International Marketing
• Czinkota & Ronkainen
• Fall 2009
• Web Slides
• Ch1-5, 8-10
Chapter 1
The Global Marketing Imperative
The World – 1.
• About 220 countries in all; out of which:
• Thirty countries are classified as Developed Countries – Also
called OECD (Organization for Economic Cooperation and
Development) countries. Include U.S., Canada, most of
Europe, Japan, Australia, New Zealand, Singapore, Turkey,
etc.
• About 30 are Middle Income Countries: Korea, Taiwan,
Malaysia, Mexico, South Africa, Brazil, Israel, Chile, several
Eastern/Southern European countries, Russia, etc.
• Another 15 or so are Major Oil Exporters : 11 OPEC
members like Saudi Arabia, Kuwait, Iran, Iraq, Indonesia,
Nigeria, Venezuela, etc. Plus non-members like Mexico,
Russia, U.K., and Norway.
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The World – 2.
• Developing Countries: Most Asian and African
countries (A majority of the world’s countries belong
here).
• Rapidly Developing Very Large Countries:
China, India, Brazil, Russia (BRICs)
• Poor Countries: Countries stagnant at very low
levels of development, e.g., Burma, Bangladesh,
Afghanistan, Haiti, Nepal, most sub-Saharan
African countries.
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The World – 3.
• Big Emerging Markets (BEMs): In the next 10-20
years, BEMs such as the Chinese Economic Area
(CEA: China + HK+ Taiwan), India, South Korea,
Mexico, Brazil, Argentina, South Africa, Poland,
Turkey, Russia, and the Association of Southeast
Asian Nations (ASEAN: including Indonesia, Brunei,
Malaysia, Thailand, the Philippines, and Vietnam) will
provide major/dominant opportunities in global
business.
Global Marketing Imperative
• Saturation of domestic markets: especially, First
World markets.
• Global competition intensifying.
• Need for global cooperation (Global competition
brings global cooperation).
• Internet: The Internet and electronic commerce
(e-commerce) revolution
• Expanding market opportunities.
The Importance of World Trade
• World trade in merchandise: from $6.2 trillion in 2000 to
over $15.1 trillion in 2008.
• World trade in services: from $1.5 trillion to $3.3 trillion.
• Global growth of trade has outperformed the growth of
domestic economies in the past few decades.
• Provides new marketing opportunities such as
investment on a global scale, international specialization
and cross-sourcing, increased quality and variety of
goods, access to otherwise unavailable goods, access to
talent, new management knowhow, use of technology to
enhance business functioning, etc.
Advantages of International Trade for
Consumers.
- More quantity
– Better quality
– Greater variety within product categories
– More customized products/Services
– Lower prices
– Choice of products not available without
international trade (silk, diamonds, coffee, bananas,
mica, chromium, and much more.)
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Advantages of International Trade
for Firms.
Access to:
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Bigger markets
Foreign resources
New management knowledge
New technologies
Experience with selling to diverse markets
Chance to deal with different forms of governments
Chance to work in different competitive
environments
Enhanced ability to compete in home market
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Arguments Against Free Trade.
• Infant industry
• Strategic industry
• Protection of world species (CITES: Convention on
International Trade in Endangered Species)
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Protection of local species, crops, etc
Domestic environment & culture protection
Domestic politics, jobs etc.
Health & safety of domestic residents
Evolution of Global Marketing.
Five stages in the evolution of global marketing
1.
2.
3.
4.
5.
Domestic Marketing
Export Marketing
International Marketing (markets in many countries;
polycentric orientation).
Multinational Marketing (many markets; consolidation
on regional basis).
Global Marketing (global perspective; global products
with local variations - Standardized efforts, Coordination
across markets, Global integration).
Comparative/Absolute Advantage.
U.S. vs. China
Both have 1,000lh resources
US: 1lh corn, 5lh microwave
China: 5lh corn, 2lh microwave
Without Trade:
- U.S. – 500 corn + 100 microwave
- China – 100 corn + 250 microwave
Total = 600 corn + 350 microwave
With trade:
- U.S. – 1,000 corn, China – 500 microwave
Total = 1,000 corn + 500 microwave ovens
TM 16
Factors of Comparative Advantage
Sources of Comparative Advantage
(Resource Endowment).
(A) Natural Resources (climate, size, location, topography,
flora & Fauna, minerals, etc.).
(B) Man-made Resources (technology, infrastructure,
Education & Training, etc.)
(C) Human Resources (number, age distribution, health,
size, etc.)
(D) Managerial Know-how
(E) Traditions
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Product Lifecycle Theory – 2.
Chapter 2
Trade Institutions and
Trade Policy
The Historical Dimension
• The rise and fall of the Roman Empire and the
emergence of feudalism can be attributed to trade.
• The Romans placed primary emphasis on encouraging
international business activities.
• They implemented this through Pax Romana, or the
“Roman Peace,” and the common coinage.
• Silk Road, African caravans
• Etc.
More Recent History
• The Smoot-Hawley Act (1930) raised import
duties on 20,000 products to reduce the volume
of imports into the United States to help restore
domestic employment →
– in raising of duties and imposition of imports
barriers by other nations →
– worldwide depression and the collapse of the
world financial system.
More Recent History
• Post WW II:
– The world was split into Eastern bloc led by the Soviet
Union as the Western world led by the United States.
– Soviet block focused on developing strong linkages
among the members. Emphasis on centrally planned
economies and heavy industry
– United States created the Pax Americana and fostered
international trade as a key to worldwide prosperity.
Emphasis on market economies and balanced
consumer/industrial goods sectors
Transnational Institutions Affecting
World Trade
ITO (International Trade Organization): Proposed at Bretton
Woods Conference (1944) but was never ratified by the
US Congress.
GATT (General Agreement on Tariffs and Trade): A set of rules
for non discrimination, transparent procedures and
settlement of disputes in international trade. Agreed upon
in Geneva and adopted by 23 countries in1947.
Purpose: provide an international forum to encourage free
trade among member states
Means: 1. regulation and reduction of tariffs on traded
goods, 2. provision of a common mechanism for resolving
trade disputes
Name changed to World Trade Organization (WTO) on
January 1, 1995 (by Uruguay Round)
Transnational Institutions Affecting
World Trade
WTO is the new legal and institutional foundation for a multilateral trading
system. It currently it has 153 member countries.
Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes (empowered with ability to enforce rulings)
• Monitoring national trade policies (countries found in violation of
WTO rules are expected to change policies or else face sanctions)
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Also responsible for General Agreement on Trade in Services (GATS),
Trade related aspects of intellectual property rights (TRIPS), and
Trade related investment measures (TRIMS).
Its 9th round of negotiations (Doha Round) was launched in 2001 in
Doha, Qatar. It facilitated the way for China and Taiwan to get full
membership in the WTO.
As of now, the Doha Round is completely stalled because of
unresolved subsidy issues
World Banking Group, 1944
Five major components:
- International Bank for Reconstruction and
Development (IBRD) - WB
- International Development Association (IDA) WB
- International Finance Corporation (IFC) - WBG
- Multilateral Investment Guarantee Agency
(MIGA) - WBG
- International Center for Settlement of
Investment Disputes (ICSID) - WPG
World Bank: Current areas of focus
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Sustainable growth and development.
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Clean technologies.
Addressing higher commodity prices.
Agricultural assistance for combating inflation in food.
Liberalization of world trade.
Greater participation of rising economic powers and
developing nations in the bank’s governance.
Reconstruction of war-torn countries.
Assists fledging economies to participate in modern
economic trade.
Resolving debt problems of developing nations.
Bringing market economy to former Eastern bloc nations.
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Trade Positions
• International trade positions have changed substantially
when measured in terms of world market share.
• The U. S share of total world export has declined
precipitously since 1950s.
• Another important development is the rise of China, India
and Brazil’s trade positions.
• The impact of international trade and marketing on
individuals is highlighted when trade is scrutinized from a
per-capita perspective.
Trade Positions (contd.)
• Factors behind the decline in U.S. international
competitiveness:
– Attitude of the American policy makers.
– Ignoring domestic firms in an attempt to boost the
development of foreign economies (OK during Marshall Plan
but disastrous when facing strong foreign competitors)
– Perception amongst US manufacturers about
international marketing being risky and complicated.
– Lack of global interest (Technological arrogance, NIH syndrome,
etc).
– Inadequacy of information.
– Unfamiliarity with international market conditions.
– Complicated trade regulations.
The Impact of Trade and Investment
• The effect of trade – Importance of Exports:
– Create a trade balance by reducing trade deficits.
– Affect the currency values and fiscal and
monetary policies of the government.
– Shape public perception about competitiveness.
– Determine the affordable levels of imports for a
country.
– Help achieve economies of scale.
The Impact of Trade and Investment
• The effect of trade – Importance of imports:
– Firms are exposed to new competition.
– Gives rise to new marketing approaches, better
processes or better products and services.
– Competitive pressures keep quality high and price
low.
The Impact of Trade and Investment
• The effect of international investment
– Almost one in seven U.S. manufacturing employees works for
a foreign affiliate.
– To some extent, foreign direct investments substitute for trade
activities.
– Even though theory suggests open investment policy, some
uneasiness exists about the rapid growth of such investment.
• Restriction on investments may
– Permit more domestic control over industries.
– Deny access to foreign capital and often innovation.
– Tightening up credit markets → higher interest rates, and a
decrease in willingness to adapt to changing world market
conditions
Chapter 3
The Cultural Environment
Culture Defined
• Culture - An integrated system of learned behavior
patterns that are distinguishing characteristics of the
members of any given society.
• It encompasses a wide variety of elements, from
materialistic to the spiritual.
• Enculturation – Absorbing one’s own culture
Acculturation - Adjusting and adapting to a specific
culture other than one’s own.
• Adjusting to cultures is one of the keys to success in
international operations.
Elements of Culture
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Language
Religion
Values & Attitudes
Manners & Customs
Material Elements
Aesthetics
Education
Social Institutions
• Cultural universals - Manifestations of the total way of life that are
common to all cultures (elements such as body adornments,
courtship, etiquette, family, gestures, joking, mealtimes, music,
personal names, status differentiation, and trade etc.)
Elements of Culture
Language
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Written/Spoken/Body Language
Forms of Address
Direct/Contextual (high vs. low context)
Hierarchy
Diversity
Etc.
Elements of Culture
• Religion provides the basis for transcultural
similarities under shared beliefs and behavior.
• The major religions include:
– Christianity - Lays stress on frugality and
accumulation of wealth from hard work; consists
of two significant groups Catholicism and
Protestantism.
– Islam - Plays a pervasive role in the life of its
followers; it supports entrepreneurship and
discourages exploitation.
Elements of Culture
• The major religions
– Hinduism - Family is an important element in Hindu
society; the extended family structure has an impact
on the purchasing power and consumption of Hindu
families.
– Buddhism - Views life as an existence of suffering;
emphasizes on spiritual achievement rather than
worldly goods.
– Confucianism - Is characterized by a code of conduct;
stresses on loyalty and relationships.
Elements of Culture
• Values and attitudes
– Values are shared beliefs or group norms that
have been internalized by individuals.
– Attitudes are evaluations of alternatives based
on values.
– Attitudes towards change is positive in
industrialized countries, while in tradition
bound societies change is viewed with
suspicion.
Elements of Culture
• Manners and customs
– Understanding manners and customs is especially
important in negotiations.
– Potential problem areas for marketers arise from
insufficient:
• Understanding of different ways of thinking.
• Attention to the necessity of saving face.
• Recognition of the differences in decision-making
process and the role of personal relations.
• Allocation of time for negotiations.
Elements of Culture
• Manners and customs
– Concept of Time:
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Linear vs. cyclical
Times of day
Appointments, meetings
Industrial discipline
– Differences in the ways products are purchased and used.
– Package sizes and labels must be adapted in many
countries to suit the needs of the particular culture.
Elements of Culture
• Material culture results from technology and is manifested in
the availability and adequacy of the following basic
infrastructures.
– Economic - Consists of transportation, energy, and
communications systems.
– Social - Refers to housing, health, and educational
systems.
– Financial and marketing - Provide the facilitating
agencies for the international firm’s operation in a given
market; for example, banks and research firms.
• Technological advancement also brings about cultural
convergence.
Elements of Culture
• Aesthetics
– Each culture makes a clear statement
concerning good taste, as expressed in the
arts and in the particular symbolism of colors,
form, music, etc.
– Color is often used as a mechanism for brand
identification, feature reinforcement, and
differentiation.
Elements of Culture
Education:
• Levels of Participation
• Technical, Professional
• Administrative
• Vocational
• Literacy
• etc.
Elements of Culture
• Social institutions
– Social organization - determines the way people relate to
one another including the roles of managers and
subordinates.
– Kinship or blood relationships - family relations and
family obligations.
– Reference groups - Provide the values and attitudes that
become influential in shaping behavior; can be primary or
secondary.
• Social stratification – Differences in the division of a
particular population into classes (higher strata control most
of the buying power and decision-making positions).
Cultural Analysis
• Hofstede’s dimensions of culture:
– Individualism
– Power distance
– Uncertainty avoidance
– Masculinity
– Long-term versus short-term orientation
Cultural Analysis
• Self-reference criterion – The unconscious reference to
one’s own cultural values.
• Recommendations to reduce the influence of one’s own
cultural values:
– Define the problem in terms of domestic and foreign
cultural traits, habits, or norms.
– Isolate the self-reference criterion influence in the
problem and examine it to see how it complicates the
problem.
– Redefine the problem without the self-reference
criterion influence and solve for the optimal situation.
Cultural Analysis
• Ethnocentricism - The belief that one’s
own culture is superior to others.
• It can be controlled only by acknowledging
it and properly adjusting to its possible
effects in managerial decision making.
The Training Challenge
• The objective of training: foster preparedness,
sensitivity, patience, and flexibility in managers
and other personnel.
• Internal cultural sensitivity training programs :
– Culture specific information
– Culture general information
– Self-specific information
Cultural Training
• Area studies - Provide factual preparation for a manager
to operate in, or work with people from, a particular
country.
• Cultural assimilator - A program in which trainees must
respond to scenarios of specific situations in a particular
country.
• Sensitivity training - Focuses on enhancing a manager’s
flexibility in situations that are quite different from those
at home.
• Field experience - Exposes a manager to a different
cultural environment for a limited amount of time.
Exhibit 3.9 - Cross-Cultural Training
Methods
Making Culture Work for Marketing
Success
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Embrace local culture.
Build relationships.
Employ locals to gain cultural knowledge.
Help employees understand you.
Adapt products and processes to local
markets.
• Coordinate by region.
Chapter 4
The Economic Environment
Exhibit 4.1
- The Global Economy
Market Characteristics
• Population
– Figures classified to show specific characteristics of their
respective markets.
– Age distribution and life expectancy correlate heavily with
the level of development of the market.
– A household describes all the persons, both related and
unrelated, who occupy a housing unit.
– The degree of urbanization dictates the nature of the
marketing task the company faces in terms of
distribution, market potential, and buying habits.
Market Characteristics
• Income
– Income-distribution: can be classified as very low family incomes,
low, medium, high, and very high family incomes (developed and
near-developed countries have mostly medium family incomes).
– Per capita GDP - often used as a primary indicator for purchasing
power.
– Purchasing power parities (PPP) show how many units of currency
are needed in one country to buy the amount of goods and services
that one unit of the currency will buy in another country.
– Income figures are useful in the initial screening of markets;
however, in product-specific cases, income may not play a major
role.
– The lack of income in a market may preclude the marketing of a
standardized product but, at the same time, provide an opportunity
for an adjusted product.
Market Characteristics
• Consumption patterns
– Engel’s laws - As a family’s income increases, the
percentage spent on food will decrease, the
percentage spent on housing and household
operations will be roughly constant, and the amount
saved or spent on other purchases will increase.
– Product saturation or diffusion provides information on
the percentage of households in a market that own a
particular product.
Market Characteristics
• Infrastructure
– Transportation networks by land, rail,
waterway, or air are essential for distribution.
– Communication systems for marketing include
telephones, computers, broadcast media,
print media, internet, and wireless technology.
– The more extensive the firm’s international
involvement, the more it can rely on its
already existing support network of banks,
advertising agencies, and distributors to
assess new markets.
Impact of the Economic Environment on
Social Development
• Factors impeding economic growth:
– Infrastructure limits
– Labor shortages
– Demand for greater political freedom
– Environmental destruction
– Urban congestion
– Spread of drug addiction
Impact of the Economic Environment on
Social Development
• Physical Quality of Life Index (PQLI)
– Is a composite measure of the level of welfare
in a country.
– Is composed of life expectancy, infant
mortality, and adult literacy rates.
Impact of the Economic Environment on
Social Development
• Emotional well-being may be determined
by:
– Quality of social relationships
– Enjoyment at work
– Job stability
– Overall conditions of the country
Levels of Economic Integration
Removal of
Internal
Level of Integration Tariffs
Free Trade Area
Customs Union
Common Market
Monetary Union
Economic Union
Political Union
Common
External
Tariffs
Free Flow
Of Capital
and Labor
Single
Currency
Harmonize
Economic
Policies
Coordinate
Political
Syatems
EU Membership History.
1952: Belgium, Netherlands Luxemburg, Germany,
France & Italy
1973: Denmark, Ireland, UK
1981: Greece
1986: Portugal, Spain
1995: Austria, Finland, Sweden
2004: Cyprus, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, the Slovak
Republic and Slovenia
2007: Romania, Bulgaria (27 countries)
EU’s Governing Bodies.
Council of European Union - Main decision-making body. One
minister from each member country.
European Parliament (Legislative body)
European Commission (Bureaucracy)
Court of Justice - Ensures that Community laws are uniformly
interpreted and applied
Court of Auditors - Checks EU’s receipts and expenses and
manages the budget.
IK
Other Agreements.
North America: NAFTA: Became effective on January 1, 1994. Is for purely
economic reasons. Created the world’s largest free market, with 450
million consumers and a total output of $15.7 trillion. There are no
constituencies for political integration. Distinctive features are the two
side agreements to correct perceived abuses in labor and the
environment in Mexico. Introduction of maquiladoras.
Europe: EFTA (European Free Trade Association): Iceland, Norway,
Switzerland and Liechtenstein.
Africa: Different agreements. ECOWAS (Economic Community of West
African States), SACU (South African Customs Union): Botswana,
Lesotho, Namibia, South Africa, Swaziland.
Latin America: MERCOSUR (Southern Common Market – founded in
1991): Argentina, Brazil, Paraguay, Uruguay + 5 Associate members,
Mexico is an observer. LAIA (Latin American Integration Association);
CENCOM (Central American Common Market); ANCOM (Andean
Common Market); CARICOM (Caribbean Community and Common
Market)
Asia: ASEAN (Association of South East Asian Nations); SAARC (South
Asian Association for Regional Cooperation)
Implications of Economic Integration for
Marketing.
1. Increased growth for the region
2. Growth in income within the region → increased exports for
both member and nonmember countries
3. Trade creation and trade diversion
4. Opportunity for direct investments
5. Increased competition within the region
6. New standards of fair competition
7. Support for local industries
8. Greater market segmentation
Strategies for Regional Markets
Europe: Fill gaps in product/market portfolios; Create
alliances with strong European firms; Rationalize
European organization, production, distribution; Hire
senior-level European talent; Establish region-wide
government relations …
Emerging markets: Adjust entry strategy; Manage
affordability; Invest in distribution; Build strong
brands …
Developing Markets: Research customers; Create
buying power; Tailor local solutions; Improve
access; Shape aspirations …
Chapter 5
The Political and Legal
Environment
International Political Issues.
• Nationalism, sovereignty, imperialism,
power, ideologies, national interests,
political risk...
IK
Political/Legal Concerns of
International Marketers
 Home country political and legal circumstances
 Host country political and legal circumstances host country.
 Bilateral and multilateral agreements, treaties, and laws
governing the relations between host and home countries.
• Home country government policies and the legal systems have a major
impact on a firm’s opportunities abroad. Examples:
• Minimum wage legislation affects the international competitiveness of a
firm using highly labor intensive production processes.
• The cost of domestic environment safety regulations may also
significantly affect the pricing policies of firms in their international
marketing efforts
Consequences Of Political Actions.
• Indigenization/Domestication
• Nationalization (Acceptable according to international law if it satisfies public
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purpose & includes compensation)
Expropriation (prompt, effective, fair compensation)
Confiscation (no compensation)
Local content laws
Local hiring laws
Discriminatory taxes
Discriminatory pricing of resources
Joint-venture pressure
Import/Export controls, embargos, sanctions, etc.
Selective boycotts
Price controls
Terrorism, etc.
Export/Import Controls
• Export controls
– Designed to deny or delay the acquisition of strategically
important goods by the adversaries.
– The legal basis for export controls varies across nations.
– Dual use items (goods useful for both military and civilian
purposes) are controlled by the Joint List of the European Union.
– Restricts the flow of materials and helps avoid the proliferation of
weapons of mass destruction.
– Reduces flows of technological knowledge to control the
sophistication of armaments used by insurgent groups.
– Imposes financial controls which inhibit funding for terrorist training.
Export/Import Controls
• Problems faced while administering import controls:
– They exact a huge price from domestic consumers.
– The social cost of these controls may be damaging to
the economy.
– They bring about downstream change in import
composition.
– They often do not to work.
– Supply may respond to artificial stimulation and grow
far beyond demand.
POLITICAL-RISK INDICATORS.
ECONOMIC
- GDP, Inflation, Capital flight
- Foreign debt, Food output
- Commodity dependence...
POLITICAL
- Wars or involvement in foreign conflicts...
- Relations with neighbors
- Degree of authoritarianism (use of coercion to retain power)
- Legitimacy of government/Mechanisms for transfer of power
- Military or political control
- Politically motivated violence
SOCIETAL
- Urbanization,,
- Corruption, nepotism…
- Social Unrest (ethnic, language, religious… fundamentalism)
- Xenophobia, Extreme nationalism
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Legal Environment
• Home country laws
• Host country laws
• International law
• Two major legal systems popular worldwide are:
– Common law - Based on tradition and depends less on
written statutes and codes than on precedent and
custom.
– Code law - Based on a comprehensive set of written
statutes that spell out legal rules explicitly; based on
Roman law.
International Law
– No enforceable body of international law exists;
– Treaties and agreements respected by a number of
countries influence international business operations.
– Firms are restricted by both home and host country laws.
In case of a conflict in deciding which country’s law to follow,
firms can choose either arbitration or litigation.
• Litigation often involves extensive delays and is very
costly.
• Arbitration procedures should always be included in
the original contract.
International Terrorism
―Terrorism is the systematic use (or threat) of
violence aimed at attaining a political goal and
conveying a political message.
– Terrorists direct their strikes at business more
than any other target.
– Terrorism creates new opportunities for firms
in a few industries like construction, security,
and information technology.
International Terrorism
– Direct effect of terrorism: the immediate cost
levied on individual firms.
– Indirect effect on business activities: the real
or perceived decline in per capita income,
purchasing power, and stock market values.
– Chill effect - Uncertainty about the state of a
nation’s economy leads to a sharp reduction
in demand for both consumer and industrial
goods.
International Terrorism
– Physical damage disrupts power supply,
communication, transport and other forms of
infrastructure, thereby disturbing the supply of
inputs, resources and services.
– Terrorism deteriorates transnational
relationships.
– Regulations imposed by the government to
reduce a country’s vulnerability to terrorism
may delay the supply of inputs, increase
administrative burden and require firms to
invest in new procedures.
International Travel Hazards.
Azerbaijan: Air Azerbaijan flights are often overcrowded. Passengers may
have to stand in isles. Seatbelts often missing
Angola: Airport personnel/health officials may threaten arriving passengers
with ‘vaccinations’ with unsterilized needles if gratuities are not paid.
Guatemala: Rumors that foreigners steal children for their organs. Mob
violence resulted in the beating of American tourists.
Finland: Moose often wander on to major highways at night during mating
season
Colombia: A ‘policeman’ approaches a tourist to ‘check’ their currency for
fake bills. Takes the money, gives a fake receipt, and disappears.
Spain: Thieves distract victims by squirting mustard/ketchup/mayonnaise,
pick their pockets
Thailand: Reckless passing in mountainous regions and consumption of
stimulants by commercial drivers is common
Jordan: Minefields that my not be properly marked and fenced off
Mali, India: Unmarked speed bumps on main roads, trucks driving without
headlights at night, great variety of slow moving traffic without any lights
Ethical Issues
• The ethical obligations faced by
multinational enterprises include:
– Corporate governance and responsibility
– Intellectual property rights
– Bribery and corruption
Corporate governance and
responsibility
Corporate governance - Relationships among
stakeholders that determine and control the
strategic direction and performance of an
organization.
– Its key elements include:
• Transparency of a firm’s operation.
• Financial results.
• Principles by which it measures sales, expenses,
assets, and liabilities.
Bribery and corruption
– The Foreign Corrupt Practices Act (FCPA):
passed in 1977 to prohibit U.S. firms to bribe
foreign officials for business purposes.
– Functional lubrication/Enabling payments: the
amount is small, it is standardized, and is passed on
to others involved in the processing of the
documents.
– Bribery: the process driven by “individual greed,”
the amount depends on the individual official and is
for the official’s own personal use.
Bribery and corruption
– In 1995, the Organization of American States (OAS)
officially condemned bribery.
– The Organization for Economic Cooperation and
Development (OECD) in 1999 agreed to change the
bribery regulations among its member countries to
prohibit the tax deductibility of improper payments.
– The Sarbanes-Oxley Act of 2002 was intended to
protect investors by improving the accuracy and
reliability of corporate disclosures.
Chapters 6 (Strategic Planning)
and 7 (Organization and Control)
will be covered later
Chapter 8
Chapter 8
Research
Research
Purpose of Marketing Research
• Marketing Research is used to:
– Identify marketing opportunities and
problems.
– Generate, refine and evaluate marketing
actions.
– Monitor marketing performance and improve
understanding of marketing as a process.
International vs. Domestic Research
• International and domestic research vary in the
following areas:
– New parameters like duties, foreign
currencies, modes of transportation,
international documentation etc.
– New environment: cultures, demographics,
political systems, stability, different societal
structures, language, laws etc.
– Increased and different forms of competition
Determining Research Objectives
• Exporting - Foreign market opportunity analysis
– Broad-brush approach to narrow down international
marketing activities; the two approaches being
country ranking and clustering.
– Cursory analysis of general market variables such as
total and per capita GNP, population statistics, etc.
– Information on individual market data to identify
fastest-growing markets, largest markets for a
particular product, market trends, and restrictions.
– governmental restrictions.
– competitive assessment.
Determining Research Objectives
• Market expansion
– Detailed information for penetrating a market.
– Monitoring the political climate of a country.
• Importing
• Reliability of a foreign supplier.
• Consistency of its product or service quality.
• Length of delivery time.
• Government rules in the exporting (source)
country.
• Domestic restrictions and legislation.
• Risks of disruption and terrorism.
Secondary Information Sources
– Internal documents
– Governments
– International/Regional organizations
– Service organizations
– Trade associations
– Directories and Newsletters
– Electronic information services
– Other firms
Secondary Information Caveats
– Consider the quality of the data source, with
primary focus on the purpose and method of
original data collection.
– Assess the quality of actual data in terms of
accuracy, reliability, and recency.
– Assess the comparability and compatibility of the
data.
The Primary Research Process
• Conducted to fill specific information needs.
• Is essential for the formulation of strategic
marketing plans.
• Is also useful in international market
segmentation.
• Must formulate specific research questions to
determine precise information requirements
for a subject.
Research administration approaches
• Centralized - The research specifications are designed by the
home office and forwarded to the local country operations for
implementation.
• Coordinated - An intermediary such as an outside research
agency brings headquarters and country operations together.
• Decentralized - Corporate headquarters establishes the broad
thrust of research and delegates design and implementation to
the specific countries.
• Outside research services
– Appropriate for large-scale international marketing research
or when highly specialized research skills are required.
– The selection process should emphasize the quality of
information rather than the cost.
Research Techniques
• Qualitative
– Interviews (beware of gender issues)
– focus groups (cultural influences on participation)
• Quantitative
– Surveys: Questionnaire design issues such as
willingness to respond, societal constraints,
ambiguous words and questions, language or
data equivalence translation/retranslation, etc.
• Observation
Sampling
• Can be difficult due to a lack of organized or old sources or lists
etc.
– Local survey organizations in some countries have devised
reasonably reliable sampling techniques
– In the Web 1.0 online research model, surveys can be
administered either through e-mail or via a website.
– Another trend in the Web 1.0 world is the use of social
networks to access particular consumer groups.
– In the Web 2.0 model, users generate the content of the
data collected.
– The limitations of Web 2.0 market research efforts are
reliability, sampling, and the methodology.
The International Information System
• Serves as a mechanism to coordinate the flow of
information to corporate managers for decision-making
purposes.
• The system should have the following attributes:
– Relevant
– Timely
– Flexible
– Accurate
– Exhaustive
– Convenient
Environmental scanning
• Information on:
• Political, social, and economic affairs internationally;
• Changes of attitudes held by public institutions and
private citizens;
• Possible upcoming alterations in international
markets.
• Performed by
• Obtaining factual input regarding relevant variables.
• Content analysis of communication in a society and
monitoring social, economic, cultural, and
technological environment, pinpoint upcoming
changes and new opportunities.
• Conducted within and/or outside the corporation.
Chapter 9
Chapter 9
Market Entry
and Expansion
Market Entry and
Expansion
Why Firms go International
Proactive Stimuli
• Profit advantage
• Unique products
• Technological
advantages
• Exclusive information
• Economies of scale
• Market size
Reactive Stimuli
• Competitive pressures
• Overproduction
• Stable or declining
domestic sales
• Excess capacity
• Saturated domestic
markets
• Proximity to customers
and ports
Foreign Market Entry Strategies – 1.
(A)
Exporting (Casual, Indirect, Direct)
(B)
Contractual Agreements

Licensing (patents, technology, trade secrets)

Franchising (brand, managerial know-how)

Subcontracting (from prime contractors)

Contract manufacturing (for foreign brands)

Turnkey Operations

Co-production Agreements

Management Contracts
(IK)
Foreign Market Entry Strategies – 2.
(C)
(D)
Joint Ventures (minority/majority equity)
Wholly-Owned Subsidiaries
» Local
» Local
» Local
» Local
Sales only
Assembly & Sales
Production & Sales
Production, Sales & Export
• Start-up of new operations
– Merger with an existing enterprise
– Acquisition of an existing enterprise
– Greenfield investment
Exporting
• Export management companies (EMCs)
– Domestic firms that perform international
marketing services as commission
representatives or distributors for other firms.
– Two primary forms of operation
• Take title to goods and operate
internationally.
• Perform services as agents.
Exporting
• Trading companies
– The most famous trading companies are the
sogoshosha of Japan.
– Reasons for the success of the Japanese sogoshosha:
• The firms are organized to gather, evaluate, and
translate market information into business
opportunities.
• Their vast transaction volume provides them with cost
advantages.
• They serve large markets around the world and have
transaction advantages.
• They had access to capital, both within Japan and in
the international capital markets.
Going International
• E-commerce
– The ability to offer goods and services over
the Web.
– Various methods to market products over the
internet:
• Development of corporate websites.
• Business-to-consumer and consumer-to-business
forums.
Going International
• E-commerce concerns - Firms must be
ready to:
– Provide 24-hour order taking and customer
support service.
– Have the regulatory and customs-handling
expertise to deliver internationally.
– Have an understanding of global marketing
environments for further development of
business relationships.
Licensing and Franchising
Advantages of licensing
– Capital investment or knowledge or marketing strength is not
required.
– Additional return on R&U investments already incurred.
– Reduces the risk of R&D failures
– Ongoing licensing cooperation and support enables the Licensee
benefits from new developments.
– Allows a firm to test a foreign market without major investment of
capital or management time.
– Preempts a market for competition, especially if the licensor’s
resources permit full-scale involvement only in selected markets.
– Increases protection of intellectual property rights.
Licensing and Franchising
– Disadvantages of licensing
• Licensor gets limited expertise.
• Licensor creates its own competitor.
• Allows multinational corporations (MNCs) to
capitalize on older technology.
Foreign Direct Investment
• Types of ownership - Joint ventures
– Collaborations of two or more organizations
for more than a transitory period.
– Partners share assets, risks, and profits,
though equality of partners is not necessary.
– Reasons for joint ventures are governmental
and commercial.
Foreign Direct Investment
Advantages of joint
ventures
– Pooling of resources.
– Better relationships with
local organizations.
– The partner’s
knowledge of the local
market.
– Minimize exposure to
political risk.
– Tap local capital
markets.
Disadvantages of joint
ventures
– Different levels of
control are required.
– Difficulty in maintaining
the relationship.
– Disagreements over
business decisions.
– Disagreements over
profit accumulation and
distribution (profit
repatriation).
Foreign Direct Investment
• Firms are categorized as:
– Resource seekers - Search for natural and
human resources.
– Market seekers - Search for better
opportunities to enter and expand within
markets.
– Efficiency seekers - Attempt to obtain the most
economic sources of production.
Foreign Direct Investment
• Positive perspectives on foreign direct
investors
– Bring in capital, economic activity, and
employment.
– Transfer technology and managerial skills.
– Encourage competition, market choice, and
competitiveness.
Foreign Direct Investment
• Negative perspectives on foreign direct
investors
– Drain resources from host countries.
– Starve smaller capital markets.
– Discourage local technology development.
– Bring in outmoded technology.
– Create new competition for local firms.
Chapter 10 Chapter 10
Product
Adaptation
Product Adaptation
Product Variables
• Products can be differentiated by their
composition, country of origin, tangible
features such as packaging or quality, or
augmented features such as warranty.
TM 89
Product Design Strategy Standardization vs. Customization
Standardization vs. Customization:
Decision Criteria
•
•
•
•
•
•
•
•
•
•
(IK)
Nature of Product
Technology Differences
Weights & Measures
Physical Environment
Cost/Benefit Relationship
Legal Requirements
Competition
Support Systems
Cultural differences
Market Conditions
Exhibit 10.2 - Standardization versus
Adaptation
Factors encouraging
standardization
– Economies of scale in
production
– Economies in product R&D
– Economies in marketing
– “Shrinking” of the world
marketplace/economic
integration
– Global competition
Factors encouraging adaptation
– Differing use conditions
– Government and regulatory
influences
– Differing consumer
behavior patterns
– Local competition
– True to the marketing
concept
Exhibit 10.3 - Strategic
Adaptation to Foreign Markets
High
Need for
Adaptation
Degree of
Cultural
Grounding
Low
Industrial/ Technology Intensive
Consumer
Nature of Product
Source: Adapted from W. Chan Kim and R. A. Mauborgne, “Cross-Cultural Strategies,” Journal of Business Strategy 7 (Spring 1987): 31; and John A. Quelch and
Edward J. Hoff, “Customizing Global Marketing,” Harvard Business Review 64 (May-June 1986): 92-101.
The Market Environment
• Government regulations
– Political agendas often dictate government regulatory
requirements.
– Firms can influence these regulations by lobbying
directly or through industry associations.
– Economic integration reduces discretionary
governmental regulations to some extent.
• Nontariff barriers
– Include product standards, testing or approval
procedures, subsidies for local products, and
bureaucratic red tape.
The Market Environment
• Customer characteristics, expectations, and preferences
– Physical size, local behaviors, tastes, attitudes, and
traditions influence product adaptation decisions.
– Consumption patterns, psychosocial characteristics,
and general cultural criteria determine cultural and
psychological specificity in relation to products and
services.
– Product positioning - Consumers’ perception of a
brand as compared with that of competitors’ brands.
The Market Environment
• Economic development
– Affects demand characteristics and helps
determine potentials for selling certain kinds
of products and services.
– Backward innovation of the product may be
required to meet local requirements.
The Market Environment
• Competitive offerings - Monitoring
competitors’ product features is critical in
adjusting the product for competitive
advantage.
• Climate and geography - Have an effect
on the total product offering— the core
product; tangible elements, mainly
packaging; and the augmented features.
Global Brand Development
• Questions to ask when management
seeks to build a global brand:
– Will anticipated scale economies materialize?
– How difficult will it be to develop a global
brand team?
– Can a single brand be imposed on all markets
successfully?
Global Brand Development
• Create a compelling value proposition (warranty
can also be a value proposition)
• Think about all elements of brand identity and
select names, marks, and symbols that have the
potential for globalization
• Research the alternatives of extending a
national brand versus adopting a new brand
identity globally
• Develop a company-wide communication
system
Product Characteristics
• Packaging
– Serves three major functions—protection,
promotion, and user convenience.
– Varies as a function of transportation mode,
transit conditions, and length of time in transit.
– The promotional aspect of packaging relates
mostly to labeling.
Product Characteristics
• Packaging
– User convenience is a priority in packaging
decisions; Containers must withstand logistics
challenge, and yet must be easy for
customers to open.
– Package aesthetics mainly involves the
prudent choice of colors and package shapes.
– Package size varies according to purchasing
patterns and market conditions.
Product Characteristics
• Country-of-Origin effects
– The origin of a product may have a strong
effect on consumer perceptions and biases
about foreign products.
– This effect reduces as:
• Customers become more informed.
• Countries develop the necessary bases to
manufacture products.
Product Counterfeiting
• Counterfeit goods – Goods bearing an unauthorized
representation of a trademark, patented invention,
or copyrighted work that is legally protected in the
country where it is marketed.
• The European Union estimates that trade in
counterfeit goods accounts for 2 percent of total
world trade.
• The largest number of counterfeit goods are
sourced from China, Brazil, Taiwan, Korea, and
India.
Product Counterfeiting
• Few acts, agreements, and alliances that help combat
counterfeiting include:
– The Omnibus Tariff and Trade Act of 1984
– The Trademark Counterfeiting Act of 1984
– The Intellectual Property Rights Improvement Act
– The Trade-Related Aspects of Intellectual Property
Rights (TRIPS) agreement
– The International Anti-Counterfeiting Coalition (1978)
– Counterfeit Intelligence and Investigating Bureau
Pirated/Fake Brands
Real
Fake
Chapter 11
Chapter 11
Export Pricing
Export Pricing