism:
Tariffs/taxes Quotas Subsidies to domestic producers/exports Non-tariff barrier: legal obstructions, Veto, technical requirements/specs

Marketing barriers and trade distortions

What is the effect of this kind of protectionism?
Reduced competition -> inflation pressure Reduce choice for consumers Reduce effort of local industry to be better, cheaper, fasterprotection supports laziness Increases price distortion Administrational cost (tariffs) Weaken balance of payment (have to pay more in own currency) May induce global trade wars (vicious circle) its a short-term, populistic activity that does not strengthen the domestic markets in mid-long term

What is done to reduce/facilitate Globalization?

De-regulationWTO/EU-laws

World Crisis 2007-2009

Case study: Red Bull

Red Bull - History:
developed in Thailand Discovered by Dieter Mateschitz, rolled out in Austria first

As of 1990: Regional expansion to Germany, Switzerland, France

Very difficult, slow Limited access to retail, only through some HORECA

Reason:
Government/ministry: perceived as bad and unhealthy Food legislation: unclear how to treat product

Effect:
Limitation created hype and this generated consumer pull (high demand) From tactics to strategyRed Bull ww brand launch-strategy approach (regardless if food legislation was a true barrier or not)

Learning:
Laws/restrictions can create exactly the opposite of what they were meant for

Why to go abroad? Drivers of Globalization

Market drivers opportunities to sell
Limited growth opportunities in domestic market Consumers/customers with similar needs in foreign markets Increase speed of product life cycles (need to extend life to get more return)

Competitive drivers pressure/opportunity to become bigger Cost drivers opportunity to make cost savings
Economies of scale and scope Sourcing Labor cost Environmental regulations

Other drivers facilitators of globalization

Internet Lower cost of entry to markets Improved infrastructure, transportation, communication

Examples of global industries

Textile industry (from Europe to Asia) Automobile Electronic goods

Case study: Emmi

Emmi History
Largest dairy producer/marketer in Switzerland (2 Bio Euro revenue) Has grown through acquisitions in last years size is crucial in the dairy industryEmmi is in a European context a small dairy NO further growth potential in Switzerland (simply too small)

1995 started international expansion

First: close neighborhood 2nd phase: Spain and US

Performance
Export business growing >20% p.a. (local production considered now) Risk: very small market shares in export markets, high investment, fuel growth BUT: market share in Switzerland under attack from small local and new international players (Danone)

Learning
Going abroad is normally adds quickly to growthbut remains a risky issue

What is different abroad?

Other countryother habitssome examples: Culture
Role of family, society and hierarchy Role of individuality vs. collectivism Roles in different life-stages (kid, teenager, young adult, parent) Role of history (collective patterns and believes)

Retail
Case Japan: 7 wholesale dominate Japans retail / >40% of food&beverages are sold through vending Case Germany: >70% of retail is done by 6 larger Key Accounts

Consumer
Case Arabic Countries: what sells there cant sell in Israel / cant sell P&Gs brand Ariel in Dubai Case Japan: Wal-Mart vs Seiyu

Humor

Case study: culture in China

The one siderude On first arrival to China, the human wave will probably shock you. Everywhere you go; airport, public malls, tourist sites, restaurants, railway stations, bus stations; you will see nothing but waves and waves of people. China can be so crowded that you hardly have private space of your own once you are out of your hotel room or house. And people tend to push. And stare. And spit. And talk loudly The other sideMianzi (Face) The idea of shame, usually expressed as 'face' could be loosely defined as the 'status' or 'selfrespect' in Chinese and by no means alien to foreigners. It is the worst thing for a Chinese to lose face. Never insult, embarrass, shame, yell at or otherwise demean a person. Since all these actions would risk putting a Chinese in a situation that he might lose face. Neither try to prove someone wrong nor shout at him in public. In order to get a successful effect without letting a Chinese lose face, any criticism should be delivered privately, discreetly and tactfully, or else, just opposite to what you wish.

Working session
Task: Panel discussion Set-up: G7 meeting discussion to evaluate whether to proceed with trade deregulation of not Topic: Will the trend towards Globalization bring more economic wealth and political stability to the countries? How:
2 groups (1 PRO, 1 CONTRA) 15 min. preparation to collect all arguments 15 min. discussion KEY: facts and figuresno emotions

Understanding the consumer in a global market

Key question: what is different, what is similar? How do they take decisions for a product/brand in other countries? How to find out: research techniques First: what are consumer needs?
Need for basics: to sleep, to eat, to have sex Emotional needs: to feel secure, to feel inspired, to feel dominant

Some hypothesis/experiences
If a product/brand just fulfills the basic needpreferences can differ
Local food preferences Local music preferences

If a product/brand covers an emotional need then preferences can be similar around the world
Luxury goods (watches, cars) life-style food and beverage (Red Bull, Coke) Personal care

Excursion: Understanding how consumer thinks

What happens in our brain? How does it function? Do we know why we decide to do something? What drives our decisions?

Do we have the brain of a Reptile?

300 Mio. years: first dinosaurs 1,6 Mio. years: First hominids 50 Mio. years: mammals develop faster 15000 years: Neanderthal 600 b.c.: Homer, Aristoteles Our brain structure differs in size but not in the way it functions

Needs/motives of human beings/consumers

based on >3000 interdisciplinary studies: Neurosience/Neurobiololgy Psychology Psycho Endocrinology Evolutionary Biology and psychology

Hormones: driver of our needs and behavior

20-35 years

65+++ years

Testosterone = Estrogen = Dopamine = Serotonin =

male hormone (aggresivity, growth, mathematical understanding) female hormone (creativity, balance, giving birth) positive, fun, happiness, strong (Neurotransmitter) tranquilizing

Motives spectrum

Fear Insecurity Anger Unsatisfied Bored

Shelter Comfort Cooconing

Confidence Victory Thrilled

Depending on level of hormones needs can change

Cultural differences can obviously influence but not radically change this structure

Be ever-cool for kidsunderstanding them

Beauty, mother, glamour

Bigger, stronger, better

More control

Their fears

Their dreams

Example of how brands are positioned along life-stage

Nourishing Discovery
TODDLER 1 to 5 years Preschool

Growing up
PRESCHOOL 5 to 8 years 1st to 3rd Primary

MOTHERHOOD

BABIES 0 to 1 year

SCHOOL 8 to 12 years 4th to 6st Primary

Intelligence Physical Activity

T 12 EEN to AG 18 ER ye S ar s

ACHIEVER

Establishment
FAMILY FOCUS 35 to 45 years

Lack of time
SUCCESS ORIENTED 25 to 35 years

Energetic challengers
UNIVERSITY 18 to 24 years

ACCOMPLISHED

Y IT s AL ear RE y W 55 NE to 45

Preventive
EXPERT 55 to 65 years

Restrictive
SENIOR 65 to 75 years

Dependent
ELDERLY 75 to 90 years

Case study: Ferrero

Insights: Ferrero

Children prefear sweets and mothers fear lack of nutritional support Mothers want to fulfill their role (cool mum and responsible mum) Ferrero is a sweet thats why mothers dont want their children to eat it

Barriers: Ferrero

SOLUTION / CONCEPT: Ferrero solves a problem for mothers by offering their children a tasty way (chocolate) to eat something healthy (milk) and kids have fun (chocolate + toy)

The Case of luxury goods and foods how global?

Why are

Global?

only local?

global brands dont have to be everywherebut they are 100% standardized some brands are simply globalnot necessarily product categories global brands are often the first movers, innovators, category builder (rest follows, offers lower price and thus is less aspirational)