Chapter 7 - Lecture Outline
I. The Nature of Global Marketing Strategy
A. Technological advances and rapidly changing political and economic conditions are making it easier for more companies to market their products overseas as well as at home.
B. International marketing involves developing and performing marketing activities across national boundaries.
C. Many U.S. firms are finding that international markets provide tremendous opportunities for growth, although some people argue that too few firms take full advantage of these opportunities.
1. Many countries offer practical assistance and valuable research to help their domestic firms become more competitive globally.
2. Prior to the 1990s, most firms entered international markets incrementally as they gained knowledge and experience.
3. So-called Born Globals—typically small technology-based firms operating in international markets within two years of their establishment and realizing as much as 70 percent of their sales outside the domestic home market—have challenged the traditional incremental approach to internationalization.
II. Environmental Forces in International Markets
A successful international marketing strategy requires a careful environmental analysis to understand the needs and desires of foreign customers. Differences in sociocultural, economic, political, legal, and technological forces can profoundly affect marketing strategies.
A. Competitive Forces
1. In addition to considering the types of competition (i.e., brand, product, generic, and total budget competition) and types of competitive structures (i.e., monopoly, oligopoly, monopolistic competition, and pure competition), firms operating internationally also need to attend to the competitive forces in the countries they target, identify the interdependence of countries and the global competitors in those markets, and understand a new breed of customers—the global customer.
2. Each country has unique competitive aspects—often founded in the other environmental forces (i.e., socio-cultural, technological, political, legal, regulatory, and economic forces)—that are often independent of the competitors in that country.
3. While competitors drive competition, nations establish the infrastructure for the type of competition that can take place.
4. Customers today expect to be able to buy the same products with the same features in most of the world’s countries.
B. Economic Forces
Global marketers need to understand the international trade system, particularly the economic stability of individual nations as well as trade barriers that may stifle marketing efforts.
1. Economic differences among nations dictate many of the adjustments that must be made in marketing abroad.
2. Marketers should consider whether a nation imposes trade restrictions.
a) An import tariff is any duty levied by a nation on goods bought outside its borders and brought in.
b) A quota is a limit on the amount of goods an importing country will accept for certain product categories in a specific time period.
c) An embargo is a government’s suspension of trade in a particular product or with a given country.
d) Exchange controls are government restrictions on the amount of a particular currency that can be bought or sold.
3. Countries may limit imports to maintain a favorable balance of trade, which is the difference in value between a nation’s exports and imports.
4. Knowledge about per capita income, credit, and the distribution of income provides general insights into market potential.
a) Gross domestic product (GDP) is an overall measure of a nation’s economic standing; it is the market value of a nation’s total output of goods and services for a given period.
b) Per capita income is gross domestic product in relation to population.
5. Opportunities for international trade are not limited to countries with the highest incomes.
C. Political Forces
1. A country’s legal and regulatory infrastructure is a direct reflection of the political climate in the country.
2. While laws and regulations have direct effects on a firm’s operations in a country, political forces are indirect and often not clearly known in all country markets.
3. To offset the potential political negatives that may exist in a country or region, companies strive to maintain good relations with political officials in the targeted countries.
4. The political climate in a country or region, political officials in a country, and political officials in charge of trade agreements have a direct effect on the legislation and regulations (or lack thereof).
D. Legal and Regulatory Forces
1. A nation’s political system, laws, regulatory bodies, special interest groups, and courts all have great impact on international marketing.
2. A government’s policies toward public and private enterprise, consumers, and foreign firms influence marketing across national boundaries through tariff and nontariff barriers.
3. The prevalence of the practice of bribery illustrates the differences in national standards of ethics.
a) Because U.S. trade and corporate policy, as well as U.S. law, prohibits direct involvement in payoffs and bribes, American companies may have a hard time competing with foreign firms that engage in these practices.
b) Some U.S. businesses that refuse to make payoffs are forced to hire local consultants, public relations firms, or advertising agencies, which results in indirect payoffs.
c) However, under the Foreign Corrupt Practices Act of 1977, it is illegal for U.S. firms to attempt to make large payments or bribes to influence policy decisions of foreign governments.
d) Nevertheless, facilitating payments, or small payments to support the performance of standard tasks, are often acceptable.
E. Cultural, Social, and Ethical Forces
1. Cultural, social, and ethical differences among nations can have significant effects on marketing activities.
2. Because marketing activities are primarily social in purpose, they are influenced by beliefs and values regarding family, religion, education, health, and recreation.
3. It can be difficult to transfer marketing symbols, trademarks, logos, and even products to international markets.
4. Cultural differences may also affect marketing negotiations and decision-making behavior.
5. Buyers’ perceptions of other countries can influence product adoption and use.
6. When products are introduced from one nation into another, acceptance is far more likely if there are similarities between the two cultures.
7. Differences in ethical standards can also affect marketing efforts.
F. Technological Forces
1. Advances in technology (i.e., e-mail, voice mail, fax, cellular phones, and the Internet) have made international marketing more affordable and convenient.
2. In many developing countries that lack the level of technological infrastructure found in the United States, marketers are beginning to capitalize on opportunities to “leapfrog” existing technology.
G. Ethical and Social Responsibility Forces
1. When businesspeople travel, they sometimes perceive that the cultures of other nations have different modes of operation; this implied perspective of “us” versus “them” is also common in other countries. This is the self-reference criterion (SRC), the unconscious reference to one’s own cultural values, experiences, and knowledge.
a) When confronted with a situation, some businesspeople react on the basis of knowledge and experience accumulated over a lifetime, which is usually grounded in their culture of origin (and often rooted in their religious beliefs).
b) However, many businesspeople adopt the principle of “When in Rome, do as the Romans do,” that is, they adapt to the cultural practices of the country they are in and use the host country’s cultural practices to rationalize straying from their own ethical values when doing business internationally.
2. Cultural relativism refers to the concept that morality varies from one culture to another and that business practices are therefore differentially defined as right or wrong by particular cultures.
III. Regional Trade Alliances, Markets, and Agreements
Although more firms are beginning to view the world as one huge marketplace, various regional trade alliances and specific markets affect companies engaging in international marketing; some create opportunities, others impose restraints.
A. The North American Free Trade Agreement (NAFTA)
1. The North American Free Trade Agreement (NAFTA), which went into effect in 1994, effectively merged Canada, Mexico, and the United States into one market of more than 421 million consumers.
a) NAFTA will eliminate virtually all tariffs on goods produced in and traded between Canada, Mexico, and the United States to create a totally free trade area by 2009.
b) NAFTA makes it easier for U.S. businesses to invest in Mexico and Canada, provides protection for intellectual property, expands trade by requiring equal treatment of U.S. firms in both countries, and simplifies country-of-origin rules.
c) Canada’s consumers are relatively affluent and represent a significant market for U.S. firms.
d) The growth of Mexico’s economy represents a significant opportunity for U.S. firms and, despite some economic instability, provides an opportunity to reach other Latin American countries while strengthening NAFTA.
2. Mexico’s membership in NAFTA links the United States and Canada with other Latin American countries, providing additional opportunities to integrate trade among all the nations in the Western Hemisphere.
a) The Free Trade Area of the Americas (FTAA), a free trade agreement among the 34 nations of North and South America, will progressively eliminate trade barriers and create the world’s largest free trade zone, with 800 million people.
b) The Central American Dominican Republic Free Trade Agreement (CAFTA-DR)—between Cost Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States—has also been approved in all those countries except Cost Rica.
3. Although NAFTA has been controversial, it has become a positive factor for U.S. firms wishing to engage in international marketing.
B. The European Union (EU)
1. The European Union (EU)—which today includes Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Hungary, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom—was officially formed in 1958 to promote trade among its members.
2. To facilitate free trade among members, the EU is working toward the standardization of business regulations and requirements, import duties, and value-added taxes; the elimination of customs checks; and the creation of a standardized currency for use by all members. (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain have begun using a common currency, the “euro.”) These changes have not been without controversy, however.
3. As the EU nations attempt to function as one large market, consumers in the EU may become more homogeneous in their needs and wants. Marketers should be aware, however, that cultural differences among the nations may require modifications in the marketing mix for customers in each nation.
C. The Common Market of the Southern Cone (MERCOSUR)
1. The Common Market of the Southern Cone (MERCOSUR) was established in 1991 to unite Argentina, Brazil, Paraguay, and Uruguay as a free trade alliance. Venezuela joined in 2005; Bolivia, Chile, Colombia, Ecuador, and Peru have associate member status.
2. The alliance promotes the free circulation of goods, services, and production factors among member nations.
D. Asia-Pacific Economic Cooperation (APEC)
1. The Asia-Pacific Economic Cooperation (APEC), established in 1989, promotes open trade and economic and technical cooperation among member nations, which today include Australia, Brunei Darussalam, Canada, Chile, China, Chinese Taipei, Indonesia, Hong Kong, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Thailand, the United States, and Vietnam.
2. APEC differs from other international trade alliances in its commitment to facilitating business and its practice of allowing the business/private sector to participate in a wide range of alliance activities.
3. Despite economic turmoil and a recession in Asia in recent years, companies of the APEC have become increasingly competitive and sophisticated in global business.
a) Despite the high volume of trade between the United States and Japan, the two nations continue to struggle with cultural and political differences and are, in general, at odds over how to do business with each other.
b) The People’s Republic of China represents a huge potential market opportunity with its 1.3 billion people, but there are many risks associated with doing business in China.
c) Pacific Rim regions, such as South Korea, Thailand, Singapore, Taiwan, Vietnam, and Hong Kong, have become major manufacturing and financial centers.
E. World Trade Organization (WTO)
1. The General Agreement on Tariffs and Trade (GATT) was based on negotiations among member countries to reduce worldwide tariffs and increase international trade in the wake of the Second World War.
2. GATT was the precursor to the World Trade Organization (WTO), a global entity that promotes free trade among member nations by eliminating trade barriers and educating individuals, companies, and governments about trade rules around the world.
3. Among the trade issues the WTO addresses is rules to prevent dumping, the selling of products at unfairly low prices.
IV. International Entry Modes
A. Marketers engage in international marketing activities at several levels of involvement that cover a wide spectrum.
1. Traditionally, firms have adopted one of four modes of entering an international market, with each successive “stage” representing different degrees of international involvement:
a) Stage 1: No regular export activities
b) Stage 2: Export via independent representatives (agents)
c) Stage 3: Establishment of one or more sales subsidiaries internationally
d) Stage 4: Establishment of international production/manufacturing facilities
2. Today a firm’s international involvement covers a wide spectrum from purely domestic marketing to global marketing.
a) Domestic marketing involves marketing strategies aimed at markets within the home country; at the other extreme, global marketing entails developing marketing strategies for the entire world (or at least more than one major region of the world).
b) Many firms with an international presence start out as small companies serving local and regional domestic markets and expand to national markets before considering opportunities in foreign markets; the born global firm, is one exception to this internationalization process.
c) Limited exporting may occur even if a firm makes little or no effort to obtain foreign sales; foreign buyers may seek out the company and/or its products, or a distributor may discover the firm’s products and export them.
d) The level of commitment to international marketing is a major variable in global marketing strategies.
B. Importing and Exporting
1. Importing and exporting require the least amount of effort and commitment of resources.
a) Importing is the purchase of products from a foreign source.
b) Exporting is the sale of products to foreign markets. Finding an exporting intermediary to take over most marketing functions associated with selling to other countries entails minimal effort and cost.
2. Export agents bring together buyers and sellers from different countries; they collect a commission for arranging sales.
3. Buyers from foreign companies and governments provide a direct method of exporting and eliminate the need for an intermediary.
C. Trading Companies
1. Marketers sometimes employ a trading company, which links buyers and sellers in different countries but is not involved in manufacturing and does not own assets related to manufacturing.
2. An important function of trading companies is taking title to products and performing all the activities necessary to move the products from the domestic country to a foreign country.
3. Trading companies reduce risk for firms interested in getting involved in international marketing.
D. Licensing and Franchising
1. Licensing is an alternative to direct investment requiring a licensee to pay commissions or royalties on sales or supplies used in manufacturing.
a) Exchanges of management techniques or technical assistance are primary reasons for licensing arrangements.
b) Licensing is an attractive alternative to direct investment when the political stability of a foreign country is in doubt or when resources are unavailable for direct investment.
2. Franchising is a form of licensing in which a company (the franchiser) grants a franchisee the right to market its product, using its name, logo, methods of operation, advertising, products, and other elements associated with the franchiser’s business, in return for a financial commitment and an agreement to conduct business in accordance with the franchiser’s standard of operations. This arrangement allows franchisers to minimize the risks of international involvement in four ways:
a) The franchiser does not have to put up a large capital investment.
b) The franchiser’s revenue stream is fairly consistent because franchisees pay a fixed fee and royalties.
c) The franchiser retains control of its name and increases global penetration of its product.
d) The franchise agreements ensure a certain standard of behavior from franchisees, which protects the franchise name.
E. Contract Manufacturing
1. Contract manufacturing occurs when a company hires a foreign firm to produce a designated volume of the firm’s product to specifications, and the final product carries the domestic firm’s name.
2. Outsourcing is defined as the contracting of non-core operations or jobs from internal production within a business to an external entity that specializes in that operation.
a) Offshoring is defined as outsourcing a business process to a foreign country, regardless of whether the production accomplished in the foreign country is performed by a wholly owned subsidiary or a third-party subcontractor.
b) Offshore outsourcing is the practice of contracting with an organization to perform some or all business functions in a country other than the country in which the product or service will be sold.
F. Joint Ventures
1. A joint venture is a partnership between a domestic firm and a foreign firm or government.
a) Control of the joint venture may be split equally, or one partner may control decision making.
b) Joint ventures often are a political necessity because of nationalism and government restrictions on foreign ownership; they also provide legitimacy in the eyes of the host country’s citizens.
c) Joint ventures are assuming greater global importance because of cost advantages and the number of inexperienced firms entering foreign markets.
2. Strategic alliances, the newest form of international business structure, are partnerships formed to create competitive advantage on a worldwide basis.
a) Strategic alliances differ from joint ventures in that the alliance partners may have been traditional rivals competing for market share in the same product class.
b) The success rate of international alliances could be higher if there were a better fit between the companies.
c) A strategic alliance should focus on a joint market opportunity from which all partners can benefit.
G. Direct Ownership
1. Once a company makes a long-term commitment to marketing in a foreign nation that has a promising political and economic environment, direct ownership of a foreign subsidiary or division is a possibility.
2. The term multinational enterprise refers to firms that have operations or subsidiaries in many countries.
1. A wholly owned foreign subsidiary may be allowed to operate independently of the parent company so that its management can have more freedom to adjust to the local environment.
V. Global Organizational Structures
A. The pyramid in Figure 7.2 symbolizes how deeply rooted the international operations and values are in the firm, with the base of the pyramid—structure—being the most difficult to change (especially in the short term).
B. Three basic structures of international organizations exist: export departments, international divisions, and internationally integrated structures (e.g., product division structures, geographic area structures, and matrix structures).
C. Export Departments
1. For most firms, the early stages of international development are often improvised and motivated by sales opportunities in the global marketplace.
2. For most firms engaging internationally for the first time, very minimal, if any, organizational adjustments take place to accommodate the international sales of the firm.
3. Exporting, licensing, and using trading companies are preferred modes of international market entry for firms with an export department structure.
D. International Divisions
1. The international division of a firm centralizes all of the responsibility for international operations (and in many cases all international activities also become centralized in the international division).
2. Firms with international divisions can be in a relatively early stage of their international development; for such firms exporting, licensing and franchising, trading companies, contract manufacturing, and joint ventures are possible modes of international market entry.
3. In particular, firms that use an international division structure are often organized domestically on the basis of functions or product divisions, while the international division operates based on geography.
4. Lack of coordination between domestic and international operations is commonly the most significant flaw in the international division structure.
E. Internationally Integrated Structures
1. Three common internationally integrated structures are the product division structure, the geographic area structure, and the matrix structure.
2. Firms with internationally integrated structures have multiple choices for international market entry similar to international divisions, and they are the most likely to engage in direct ownership activities internationally.
a) The product division structure is used by the majority of multinational firms.
(1) Each division is a self-contained entity with responsibility for its own operations, whether it is based on a country or regional basis; the worldwide headquarters maintains the overall responsibility for the strategic direction of the firm, while the product division is in charge of implementation.
(2) This structure lends itself well to firms that are diversified, often driven by their current domestic operations.
b) The geographic area structure lends itself well to firms with a low degree of diversification.
(1) It divides the world into logical geographical areas based on the firm’s operations and its customers’ characteristics.
(2) This structure facilitates local responsiveness but is not ideal for global cost reductions and transferring core knowledge across the firm’s geographic units.
c) The global matrix structure was designed to achieve both global integration and local responsiveness.
(1) An effectively implemented global matrix structure has the benefit of being global in scope while also being nimble and responsive locally.
(2) A poorly implemented global matrix structure results in added bureaucracy and indecisiveness in leadership and implementation.
VI. The International Marketing Mix: Customization Vs. Globalization
A. Traditionally, international marketing strategies have customized marketing mixes according to cultural, regional, and national differences.
B. At the other end of the spectrum, globalization of marketing involves developing marketing strategies as though the entire world (or its major regions) were a single entity; a globalized firm markets standardized products in the same way everywhere.
C. For many years, marketers have attempted to globalize their marketing mixes as much as possible by employing standardized products, promotional campaigns, prices, and distribution channels for all markets.
1. Brand name, product characteristics, packaging, and labeling are among the easiest marketing mix variables to standardize; media allocation, retail outlets, and price may be more difficult.
2. In the end, the degree of similarity among the various environmental and market conditions determines the feasibility and degree of globalization.
D. International marketing demands some strategic planning if a firm is to incorporate sales into its overall marketing strategy.
E. Regardless of the extent to which a firm chooses to globalize its marketing strategy, extensive environmental analysis and marketing research are necessary to understand the needs and desires of the target market(s) and successfully implement the chosen marketing strategy.