LECTURE 09
Global Marketing and R&D
EMBA BA804
© Ram Mudambi, Temple University
Outline
Introduction – why are marketing and R&D
special?
Global marketing
International segmentation
Local responsiveness - product adaptation
Distribution and communications
Pricing
Global R&D
The location of R&D
The key to successful knowledge management –
cross-functional integration
© Ram Mudambi, Temple University, 2007
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Conglomerates
From the 1940s to the 1960s,
conglomerates were recommended as a
way to reduce volatility in business
earnings and cash flow
US FIRMS*
Single business
1949
1974
42.0%
14.4%
Related diversified
25.7%
42.3%
4.1%
20.7%
Unrelated diversified
*Rumelt, 1982
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Why do investors value
multinationality?
The classic study of Morck and Yeung
(1991)  global diversification of
operations creates little in terms of
shareholder value.
It is intangibles that MNCs can
leverage across borders to create value
Marketing intangibles – market knowledge
R&D intangibles – technological knowledge
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Recall the Smile of Value Creation*
* Mudambi, JIBS 2007
Value
Added
R&D
Knowledge
Marketing
Knowledge
Vertically integrated firm
Inputs
Markets
Location 1
Location 2
Location 3
Location 4
VALUE CHAIN DISAGGREGATION
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GLOBAL MARKETING
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Globalization of Markets and Brands
Global culture is penetrating the remotest
corners of the world
A Tibetan monk who is a fan of David Beckham
Overstatement?
Cultural and economic differences slow the
trend toward global tastes and preferences
The renewed interest in local traditions can be
seen as more of a complement to globalization
than a substitute for it.
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Market Segmentation
geography
Identifying distinct groups of
consumers whose purchasing
behavior differs from other
demographics
in important ways.
Social-cultural
factors
Marketing mix
adjusted to
reflect differing
purchasing
patterns in
segments.
Psychological
factors
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Market Segmentation
Segments
that
transcend
national
borders.
Two
main
issues
in the
differences
between
countries
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Structure of
market
segments
within
countries
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Product Attributes
Cultural differences.
Economic differences.
Product and technical standards.
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Cultural Differences
Range of dimensions:
Social structure
Language
Religion
Education
Most important - the impact of tradition.
Impact is greatest in foodstuffs and beverages.
Also, scent preferences differ from country to country.
Some tastes and preferences becoming cosmopolitan:
Coffee (Japan and Great Britain).
American-style frozen dinners (Europe).
Levitt’s global culture still a long way off.
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Economic Differences
Consumer behavior is influenced by economic
development.
Consumers in highly developed countries tend to
have extra performance attributes in their
products.
Consumers in less developed countries tend not
to demand these extra performance attributes.
Cars: no air-conditioning, power steering, power
windows, radios and cassette players.
Product reliability is more important.
Consumers in the most developed countries are
often unwilling to sacrifice preferred
attributes for lower prices.
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Distribution Strategy
Three aspects:
Retail concentration
Channel length.
Channel exclusivity
Choice of channel:
Cost/benefit of each alternative
vary from country to country.
Longer channel => higher price, but
cuts selling costs in fragmented market.
provides market access.
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A Typical Distribution System
Manufacturer
Inside the
Country
Manufacturer
Outside the
Country
Import
Agent
Wholesale
Distributor
Retail
Distributor
Final
Customer
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Distribution Can Present Interesting Problems
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Communications Strategy
International communication occurs
when a firm uses a marketing
message to sell its products in
another country.
© Ram Mudambi, Temple University, 2007
Channels
• direct selling
• sales promotion
• direct marketing
• advertising
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Communications Strategy
Effectiveness of international communications can
be impacted by:
Cultural barriers - Need to develop cross-cultural literacy.
Country of origin (COO) effects:
Receiver of the message evaluates it based upon the status
of the sender.
Emphasize/de-emphasize foreign origin.
Noise levels.
Tends to reduce the effectiveness of a message.
Developed countries - high.
Less developed countries - low.
Push versus Pull:
Push emphasizes personal selling.
Pull depends on mass media advertising.
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Attractiveness of Push versus Pull
Strategies
Product Type and
Consumer
Sophistication
Factors
Channel
Length
Media
Availability
© Ram Mudambi, Temple University, 2007
Pull = selling to large
market segments.
Push = selling
complex products.
Pull = long
distribution channel.
Push = short
distribution channel.
Pull = access to
advertising media.
May be legal
Restrictions.
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Push-Pull Mix
Push
industrial or
complex
products
few print or
electronic media
available
short
distribution
channels
© Ram Mudambi, Temple University, 2007
consumer goods
long
distribution
channels
sufficient print
and electronic
media available
Pull
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Global Advertising
Standardized:
Significant economic advantages.
Scarce creative talent.
Many global brand names.
Non-standardized:
Messages in one country may fail in another.
Advertising regulations can be a restriction.
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Messages that don’t travel - 1
The name Coca-Cola in China was first rendered
as Ke-kou-ke-la. After thousands of signs had
been printed Coke discovered that the phrase
means "bite the wax tadpole" or "female horse
stuffed with wax" depending on the dialect.
Coke then researched 40,000 Chinese
characters and found a close phonetic
equivalent, "ko-kou-ko-le," which can be loosely
translated as "happiness in the mouth."
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Messages that don’t travel - 2
In Taiwan, the translation of the Pepsi slogan
"Come alive with the Pepsi Generation" came out
as "Pepsi will bring your ancestors back from
the dead."
Also in Chinese, the Kentucky Fried Chicken
slogan "finger-lickin' good" came out as "eat
your fingers off."
When General Motors introduced the Chevy
Nova in South America, it was apparently
unaware that "no va" means "it won't go."
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Messages that don’t travel - 3
Ford’s Pinto flopped in Brazil. The company
found out that Pinto was Brazilian slang for
"tiny male genitals".
Parker Pen’s ballpoint pen ads in Mexico were
supposed to say "It won't leak in your pocket
and embarrass you." In Spanish the ads said
"It wont leak in your pocket and make you
pregnant."
In Mexico, Perdue Chicken's slogan, "It takes a
tough man to make a tender chicken," was
translated as "It takes a hard man to make a
chicken aroused."
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Messages that don’t travel - 4
Hunt-Wesson introduced its Big John products
in French Canada as Gros Jos before finding out
that in local slang it means "big breasts."
However, the name problem did not have a
noticeable effect on sales.
Colgate introduced a toothpaste in France called
Cue, the name of a notorious porno mag.
An Italian campaign for Schweppes Tonic Water
rendered the name as Schweppes Toilet Water.
Kinki Nippon Tourist Company was mystified
when it entered English-speaking markets and
began receiving requests for unusual sex tours.
The owners soon changed its name.
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Advertising in New Delhi
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Pricing Strategy
Price discrimination.
Different prices, different countries,
same product.
Strategic pricing.
Regulatory factors:
Price controls.
Antidumping.
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Pricing Strategy
Price discrimination:
Charging what the market will bear.
Two factors:
Must keep national markets separate
Different price elasticities
Arbitrage:Charging different prices in different
countries for same product.
Doesn’t always work.
Ford in Germany and Belgium
Sometimes it does.
Ford in UK and Belgium
© Ram Mudambi, Temple University, 2007
Using
Arbitrage
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Determinants of Demand Elasticity
Income level and competitive conditions
determine elasticity.
Elasticity (price) tends to be be greater in
countries with low income levels.
Elasticity (demand) tends to be greater in
countries where there are many competitors.
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Price discrimination - textbook
marketing
The Hill textbook sells for $130 in the US
$60 to $80 in Europe
$30 to $40 in Asia
Sites like www.bookcentral.com have appeared
to take advantage of this arbitrage
opportunity
US Courts have upheld the legality of such
“gray” market operations
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Configuring the Marketing Mix
Differences
here
Culture
Require
variation
here
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R & D IN A GLOBAL CONTEXT
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New Product Development
Creative
Technological Innovation
Destructive
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Critical to stay
on leading edge
of technology
Apply technology to
developing products
Consumers’ want.
Design product
for cost
effective
manufacture.
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The Location of R&D
New product development is greater where:
More money spent on R&D.
Underlying demand is strong.
Consumers are affluent.
Competition is intense.
Leading-edge research is carried
out worldwide. Centralization is
no longer as important.
Competence-exploiting
subsidiaries
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Competence-creating
subsidiaries
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The innovation-integration
dilemma
Subunits evolution to competence-creation
requires a great deal of local learning
Two requirements for this to happen:
Autonomy
‘Local embedding’
Competence-creating subunits are very
innovative, but using this innovation is a
challenge
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The knowledge network &
integration
Location 2
Learning in
location 2
P = Parent firm
S,S’ = Subunits
HQ location
Location 1
S
Learning in
location 1
2
4
Transfer from subunit
located in location 1
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S’
4
Transfer
from subunit
located in
location 2
P
Central HQ inflows
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Innovation vs. integration
High
Isolated
freedom
• Innovation
•Autonomy
•Local
embeddedness
Low
Connected
freedom
Semi-connected
freedom
Isolated
control
Low
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Connected
control
High
Integration, connectivity
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The social dimension
The negative effects of subunit autonomy depend
on linkages to the parent firm
The most effective links are inter-personal
Frequent inter-unit communication leads to ‘Lateral
socialization’
Knowledge tends to flow along frequently used
channels
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Knowledge flows – the social dimension
Best
practice
Frequency of
communication
High
Low
the
‘In’ group
Moderate
flows
High
flows
No
flows
Low
flows
Low
© Ram Mudambi, Temple University, 2007
High
Value of
knowledge
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Cross-Functional Integration
Using cross-functional development teams:
Led by “heavyweight” project manager.
Composed of at least one member from each
key function.
Physically co-located to create camaraderie and
facilitate communication.
Clear plan and goals.
Incentives to attain goals.
Develop own processes for communication and
conflict resolution.
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Takeaways
MNEs that create value do so on the basis of
their marketing and R&D intangibles
The extent of local adaptation is driven by
cultural and institutional factors – link between
marketing and overall strategy
Cross-cultural literacy is crucial in protecting
and developing marketing intangibles like
brands
Global knowledge management requires
enhanced communications protocols
The innovation – integration dilemma
Cross-functional international teams
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