Marketing plan 5

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Marketing: An Introduction

Thirteenth Edition

Chapter 15

The Global Marketplace

Learning Objectives (1 of 4)

15-1. Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions.

15-2. Describe three key approaches to entering international markets.

This chapter discusses how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions. The chapter also describes three key approaches to entering international markets.

Learning Objectives (2 of 4)

15-3. Explain how companies adapt their marketing strategies and mixes for international markets.

15-4. Identify the three major forms of international marketing organization.

This chapter further explains how companies adapt their marketing strategies and mixes for international markets and identifies the three major forms of international marketing organization.

First Stop: L’Oréal “The United Nations of Beauty”

L’Oréal balances local brand responsiveness and global brand impact.

Cosmetics and beauty care giant L’Oréal balances local brand responsiveness and global brand impact, making it “The United Nations of Beauty.”

Cosmetic and beauty care giant L’Oréal and its brands are truly global. But the company’s huge international success comes from a global–local balance that adapts brands to local markets while optimizing their impact globally.

Learning Objective 15-1

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

Global Firm

Operates in more than one country

Gains research and development, production, marketing, and financial advantages that are not available to purely domestic competitors

Faces increasing problems

Highly unstable governments and currencies

Restrictive government policies and regulations

High trade barriers and corruption

International trade has boomed with the advent of faster digital communication, transportation, and financial flows. Global competition is intensified as global trade grows. The need for companies to go abroad is greater today than in the past and so are the risks.

A global firm is one that, by operating in more than one country, gains marketing, production, research and development (R&D), and financial advantages that are not available to purely domestic competitors. It minimizes the importance of national boundaries and develops global brands. The global company raises capital, obtains materials and components, and manufactures and markets its goods wherever it can do the best job.

Companies that go global may face highly unstable governments and currencies, restrictive government policies and regulations, and high trade barriers. The recently dampened global economic environment has also created big global challenges. In addition, corruption is an increasing problem.

Major International Marketing Decisions

This graphic shows the six major decisions in international marketing. These are looking at the global marketing environment, deciding whether to go global, deciding which markets to enter, deciding how to enter the market, deciding on the global marketing program, and deciding on the global marketing organization.

Each of these decisions are discussed in greater detail in the following slides.

Looking at the Global Marketing Environment

International trade system

Economic environment

Political-legal environment

Cultural environment

Before deciding whether to operate internationally, a company must understand the international marketing environment. This includes understanding the international trade system, the economic environment, the political-legal environment, and the cultural environment.

International Trade System (1 of 2)

Trade barriers

Tariffs or duties

Quotas and exchange controls

Nontariff trade barriers

Biases against the bids

Restrictive product standards

Excessive host-country regulations or enforcement

Companies looking abroad must start by understanding the international trade system. A firm may face restrictions on trade between nations when selling to another country.

Governments may charge tariffs or duties, taxes on certain imported products designed to raise revenue or protect domestic firms. Tariffs and duties are often used to force favorable trade behaviors from other nations. In certain product categories, countries may set quotas limiting the amount of foreign imports that they will accept. The purpose of a quota is to conserve on foreign exchange and protect local industry and employment. Firms may encounter exchange controls, which limit the amount of foreign exchange and the exchange rate against other currencies.

A company may face nontariff trade barriers, such as biases against its bids, restrictive product standards, or excessive host-country regulations or enforcement.

International Trade System (2 of 2)

Because of nontariff obstacles, Walmart recently suspended its once ambitious plans to expand into India.

Because of nontariff obstacles, Walmart recently suspended its once ambitious plans to expand into India’s huge but fragmented retail market.

World Trade Organization (WTO)

Established by the General Agreement on Tariffs and Trade (GATT) in 1995

Promotes world trade by reducing tariffs and other international trade barriers

Negotiates to reassess trade barriers and establish new rules for international trade

Imposes international trade sanctions and mediates global trade disputes

Certain forces can help trade between nations. Examples include the World Trade Organization (WTO) and various regional free trade agreements.

The General Agreement on Tariffs and Trade (GATT) established the World Trade Organization (WTO), which replaced GATT in 1995 and now oversees the original GATT provisions. GATT was designed to promote world trade by reducing tariffs and other international trade barriers. WTO and GATT member nations have met in eight rounds of negotiations to reassess trade barriers and establish new rules for international trade. The WTO also imposes international trade sanctions and mediates global trade disputes.

Regional Free Trade Zones (1 of 2)

Economic community: Group of nations organized to work toward common goals in the regulation of international trade

European Union (EU)

North American Free Trade Agreement (NAFTA)

Central American Free Trade Agreement (CAFTA-DR)

Union of South American Nations (UNASUR)

Certain countries have formed free trade zones or economic communities. These are groups of nations organized to work toward common goals in the regulation of international trade.

The European Union (EU) is one such community that was formed in 1957. It was set out to create a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and developing policies on trade with nonmember nations. Today, the EU represents one of the world’s largest single markets.

The North American Free Trade Agreement (NAFTA), founded in 1994, established a free trade zone among the United States, Mexico, and Canada.

The Central American Free Trade Agreement (CAFTA-DR), founded in 2005, established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

Other free trade areas have formed in Latin America and South America. For example, the Union of South American Nations (UNASUR), modeled after the EU, was formed in 2004 and formalized by a constitutional treaty in 2008. UNASUR makes up the largest trading bloc after NAFTA and the EU. Similar to NAFTA and the EU, UNASUR aims to eliminate all tariffs between nations by 2019.

Regional Free Trade Zones (2 of 2)

The European Union represents one of the world’s single largest markets.

The European Union represents one of the world’s single largest markets. Its current member countries contain more than half a billion consumers and account for 20 percent of the world’s exports.

Economic Environment

Factors reflecting a country’s market attractiveness:

Industrial structure

Subsistence economies

Raw material exporting economies

Emerging economies

Industrial economies

Income distribution

Low-, medium-, and high-income households depending on the industrial structure of the nation

Two economic factors reflect a country’s attractiveness as a market: industrial structure and income distribution. The country’s industrial structure shapes its product and service needs, income levels, and employment levels.

There are four types of industrial structures. In 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. These economies offer few market opportunities. Second, raw material exporting economies are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources. Third, in emerging economies, fast growth in manufacturing results in rapid overall economic growth. As manufacturing increases, the country needs more imports of raw materials and fewer imports of finished products. Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and export them to other types of economies for raw materials and semifinished goods.

The second economic factor is the country’s income distribution. Industrialized nations may have low-, medium-, and high-income households. Countries with subsistence economies consist mostly of households with very low family incomes. Still other countries may have households with either very low or very high incomes.

Political-Legal Environment

Considerations for a company to do business in a country:

Country’s attitude toward international buying

Government bureaucracy

Political stability

Monetary regulations

International trade involves

Cash transactions

Bartering

Nations differ greatly in their political-legal environments. In considering whether to do business in a given country, a company should consider factors such as the country’s attitudes toward international buying, government bureaucracy, political stability, and monetary regulations.

Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases from other countries. They may want to pay with other items instead of cash. Barter involves the direct exchange of goods or services.

Impact of Culture on Marketing Strategy (1 of 2)

Companies that understand cultural nuances can

Avoid expensive and embarrassing mistakes

Take advantage of cross-cultural opportunities

Sellers must understand the ways that consumers in different countries think about and use certain products before planning a marketing program. There are often surprises. For example, the average French man uses almost twice as many cosmetics and grooming aids as his wife.

Companies that ignore cultural norms and differences can make some very expensive and embarrassing mistakes. Business norms and behaviors also vary from country to country. Thus, understanding cultural traditions, preferences, and behaviors can help companies not only avoid embarrassing mistakes but also take advantage of cross-cultural opportunities.

Impact of Culture on Marketing Strategy (2 of 2)

IKEA customers in China want a lot more from its stores than just affordable Scandinavian-designed furniture.

Furniture retailer IKEA’s stores are a big draw for up-and-coming Chinese consumers. But IKEA has learned that customers in China want a lot more from its stores than just affordable Scandinavian-designed furniture. On a typical Saturday afternoon, display beds and other furniture in a huge Chinese IKEA store are occupied with customers of all ages lounging or even fast asleep. IKEA managers encourage such behavior, figuring that familiarity with the store will result in future purchases when shoppers’ incomes eventually rise to match their aspirations.

Impact of Marketing Strategy on Cultures

KFC has become one of Japan’s leading Christmas dining traditions.

Social critics contend that large American multinationals, such as McDonald’s, Coca-Cola, and Starbucks, are not just globalizing their brands, but they are Americanizing the world’s cultures. Critics worry that countries around the globe are losing their individual cultural identities. Such concerns have sometimes led to a backlash against American globalization. Well-known U.S. brands have become the targets of boycotts and protests in some international markets. Despite such problems, U.S. brands are doing very well internationally. Globalization is a two-way street. America gets as well as gives cultural influence.

For example, KFC has become one of Japan’s leading Christmas dining traditions, with the iconic Colonel Sanders standing in as a kind of Japanese Father Christmas. Japan’s KFC Christmas tradition began more than 40 years ago when the company unleashed a “Kentucky for Christmas” advertising campaign in Japan to help the brand get off the ground.

Deciding Whether to Go Global

Factors influencing the decision:

Attacks on a company’s home market by global competitors

Expanding customer base in international markets

Better opportunities for growth

Not all companies need to venture into international markets to survive. Any of several factors might draw a company into the international arena. For example, 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 to tie up their resources. The company’s customers might be expanding abroad and require international servicing. Or, most likely, international markets might simply provide better opportunities for growth.

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

A company should

Define its international marketing objectives and policies

Decide what volume of foreign sales it wants

Choose in how many countries it wants to market

Determine the types of countries to enter

Evaluate each market

Before going abroad, the company should try to define its international marketing objectives and policies. It should decide what volume of foreign sales it wants. The company also needs to choose in how many countries it wants to market. Companies must be careful not to spread themselves too thin or expand beyond their capabilities by operating in too many countries too soon. Next, the company needs to decide on the types of countries to enter.

After listing possible international markets, the company must carefully evaluate each one. It must consider many factors to evaluate market potential as detailed on the next slide.

Table 15.1 - Indicators of Market Potential

Demographic Characteristics	Sociocultural Factors
Education Population size and growth Population age composition	Consumer lifestyles, beliefs, and values Business norms and approaches Cultural and social norms Languages
Geographic Characteristics	Political and Legal Factors
Climate Country size Population density—urban, rural Transportation structure and market accessibility	National priorities Political stability Government attitudes toward global trade Government bureaucracy Monetary and trade regulations
Economic Factors	Blank
GDP size and growth Income distribution Industrial infrastructure Natural resources Financial and human resources	Blank

This table provides the indicators of market potential. Possible global markets should be ranked on several factors, including market size, market growth, the cost of doing business, competitive advantage, and risk level. The goal is to determine the potential of each market, using indicators such as those shown in this table. Then the marketer must decide which markets offer the greatest long-run return on investment.

Learning Objective 15-1 Summary

Understand the global marketing environment and the international trade system

Assess foreign market’s economic, political-legal, and cultural characteristics

Decide whether it wants to go abroad and consider the potential risks and benefits

Decide on the volume of international sales, countries and markets it wants to enter

A company must understand the global marketing environment, especially the international trade system. It should assess each foreign market’s economic, political-legal, and cultural characteristics. The company can then decide whether it wants to go abroad and consider the potential risks and benefits. It must decide on the volume of international sales it wants, how many countries it wants to market in, and which specific markets it wants to enter. These decisions call for weighing the probable returns against the level of risk.

Learning Objective 15-2

Describe three key approaches to entering international markets.

Figure 15.2 - Market Entry Strategies

The simplest way to enter a foreign market is through exporting. Indirect exporting involves less investment because the firm does not require an overseas marketing organization or network. Sellers may eventually move into direct exporting, whereby they handle their own exports. Investment and risk are greater in this strategy, but so is the potential return.

Joint venturing involves entering foreign markets by joining with foreign companies to produce or market a product or service. There are four types of joint ventures. Licensing involves entering foreign markets by developing an agreement with a licensee in the foreign market. Contract manufacturing occurs when a company contracts with manufacturers in a foreign market to produce its product or provide its service. With management contracting, a domestic firm supplies know-how to a foreign company that supplies the capital. The final type of joint venture is known as joint ownership. This refers to a cooperative venture in which a company creates a local business with investors in a foreign market, who share ownership and control.

Direct investment refers to entering a foreign market by developing foreign-based assembly or manufacturing facilities. If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. However, the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes.

Learning Objective 15-2 Summary

Company must decide on an international market entry strategy

Exporting

Joint venturing

Direct investment

The company must decide how to enter each chosen market – whether through exporting, joint venturing, or direct investment. Many companies start as exporters, move to joint ventures, and finally make a direct investment in foreign markets. In exporting, the company enters a foreign market by sending and selling products through international marketing intermediaries (indirect exporting) or the company’s own department, branch, or sales representatives or agents (direct exporting). When establishing a joint venture, a company enters foreign markets by joining with foreign companies to produce or market a product or service. In licensing, the company enters a foreign market by contracting with a licensee in the foreign market and offering the right to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. Direct investment refers to entering a foreign market by developing foreign-based assembly or manufacturing facilities.

Learning Objective 15-3

Explain how companies adapt their marketing strategies and mixes for international markets.

Deciding on the Global Marketing Program

Standardized global marketing

Using the same marketing strategy and mix in all of the company’s international markets

Adapted global marketing

Adjusting the marketing strategy and mix elements to each international target market

Creates more costs

Produces a larger market share and return

Companies that operate in one or more foreign markets must decide how much to adapt their marketing strategies and programs to local conditions.

At one extreme are global companies that use standardized global marketing, essentially using the same marketing strategy approaches and marketing mix worldwide.

At the other extreme is adapted global marketing, where the producer adjusts the marketing strategy and mix elements to each target market, resulting in more costs but producing a larger market share and return.

Collectively, local brands still account for the overwhelming majority of consumers’ purchases. Most consumers, wherever they live, lead very local lives. So a global brand must engage consumers at a local level, respecting the culture and becoming a part of it. Starbucks operates this way. The company’s overall brand strategy provides global strategic direction. Then regional or local units focus on adapting the strategy and brand to specific local markets. For example, when Starbucks entered China in 1998, given the strong Chinese tea-drinking culture, few observers expected success. But Starbucks quickly proved the doubters wrong. Whereas U.S. locations do about 70 percent of their business before 10 am, China stores do more than 70 percent of their business in the afternoon and evening. “It’s a lifestyle to the Chinese,” says the head of Starbucks’s China and Asia Pacific operations. “It’s much more of a gathering place for social occasions.” Under this adapted strategy, Starbucks China is thriving. China is now Starbucks’s largest market outside of the United States.

Figure 15.3 - Five Global Product and Communications Strategies

This figure shows the five strategies that are used for adapting product and marketing communication strategies to a global market.

Straight product extension involves marketing a product in a foreign market without making any changes to the product.

Product adaptation involves adapting a product to meet local conditions or wants in foreign markets.

Communication adaptation is a global communication strategy of fully adapting advertising messages to local markets. Media also need to be adapted internationally because media availability and regulations vary from country to country.

Product invention consists of creating something new to meet the needs of consumers in a given country.

Global Price Considerations

Set a uniform price globally

Set according to the customers

Use a standard markup of the company’s costs everywhere

Companies face many considerations in setting their international prices. The company could set a uniform price globally, but this amount would be too high of a price in poor countries and not high enough in rich ones. The company could charge what consumers in each country would bear, but this strategy ignores differences in the actual costs from country to country. Finally, the company could use a standard markup of its costs everywhere, but this approach might price the company out of the market in some countries where costs are high. Hence, regardless of how companies go about pricing their products, their foreign prices might be higher than their domestic prices for comparable products.

Companies must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to their factory price. Depending on these added costs, the products may have to sell for two to five times as much in another country to make the same profit. 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. Others introduce new, more affordable brands in global markets.

Figure 15.4 - Whole-Channel Concept for International Marketing

A whole-channel view refers to designing international channels that take into account the entire global supply chain and marketing channel, forging an effective global value delivery network.

The figure shows the two major links between the seller and the final buyer.

The first link, channels between nations, moves company products from points of production to the borders of countries within which they are sold.

The second link, channels within nations, moves products from their market entry points to the final user or buyer.

Channels of distribution within countries vary greatly from nation to nation. There are large differences in the numbers and types of intermediaries serving each country market and in the transportation infrastructure serving these intermediaries.

Learning Objective 15-3 Summary

Companies must decide how much their marketing strategy and mix should be adapted for each foreign market

Global companies use standardized or adapted global marketing

Adapted global marketing cost more but companies hope for a larger market share and return

Global standardization is not an all-or-nothing proposition – it’s a matter of degree

Companies must decide how much their marketing strategies and their products, promotion, price, and channels should be adapted for each foreign market. At one extreme, global companies use standardized global marketing worldwide. Others use adapted global marketing, in which they adjust the marketing strategy and mix 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 – it’s a matter of degree. Most international marketers suggest that companies should “think globally but act locally” – that they should seek a balance between globally standardized strategies and locally adapted marketing mix tactics.

Learning Objective 15-4

Identify the three major forms of international marketing organization.

Deciding on the Global Marketing Organization

Methods of managing international marketing activities:

Organizing an export department

Creating international divisions

Geographical organizations

World product groups

International subsidiaries

Becoming a global organization

Companies manage their international marketing activities in at least three different ways. Most companies first organize an export department, then create an international division, and finally become a global organization.

A firm gets into international marketing by simply shipping out its goods. If its international sales expand, the company will establish an export department with a sales manager and a few assistants.

It will create international divisions or subsidiaries to handle all its international activity. International divisions are organized in a variety of ways. They can be geographical organizations, with country managers who are responsible for salespeople, sales branches, distributors, and licensees in their respective countries. The operating units can be world product groups, each responsible for worldwide sales of different product groups. And the operating units can be international subsidiaries, each responsible for their own sales and profits.

Many firms have passed beyond the international division stage and are truly global organizations. As foreign companies successfully invade their domestic markets, companies must move more aggressively into foreign markets.

Learning Objective 15-4 Summary

Companies must develop an effective organization for international marketing

There are three major forms of international marketing organization:

Export department

International division

Global organizations

The company must develop an effective organization for international marketing. Most firms start with an export department and graduate to an international division. Large companies eventually become global organizations, with worldwide marketing planned and managed by the top officers of the company. Global organizations view the entire world as a single, borderless market.

Learning Objectives (3 of 4)

15-1. Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions.

15-2. Describe three key approaches to entering international markets.

This chapter discussed how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions. The chapter also described three key approaches to entering international markets.

Learning Objectives (4 of 4)

15-3. Explain how companies adapt their marketing strategies and mixes for international markets.

15-4. Identify the three major forms of international marketing organization.

This chapter further explained how companies adapt their marketing strategies and mixes for international markets and identified the three major forms of international marketing organization.