THE GLOBAL MARKET PLACE

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES

1.     discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions

2.     describe three key approaches to entering international markets

3.     explain how companies adapt their marketing mixes for international markets

4.     identify the three major forms of international marketing organization

 JUST THE BASICS

CHAPTER OVERVIEW

This chapter examines the fundamentals of global marketing.

Advances in communication, transportation, and other technologies have made the world a much smaller place.

Today, almost every firm, large or small, faces international marketing issues.

There are several factors that draw a company into the international arena.

•  Global competitors might offer better products or lower prices.
• The company might discover foreign markets that present higher profit opportunities than the domestic market does.

 Most companies start with exporting, using either indirect or direct exporting, or they could go into a joint venture, through such means as licensing, contract manufacturing, management contracting, or joint ownership.

 Finally, the company could make a direct investment by developing assembly or manufacturing facilities.

 Each form of entry carries its own risks and rewards; the company must weigh these carefully before making final decisions.

 Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing mixes to local conditions.

 At one extreme are global companies that use a standardized marketing mix, selling largely the same products and using the same marketing approaches worldwide.

 At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

 However, global standardization is not an all-or-nothing proposition. Rather, it is a matter of degree.

 Companies can manage their international marketing activities in at least three different ways.

1.  They can organize an export department,
2. They can create an international division,
3. They can become a global organization.

 ANNOTATED CHAPTER NOTES/OUTLINE

 INTRODUCTION

 Nearly 65 percent of McDonald’s #23.5 billion of sales last year came from outside the United States.

 But going global hasn’t always been easy, and McDonald’s has learned many important lessons. Consider Russia.

 McDonald’s first set its sights on Russia in 1976. Finally in 1988, McDonalds forged a deal with the city of Moscow to launch the first McDonald’s in Moscow’s Pushkin Square.

 McDonald’s had to obtain over 200 separate signatures to open the single restaurant. They had difficulties in finding reliable suppliers.

 When they finally opened in 1990, other hurdles emerged.

 Today, the company has 240 restaurants in 40 Russian cities, each serving an average of 850,000 diners a year – twice the per store average of any other location.

 GLOBAL MARKETING TODAY

Since 1990, the number of multinational corporations in the world has grown from 30,000 to more than 60,000.

 Between 2000 and 2008, total world trade grew more than 7 percent annually, while global gross domestic product has grown at only 3 percent annually.

 Foreign firms are expanding aggressively into new international markets, and home markets are no longer as rich in opportunity.

 Few industries are now safe from foreign competition.

 A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors.

Use Discussing the Issues 1 here.

 The global company sees the world as one market.

 It minimizes the importance of national boundaries and develops “transnational” brands.

 The rapid move toward globalization means that all companies will have to answer basic questions:

 ·        What market position should we try to establish in our country, in our economic region, and globally?

·        Who will our global competitors be and what are their strategies and resources?

·        Where should we produce or source our products?

·        What strategic alliances should we form with other firms around the world?

 A company faces six major decisions in international marketing. (Figure 15.1)

 Use Key Term Global Firm here.

Use Figure 15.1 here.

Use Application Question 1 here.

 LOOKING AT THE GLOBAL MARKETING ENVIRONMENT

Use Chapter Objective 1 here.

 The International Trade System

 Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic firms.

 Quotas are limits on the amount of foreign imports that a country will accept in certain product categories.

  The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment.

 Exchange controls are limits on the amount of foreign exchange and the exchange rate against other currencies.

 Nontariff trade barriers are such things as biases against U.S. company bids, restrictive product standards, or excessive regulations.

 Certain forces help trade between nations.

 Use Application Question 2 here.

 The World Trade Organization and GATT

 The General Agreement on Tariffs and Trade (GATT) is a 61-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers.

 Since the treaty’s inception in 1947, member nations (currently numbering 153) have met in eight rounds of GATT negotiations to reassess trade barriers and set new rules for international trade.

 The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 percent.

 The benefits of the Uruguay Round (1994) include reducing the world’s remaining merchandise tariffs by 30 percent.

 The Uruguay Round set up the World Trade Organization (WTO) to enforce GATT rules.

 The WTO acts as an umbrella organization, overseeing GATT, mediating global disputes, and imposing trade sanctions.

 An new round of GATT negotiations, the Doha round, began in Doha, Qatar, in late 2001 and was set to conclude in 2005, but the discussions continue.

 Regional Free Trade Zones

 Free trade zones or Economic communities are groups of nations organized to work toward common goals in the regulation of international trade.

   Use Key Term Economic Community here.

Use Discussing the Issues 2 here.

 One such community is the European Union (EU).

 The European Union represents one of the world’s single largest markets. Currently, it has 27 member countries containing close to half a billion consumers and accounts for more than 20 percent of the world’s exports.

 As a result of increased unification, European companies have grown bigger and more competitive.

 Widespread adoption of the euro will decrease much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets.

 However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000 years of tradition and become the “United States of Europe.” 

 The North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada.

 The agreement created a single market of 452 million people who produce and consume over $17 trillion worth of goods and services annually.

 NAFTA will eliminate all trade barriers and investment restrictions among the three countries.

 Trade among the NAFTA nations has more than doubled from 1993 to 2008.

 The Central American Free Trade Agreement (CAFTA- DR) established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

 Talks have been underway since 1994 to investigate establishing a Free Trade Area of the Americas (FTAA).

 In late 2004, Mercosur and CAN agreed to unite, creating the Union of South American Nations (UNASUR).

 Economic Environment

 Two economic factors reflect the country’s attractiveness as a market:

 1.     Industrial structure

2.     Income distribution.

 1.     The country’s industrial structure shapes its product and service needs, income levels, and employment levels.

 The four types of industrial structures are as follows:

 ·        Subsistence economies: The vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities.

·        Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. These countries are good markets for large equipment, tools and supplies, and trucks.

·        Industrializing economies: Manufacturing accounts for 10 to 20 percent of the country’s economy. The country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles.

·        Industrial economies: Major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semifinished goods.

2.     Income distribution is the second factor.

 Industrialized nations may have low-, medium-, and high-income households.

 Countries with subsistence economies may consist mostly of households with very low family incomes.

 Still other countries may have households with only either very low or very high incomes.

 Even poor or developing economies may be attractive markets for all kinds of goods.

 Use Discussing the Issues 2 here.

Use Marketing by the Numbers here.

 Political?Legal Environment

 Some nations are very receptive to foreign firms; others are less accommodating.

   Companies must consider a country’s monetary regulations.

 Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases.

 They may want to pay with other items instead of cash – e.g., barter.

 Cultural Environment

 The Impact of Culture on Marketing Strategy

 The seller must understand the ways that consumers in different countries think about and use certain products before planning a marketing program.

 Business norms and behavior vary from country to country.

 The Impact of Marketing Strategy on Cultures

 Social critics contend that large American multinationals such as McDonald’s, Coca-Cola, Starbucks, Nike, Microsoft, Disney, and MTV are “Americanizing” the world’s cultures.

 Critics worry that, under such “McDomination,” countries around the globe are losing their individual cultural identities.

 Such concerns have sometimes led to a backlash against American globalization.

 In the most recent survey of global brands, 8 of the top 10 brands were American-owned.

 Use Application Question 3 here.

Use Marketing and the Economy here.

 DECIDING WHETHER TO GO GLOBAL

Not all companies need to venture into international markets to survive.

 Any of several factors might draw a company into the international arena.

 ·        Global competitors might attack the company’s home market by offering better products or lower prices.

·        The company might want to counterattack these competitors in their home markets.

·        The company’s customers might be expanding abroad and require international servicing.

·        International markets may present better opportunities for growth.

 Before going abroad, the company must weigh several risks and answer many questions about its ability to operate globally.

 ·        Can it learn to understand the preferences and buyer behavior of consumers in other countries?

·        Can it offer competitively attractive products?

·        Will it be able to adapt to other countries’ business cultures and deal effectively with foreign nationals?

·        Do the company’s managers have the necessary international experience?

·        Has management considered the impact of regulations and the political environments of other countries?

 DECIDING WHICH MARKETS TO ENTER

Before going abroad, the company should:

 ·        Define its international marketing objectives and policies.

·        Decide what volume of foreign sales it wants.

·        Decide how many countries it wants to market.

·        Decide on the types of countries to enter.

·        Evaluate each selected country.

 Possible global markets should be ranked on several factors, including:

 ·        Market size,

·        Market growth,

·        Cost of doing business,

·        Competitive advantage, and

·        Risk level.

 Use Table 15.1 here.

Use Discussing the Issues 4 here.

Use Marketing Technology here.

 DECIDING HOW TO ENTER THE MARKET

Use Key Term Exporting here.

Use Figure 15.2 here.

Use Chapter Objective 2 here.

 Exporting

 Exporting is the simplest way to enter a foreign market.

 Indirect exporting is working through independent international marketing intermediaries.

 Indirect exporting involves less investment and less risk.

 Direct exporting is where the company handles their own exports.

 The investment and risk are somewhat greater in this strategy, but so is the potential return.

 A company can conduct direct exporting in several ways:

 ·        It can set up a domestic export department that carries out export activities.

·        It can set up an overseas sales branch that handles sales, distribution, and promotion.

·        It can send home?based salespeople abroad at certain times in order to find business.

·        It can do its exporting either through foreign?based distributors or foreign?based agents.

 Joint Venturing

 Joint venturing is joining with foreign companies to produce or market products or services.

 There are four types of joint ventures:

 1.     Licensing,

2.     Contract manufacturing,

3.     Management contracting, and

4.     Joint ownership.

 1.     Licensing

 Licensing is a simple way for a manufacturer to enter international marketing.

 The company enters into an agreement with a licensee in the foreign market.

 For a fee or royalty, the licensee buys the right to use the company’s manufacturing process, trademark, patent, trade secret, or other item of value.

 Licensing has disadvantages:

 ·        The firm has less control over the licensee than it would over its own operations.

 ·        If the licensee is very successful, the firm has given up profits.

·        When the contract ends, it may find it has created a competitor.

 2.     Contract Manufacturing

 Contract manufacturing occurs when the company contracts with manufacturers in the foreign market to produce its product or provide its service.

 The drawbacks are:

 ·        Decreased control over the manufacturing process.

·        Loss of potential profits on manufacturing.

 The benefits are:

 ·        The chance to start faster, with less risk.

·        The later opportunity either to form a partnership with or to buy out the local manufacturer.

 3.     Management Contracting

 Management contracting takes place when the domestic firm supplies management know-how to a foreign company that supplies the capital.

 This is a low?risk method of getting into a foreign market, and it yields income from the beginning.

 The arrangement is not sensible if the company can put its management talent to better uses or if it can make greater profits by undertaking the whole venture.

 4.     Joint Ownership

 Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control.

 A company may buy an interest in a local firm, or the two parties may form a new business venture.

 Joint ownership may be needed for economic or political reasons.

  Joint ownership has drawbacks:

 ·        The partners may disagree over policies.

·        Whereas U.S. firms emphasize the role of marketing, local investors may rely on selling.

 Use Key Terms Joint Venturing, Licensing, Contract Manufacturing, Management Contracting, Joint Ownership, and Direct Investment here.

 5.     Direct Investment

 Direct investment is the development of foreign?based assembly or manufacturing facilities.

 Advantages:

 ·        Lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings.

·        The firm may improve its image in the host country.

·        Development of a deeper relationship with government, customers, local suppliers, and distributors.

·        The firm keeps full control over the investment.

  The main disadvantage of direct investment is that the firm faces many risks.

  Use Key Terms Standardized Global Marketing and Adapted Global Marketing here.

Use Chapter Objective 3 here.

Use Linking the Concepts here.

 DECIDING ON THE GLOBAL MARKETING PROGRAM

Standardized global marketing is using largely the same marketing strategy approaches and marketing mix worldwide.

 Adapted global marketing is adjusting the marketing strategy and mix elements to each target market, bearing more costs but hoping for a larger market share and return.    

 Use Marketing at Work 15.1 here.

 Some global marketers believe that technology is making the world a smaller place and that consumer needs around the world are becoming more similar.

  This paves the way for “global brands” and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale.

 However, because cultural differences are hard to change, most marketers adapt their products, prices, channels, and promotions to fit consumer desires in each country.

 Product

 Use Figure 15.3 here.

 Five strategies exist allow for adapting product and marketing communication strategies to a global market (Figure 15.3).

 Straight product extension means marketing a product in a foreign market without any change.

 Product adaptation involves changing the product to meet local conditions or wants.

 Product invention consists of creating something new for a specific country market.

 This strategy can take two forms.

 1.     Maintaining or reintroducing earlier product forms that happen to be well adapted to the needs of a given country.

2.     Create a new product to meet a need in a given country.

 Use Key Terms Straight Product Extension, Product Adaptation, and Product Invention here.

Use Discussing the Issues 5 here.

 Promotion

 Companies can either:

 1.     Adopt the same communication strategy they used in the home market or

2.     Change it for each local market.

 Colors are changed sometimes to avoid taboos in other countries.

 Communication adaptation is fully adapting their advertising messages to local markets.

   Use Key Term Communication Adaptation here.

Use Marketing at Work 15.2 here.

 Price

 Regardless of how companies go about pricing their products, their foreign prices probably will be higher than their domestic prices for comparable products.

 Why? It is a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price.

 To overcome this problem when selling to less-affluent consumers in developing countries, many companies make simpler or smaller versions of their products that can be sold at lower prices.

 Dumping occurs when a company either charges less than its costs or less than it charges in its home market.

 The Internet is making global price differences more obvious.

 When firms sell their wares over the Internet, customers can to see how much products sell for in different countries. This is forcing companies toward more standardized international pricing.

 Distribution Channels

 The whole-channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well internationally, the company must effectively design and manage an entire global value delivery network.

 Figure 15.4 shows the two major links between the seller and the final buyer.

 Channels between nations moves company products from points of production to the borders of countries within which they are sold.

Channels within nations moves the products from their market entry points to the final consumers.

 Use Key Term Whole-Channel View here.

Use Figure 15.4 here.

Use Marketing Ethics here.

Use Linking the Concepts here.

  DECIDING ON THE GLOBAL MARKETING ORGANIZATION

A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department.

 Many companies get involved in several international markets and ventures. An international division may be created to handle all its international activity.

 international divisions are organized in a variety of ways.

 ·        Geographical organizations: Country managers who are responsible for salespeople, sales branches, distributors, and licensees in their respective countries.

·        World product groups: each responsible for worldwide sales of different product groups.

·        International subsidiaries: each responsible for its own sales and profits.

 Global organizations are companies that have stopped thinking of themselves as national marketers who sell abroad and have started thinking of themselves as global marketers.

 Use Discussing the Issues 6 here.