Define The Key Terms Listed Above.(C12)

CHAPTER OUTLINE Global Perspective: The British Sell Another Treasure

Global Marketing Management The Nestlé Way: Evolution Not Revolution Benefits of Global Marketing

Planning for Global Markets Company Objectives and Resources International Commitment The Planning Process

Alternative Market-Entry Strategies Exporting Contractual Agreements Strategic International Alliances Direct Foreign Investment

Organizing for Global Competition Locus of Decision Centralized versus Decentralized Organizations

CHAPTER LEARNING OBJECTIVES

What you should learn from Chapter 12:

LO1 How global marketing management differs from international marketing management

LO2 The need for planning to achieve company goals

LO3 The important factors for each alternative market- entry strategy

LO4 The increasing importance of international strategic alliances

Global Marketing Management: PLANNING AND ORGANIZATION

12Chapter

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PART FOUR

The mating dance was unusually long, but then again, the deal was unusually large. Kraft first proposed to purchase the British institution Cadbury for a price of almost $17  billion in early September. Then it had until November 9 to make a formal offer or give up the fight. The courtship unleashed a barrage of bad jokes (e.g., “Cadbury gags on Kraft bid”). It also stirred up atavistic fears across Britain of a faceless American conglomerate wrecking a great British institution and forcing Britons to give up Dairy Milk chocolate and Creme Eggs in favor of Cheez Whiz and Jell-O. A succession of studies has shown that three-quarters of mergers and acquisitions fail to produce any benefits for shareholders, and more than half actually destroy share- holder value (e.g., Quaker and Snapple, Daimler-Benz and Chrysler, Time Warner and AOL). The danger is particu- larly pronounced in hostile bids that cross borders and in- volve much loved brands. A Kraft–Cadbury deal sounds designed for failure. Todd Stitzer, Cadbury’s boss, argues that his firm is an embodi- ment of a distinctive style of “principled capitalism” that was inspired by its Quaker founders nearly two centuries ago and has been woven into its fabric ever since. Destroy that tradition and “you risk destroying what makes Cadbury a great company.” Chocolate companies as a breed also have a peculiarly intimate relationship with their customers, partly because chocolate is involved in so many childhood, romantic, and festive rituals, and partly because people acquire their chocolate preferences at their mothers’ knees. Most Britons

would rather eat scorpions than Hershey bars. The giants of the chocolate business have all dominated their respective regions for decades. Britons have been stuffing themselves with Dairy Milk since 1905, Creme Eggs since 1923, and Crunchies since 1929. A Kraft–Cadbury combination also would create a rotten- toothed behemoth, with $50 billion in annual sales, a sig- nificant presence in every market worthy of the name, and a real chance of making up lost ground in China. Kraft has a strong position in mainland Europe and operations in 150  countries. Cadbury is worshipped wherever the British empire once held sway (the company commands 70 percent of the chocolate market in India, for example), and a lot of other places besides (notably, Brazil and Mexico). It also has an unrivaled distribution system among small shops in India and parts of Africa. Skeptics are right to point out that grandi- ose mergers more often destroy brands than strengthen them, particularly when those brands are such delicate confections as chocolate bars and gooey eggs. But then again, few mergers offer the chance to establish a global empire of taste. The mating dance was finally consummated in January 2010, for some $19 billion in cash and stock. Among those who do not appreciate this latest marital arrangement was Warren Buffett, whose Berkshire Hathaway group owns 9.4 percent of Kraft. Had he been able, he would have voted against the $19 billion dowry that Kraft paid as too much.

Sources: “Food Fight,” The Economist , November 7, 2009, p. 63; Graeme Wearden, “Warren Buffett Blasts Kraft’s Takeover of Cadbury,” http:// guardian.co.uk , January 20, 2010.

Global Perspective THE BRITISH SELL ANOTHER TREASURE

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Confronted with increasing global competition for expanding markets, 1 multinational companies are changing their marketing strategies 2 and altering their organizational struc- tures. Their goals are to enhance their competitiveness and to ensure proper positioning to capitalize on opportunities in the global marketplace. Comprehensive decisions must be made regarding key strategic choices, such as standardization versus adaptation, con- centration versus dispersion, and integration versus independence. Particularly as national borders become less meaningful, we see the rise of greater international corporate col- laboration networks yielding new thinking about traditional concepts of competition and organization. 3

A recent study of North American and European corporations indicated that nearly 75 percent of the companies are revamping their business processes, that most have formal- ized strategic planning programs, and that the need to stay cost competitive was considered the most important external issue affecting their marketing strategies. Change is not limited to the giant multinationals but includes midsized and small firms as well.

In fact, the flexibility of a smaller company may enable it to reflect the demands of global markets and redefine its programs more quickly than larger multinationals. Acquiring a global perspective is easy, but the execution requires planning, organization, and a willing- ness to try new approaches—from engaging in collaborative relationships to redefining the scope of company operations.

This chapter discusses global marketing management, competition in the global mar- ketplace, strategic planning, and alternative market-entry strategies. It also identifies the elements that contribute to an effective international or global organization.

1Yadong Luo and Rosalie Tung, “International Expansion of Emerging Market Enterprises: A Springboard Perspective,” Journal of International Business Studies 38 (2007), pp. 481–98; Peter J. Buckley, L. Jeremy Clegg, Adam R. Cross, Xiin Liu, Hinrich Voss, and Ping Zheng, “The Determinants of Chinese Outward Foreign Direct Investment,” Journal of International Business Studies 38 (2007), pp. 499–518; Daphne W. Yiu, ChingMing Lau, and Garry D. Bruton, “International Venturing by Emerging Economy Firms: The Effects of Firm Capabilities, Home Country Networks, and Corporate Entrepreneurship,” Journal of International Business Studies 38 (2007), pp. 519–40; Igor Filatotchev, Roger Strange, Jennifer Piesse, and Yung-Chih Lien, “FDI by Firms from Newly Industrialized Economies in Emerging Markets: Corporate Governance, Entry Mode, and Location,” Journal of International Business Studies 38 (2007), pp. 556–72. 2Thomas Hutzschenreuter and Florian Grone, “Product and Geographic Scope Changes of Multinational Enterprises in Response to International Competition,” Journal of International Business Studies 40, no. 7 (2009), pp. 1149–72; Yaron Timmor, Samuel Rabino, and Jehiel Zif, “Defending a Domestic Position against Global Entries,” Journal of Global Marketing 22, no. 4 (2009), pp. 251–66. 3B. Elango and Chinmay Pattnaik, “Building Capabilities for International Operations through Networks: A Study of Indian Firms,” Journal of International Business Studies 38 (2007), pp. 541–55; Victor K. Fung, William K. Fung, and Yoram (Jerry) Wind, Competing in a Flat World (Upper Saddle River, NJ: Wharton School Publishing, 2008). 4David Kiley, “One Ford for the Whole Wide World,” BusinessWeek , June 15, 2009, pp. 58–60.

Global Marketing Management In the 1970s, the market segmentation argument was framed as LO1 How global marketing management differs from international marketing management

“standardization versus adaptation.” In the 1980s, it was “globalization versus localization,” and in the 1990s, it was “global integration versus local responsiveness.” The fundamental question was whether the global homogenization of consumer tastes allowed global stan- dardization of the marketing mix. The Internet revolution of the 1990s, with its unprec- edented global reach, added a new twist to the old debate.

Even today, some companies are calling “global” the way to go. For example, executives at Twix Cookie Bars tried out their first global campaign with a new global advertising agency, Grey Worldwide. With analysis, perhaps a global campaign does make sense for Twix. But look at the companies that are going in the other direction. Levi’s jeans have faded globally in recent years. Ford has chosen to keep only one acquired nameplate, Mazda, but also will sell the Fiesta worldwide. 4 And perhaps the most global company of all, Coca- Cola, is peddling two brands in India—Coke and Thums Up. Coke’s CEO explained, “Coke has had to come to terms with a conflicting reality. In many parts of the world, consumers have become pickier, more penny-wise, or a little more nationalistic, and they are spending more of their money on local drinks whose flavors are not part of the Coca-Cola lineup.”

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Part of this trend back toward localization is caused by the efficiencies of customization made possible by the Internet and increasingly flexible manufacturing processes. Indeed, a good example of the “mass customization” is Dell Computer Corporation, which maintains no inventory and builds each computer to order. Also crucial has been the apparent rejec- tion of the logic of globalism by trade unionists, environmentalists, and consumers so well demonstrated in Seattle during the World Trade Organization meetings in 1999. Although there is a growing body of empirical research illustrating the risks and difficulties of global standardization, contrary results also appear in the literature. 5 Finally, prominent among firms’ standardization strategies is Mattel’s unsuccessful globalization of blonde Barbie. We correctly predicted in a previous edition of this book that a better approach was that of Disney, with its more culturally diverse line of “Disney Princesses” including Mulan (Chi- nese) and Jasmine (Arabic). Even though Bratz and Disney Princesses won this battle of the new “toy soldiers,” the question is still not completely settled. Mattel continued the war by suing MGA, claiming the company had stolen new product ideas for its Bratz line from Mattel. After several years of litigation and a variety of judgments going in both directions, in 2011 a federal judge ordered Mattel to pay MGA $310 million in damages. And now

5Oliver Schilke, Martin Reimann, and Jacquelyn S. Thomas, “When Does International Marketing Standardization Matter to Firm Performance?” Journal of International Marketing 17, no. 4 (2009), pp. 24–46.

The competition among soft drink bottlers in India is fierce. Here Coke and Pepsi combine to ruin the view of the Taj Mahal. Notice how the red of Coke stands out among its competitors in the picture. Of course, now Coca-Cola has purchased Thums Up, a prominent local brand—this is a strategy the company is applying around the world. But the red is a substantial competitive advantage both on store shelves and in outdoor advertising of the sort common in India and other developing countries. We’re not sure who borrowed the “monsoon/thunder” slogans from whom.

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MGA plans more legal action to recoup its lost brand equity from the years of legal wran- gling. Mattel learned its lesson: Rather than fighting Disney, it decided to join forces by purchasing a license to market the Princess line. Profits are up at both companies because of the arrangement. 6

Indeed, the debate about standardization versus adaptation is itself a wonderful exam- ple of the ethnocentrism of American managers and academics alike. That is, from the European or even the Japanese perspective, markets are by definition international, and the special requirements of the huge American market must be considered from the beginning. Only in America can international market requirements be an afterthought.

Moreover, as the information explosion allows marketers to segment markets ever more finely, it is only the manufacturing and/or finance managers in companies who argue for standardization for the sake of economies of scale. From the marketing perspective, custom- ization is always best. 7 The ideal market segment size, if customer satisfaction is the goal, is one. According to one expert, “Forward-looking, proactive firms have the ability and will- ingness . . . to accomplish both tasks [standardization and localization] simultaneously.” 8

We believe things are actually simpler than that. As global markets continue to homog- enize and diversify simultaneously, the best companies will avoid the trap of focusing on country as the primary segmentation variable. Other segmentation variables are often more important—for example, climate, language group, media habits, age, 9 or income, as exem- plified in our discussion about the diversity within China in Chapter 11. The makers of Twix apparently think that media habits (that is, MTV viewership) supersede country, accord- ing to their latest segmentation approach. At least one industry CEO concurred regarding media-based segmentation: “With media splintering into smaller and smaller communities of interest, it will become more and more important to reach those audiences wherever

6Ann Zimmerman, “Maker of Bratz Dolls Wins a Legal Reprieve,” The Wall Street Journal , December 11, 2009, p. B10; “Mattel Rival to Get $310 Million in Suit,” Associated Press, August 5, 2011. 7Peggy A. Cloninger and Ziad Swaidan, “Standardization, Customization and Revenue from Foreign Markets,” Journal of Global Marketing 20 (2007), pp. 57–70. 8Masaaki Kotabe, “Contemporary Research Trends in International Marketing: The 1960s,” Chapter 17 in Oxford Handbook of International Business , 2 nd edition, Alan Rugman (ed.) (Oxford: Oxford University Press, 2008); Richard Kustin, “The World is Flat, Almost: Measuring Marketing Standardization and Profit Performance of Japanese and U.S. Firms,” Journal of Global Marketing 23, no. 2 (2010), pp. 100–108. 9Dannie Kjeldgaard and Soren Askegaard, “The Glocalization of Youth Culture: The Global Youth Segment as Structures of Common Difference,” Journal of Consumer Research 33 (2006), pp. 21–27.

Items in the Disney Princess collection are on display at the Licensing International show at New York’s Javits Convention Center. Mattel’s strategic response to Bratz and Disney’s ethnically diverse lines was two-fold. First, it sued Bratz owner MGA with an intellectual property rights claim. The lawsuit lasted several years, and a federal judge finally awarded MGA $310 million in damages. In response, MGA plans more legal action regarding Bratz’s loss of brand equity during the years of legal machinations. Second, Mattel bought the rights to produce the Princess dolls. The Disney Princesses have been selling well due to Mattel’s marketing efforts.

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Chapter 12 Global Marketing Management: Planning and Organization 343

[whichever country] they may be. Today, media companies are increasingly delivering their content over a variety of platforms: broadcast—both TV and radio—and cable, online and print, big screen video, and the newest portable digital media including 3-D. And advertis- ers are using the same variety of platforms to reach their desired audience.” Finally, perhaps a few famous Italian brands are the best examples: Salvatore Ferragamo shoes, Gucci leather goods, and Ferrari cars sell to the highest-income segments globally. Indeed, for all three companies, their U.S. sales are greater than their Italian sales.

In the 21st century, standardization versus adaptation is simply not the right question to ask. 10 Rather, the crucial question facing international marketers is what are the most efficient ways to segment markets. 11 Country has been the most obvious segmentation vari- able, particularly for Americans. But as better communication systems continue to dissolve national borders, other dimensions of global markets are growing in salience.

Nestlé certainly hasn’t been bothered by the debate on standardization versus adaptation. Nestlé has been international almost from its start in 1866 as a maker of infant formula. By 1920, the company was producing in Brazil, Australia, and the United States and exporting to Hong Kong. Today, it sells more than 8,500 products produced in 489 factories in 193 countries. Nestlé is the world’s biggest marketer of infant formula, powdered milk, instant coffee, chocolate, soups, and mineral water. It ranks second in ice cream, and in cereals, it ties Ralston Purina and trails only Kellogg Company. Its products are sold in the most upscale supermarkets in Beverly Hills, California, and in huts in Nigeria, where women sell Nestlé bouillon cubes alongside homegrown tomatoes and onions. Although the company has no sales agents in North Korea, its products somehow find their way into stores there, too.

The “Nestlé way” is to dominate its markets. Its overall strategy can be summarized in four points: (1) think and plan long term, (2) decentralize, (3) stick to what you know, and (4) adapt to local tastes. To see how Nestlé operates, take a look at its approach to Poland, one of the largest markets of the former Soviet bloc. Company executives decided at the outset that it would take too long to build plants and create brand awareness. Instead, the company made acquisitions and followed a strategy of “evolution not revolution.” It purchased Goplana, Poland’s second-best-selling chocolate maker (it bid for the No. 1 company but lost out) and carefully adjusted the end product via small changes every two months over a two-year period until it measured up to Nestlé’s standards and was a recognizable Nestlé brand. These efforts, along with all-out marketing, put the company within striking distance of the market leader, Wedel. Nestlé also purchased a milk opera- tion and, as it did in Mexico, India, and elsewhere, sent technicians into the field to help Polish farmers improve the quality and quantity of the milk it buys through better feeds and improved sanitation.

Nestlé’s efforts in the Middle East are much longer term. The area currently represents only about 2 percent of the company’s worldwide sales, and the markets, individually, are relatively small. Furthermore, regional conflicts preclude most trade among the countries. Nevertheless, Nestlé anticipates that hostility will someday subside, and when that happens, the company will be ready to sell throughout the entire region. Nestlé has set up a network of factories in five countries that can someday supply the entire region with different prod- ucts. The company makes ice cream in Dubai and soups and cereals in Saudi Arabia. The Egyptian factory makes yogurt and bouillon, while Turkey produces chocolate. And a fac- tory in Syria makes ketchup, a malted-chocolate energy food, instant noodles, and other products. If the obstacles between the countries come down, Nestlé will have a network of plants ready to provide a complete line to market in all the countries. In the meantime, factories produce and sell mostly in the countries in which they are located.

The Nestlé Way: Evolution Not

Revolution

10Aviv Shoham, Maja Makovec Brencic, Vesna Virant, and Ayalla Ruvio, “International Standardization of Channel Management and Its Behavioral and Performance Outcomes,” Journal of International Marketing , 16, no. 2 (2008), pp. 120–51. 11Amanda J. Broderick, Gordon E. Greenley, and Rene Dentiste Mueller, “The Behavioral Homogeneity Evaluation Framework: Multi-Level Evaluations of Consumer Involvement in International Segmentation,” Journal of International Business Studies 38 (2007), pp. 746–63.

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For many companies, such a long-term strategy would not be profitable, but it works for Nestlé because the company relies on local ingredients and markets products that consum- ers can afford. The tomatoes and wheat used in the Syrian factory, for example, are major local agricultural products. Even if Syrian restrictions on trade remain, there are 14 million people to buy ketchup, noodles, and other products the company produces there. In all five countries, the Nestlé name and the bird-in-a-nest trademark appear on every product.

Nestlé bills itself as “the only company that is truly dedicated to providing a complete range of food products to meet the needs and tastes of people from around the world, each hour of their day, throughout their entire lives.”

Few firms have truly global operations balanced across major regional markets. However, when large international market segments can be identified, economies of scale in production and marketing can be important competitive advantages for multinational companies. 12 As a case in point, Black & Decker Manufacturing Company—makers of electrical hand tools, appliances, and other consumer products—realized significant production cost savings when it adopted a pan-European strategy. It was able to reduce not only the number of motor sizes for the European market from 260 to 8 but also 15 different models to 8. Similarly, Ford esti- mates that by unifying product development, purchasing, and supply activities across several countries, it saves more than $3 billion a year. Finally, while Japanese firms initially domi- nated the mobile phone business in their home market, international competitors now pose growing challenges via better technologies developed through greater global penetration.

Transfer of experience and know-how across countries through improved coordina- tion and integration of marketing activities is also cited as a benefit of global operations. 13 Global diversity in marketing talent leads to new approaches across markets. 14 Unilever successfully introduced two global brands originally developed by two subsidiaries. Its South African subsidiary developed Impulse body spray, and a European branch devel- oped a detergent that cleaned effectively in European hard water. Aluminum Company of America’s (Alcoa) joint venture partner in Japan produced aluminum sheets so perfect that U.S. workers, when shown samples, accused the company of hand-selecting the samples. Line workers were sent to the Japanese plant to learn the techniques, which were then trans- ferred to the U.S. operations. Because of the benefits of such transfers of knowledge, Alcoa has changed its practice of sending managers overseas to “keep an eye on things” to sending line workers and managers to foreign locations to seek out new techniques and processes.

Marketing globally also ensures that marketers have access to the toughest customers. For example, in many product and service categories, the Japanese consumer has been the hardest to please; the demanding customers are the reason that the highest-quality products and services often emanate from that country. Competing for Japanese customers provides firms with the best testing ground for high-quality products and services.

Diversity of markets served carries with it additional financial benefits. 15 Spreading the portfolio of markets served brings important stability of revenues and operations to many global companies. 16 Companies with global marketing operations suffered less during the

Benefits of Global Marketing

12Natalia Vila and Ines Kuster, “Success and Internationalization: Analysis of the Textile Sector,” Journal of Global Marketing 21, no. 2 (2008), pp. 109–26; Amar Gande, Christopher Schenzler, and Lemma W. Senbet, “Valuation Effects of Global Diversification,” Journal of International Business Studies 40, no. 9 (2009), pp. 1515–32. 13Nigel Driffield, James H. Love, and Stefan Menghinello, “The Multinational Enterprise as a Source of International Knowledge Flows: Direct Evidence from Italy,” Journal of International Business Studies 41, no. 2 (2010), pp. 350–59. 14John Cantwell, “Location and the Multinational Enterprise,” Journal of International Business Studies 40, no. 1 (2009), pp. 35–41; Peter J. Buckley and Niron Hashai, “Formalizing Internationalization in the Eclectic Paradigm,” Journal of International Business Studies 40, no. 1 (2009), pp. 58–70. 15Protiti Dastidar, “International Corporate Diversification and Performance: Does Firm Self-Selection Matter?” Journal of International Business Studies 40, no. 1 (2009), pp. 71–85. 16Lee Li, Gongming Qian, and Zhengming Qian, “Product Diversification, Multinationality, and Country Involvement: What Is the Optimal Combination?” Journal of Global Marketing 20 (2007), pp. 5–25; Tess  Stynes and Paul Ziobro, “McDonald’s Sales Rise Despite U.S. Weakness,” The Wall Street Journal , February 9, 2010.

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Asian market downturn of the late 1990s than did firms specializing in the area. Firms that market globally are able to take advantage of changing financial circumstances in other ways as well. For example, as tax and tariff rates ebb and flow around the world, the most global companies are able to leverage the associated complexity to their advantage.

CROSSING BORDERS 12.1 Swedish Takeout

Fifty years ago in the woods of southern Sweden, a minor revolution took place that has since changed the concept of retailing and created a mass market in a category where none previously existed. The catalyst of the change was and is IKEA, the Swedish furniture retailer and distributor that virtually invented the idea of self-service, takeout furniture. IKEA sells reasonably priced and innovatively designed furniture and home fur- nishings for a global marketplace. The name was registered in Agunnaryd, Sweden, in 1943 by Ingvar Kamprad—the IK in the company’s name. He entered the furniture market in 1950, and the first catalog was published in 1951. The first store didn’t open until 1958 in Almhult. It became so incredibly popular that a year later the store had to add a restau- rant for people who were traveling long distances to get there. IKEA entered the United States in 1985. Although IKEA is global, most of the action takes place in Europe, with about 85 percent of the firm’s $7 billion in sales. Nearly one-fourth of that comes from stores in Germany. This level compares with only about $1 billion in NAFTA countries. One reason for the relatively slow growth in the United States is that its stores are franchised by Netherlands-based Inter IKEA Systems, which care- fully scrutinizes potential franchisees—individuals or companies—for strong financial backing and a proven record in retailing. The IKEA Group, based in Denmark, is a group of private companies owned by a charitable foundation in the Netherlands; it operates more than 100 stores. The Group also develops, purchases, distributes, and sells IKEA products, which are available only in company stores. The items are purchased from more than 2,400 suppliers in 65 countries and shipped through

14 distribution centers. The goal of sourcing 30 percent of timber in both China and Russia has not yet been reached, but the efforts continue. Low price is built into the company’s lines. Even catalog prices are guaranteed not to increase for one year. The drive to produce affordable products inadvertently put IKEA at the forefront of the environmental movement sev- eral decades ago. In addition to lowering costs, minimiza- tion of materials and packing addressed natural resource issues. Environmentalism remains an integral operational issue at IKEA. Even the company’s catalog is completely recyclable. On the day that Russia’s first IKEA store opened in 2000, the wait to get in was an hour. Highway traffic backed up for miles. More than 40,000 people crammed into the place, picking clean sections of the warehouse. The store still pulls in more than 100,000 customers per week. IKEA has big plans for Russia. Company officials are placing IKEA’s simple shelves, kitchens, bathrooms, and bedrooms in millions of Russian apartments that haven’t been remodeled since the Soviet days. One of IKEA’s strength is its strategic learning and adjustment in its international expansion. Its approach has been called “flexible replication,” wherein a strategic template is fitted to each international context. And now IKEA has opened 14 new stores in China’s biggest cities.

Sources: Colin McMahon, “Russians Flock to IKEA as Store Battles Moscow,” Chicago Tribune, May 17, 2000; “IKEA to March into China’s Second-tier Cities [Next],” SinoCast China Business Daily News , August 6, 2007, p. 1; “IKEA Struggles to Source Sustainable Timber,” Environmental Data Services , July 2009, p. 22; Anne VanderMey, “IKEA Takes on China,” Fortune, December 12, 2011; Anna Jonsson and Nicolai J. Foss, “International Expansion through Flexible Replication: Learning from the Internationalization Experience of IKEA,” Journal of International Business Studies 42, no. 9 (2011), pp. 1079–102.

Planning for Global Markets Planning is a systematized way of relating to the future. It is an attempt to manage the effects of external, uncontrollable factors on the firm’s strengths, weaknesses, objectives, and goals to attain a desired end. Furthermore, it is a commitment of resources to a country market to achieve specific goals. In other words, planning is the job of making things happen that might not otherwise occur.

Planning allows for rapid growth of the international function, changing markets, increas- ing competition, and the turbulent challenges of different national markets. The plan must blend the changing parameters of external country environments with corporate objectives

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and capabilities to develop a sound, workable marketing program. 17 A strategic plan com- mits corporate resources to products and markets to increase competitiveness and profits.

Planning relates to the formulation of goals and methods of accomplishing them, so it is both a process and a philosophy. Structurally, planning may be viewed as corporate, strategic, or tactical. International corporate planning is essentially long term, incorporating gen- eralized goals for the enterprise as a whole. Strategic planning is conducted at the highest levels of management and deals with products, capital, research, and the long- and short-term goals of the company. Tactical planning , or market planning, pertains to specific actions and to the allocation of resources used to implement strategic planning goals in specific markets. Tactical plans are made at the local level and address marketing and advertising questions.

A major advantage for a multinational corporation (MNC) involved in planning is the discipline imposed by the process. An international marketer who has gone through the planning process has a framework for analyzing marketing problems and opportunities and a basis for coordinating information from different country markets. The process of planning may be as important as the plan itself, because it forces decision makers to examine all factors that affect the success of a marketing program and involves those who will be responsible for its implementation. Another key to successful planning is evaluating company objectives, in- cluding management’s commitment and philosophical orientation to international business. Finally, the planning process is a primary medium of organizational learning.

Defining objectives clarifies the orientation of the domestic and international divisions, permitting consistent policies. The lack of well-defined objectives has found companies rushing into promising foreign markets only to find activities that conflict with or detract from the companies’ primary objectives.

Company Objectives and Resources

Alligators and the Alligator CROSSING BORDERS 12.2

Actually, it’s a crocodile. Frenchmen Rene Lacoste and Andre Gillier founded the Lacoste firm in 1933 and added the iconic symbol to their shirts, which they exported to the United States for sale as designer goods by retailers such as Brooks Brothers. The brand reached the apex of its popularity in the United States in the 1970s and 1980s, symbolized by its listing in Lisa Birn- bach’s Official Preppy Handbook published in 1980. Then managers made a great strategic mistake. Rather than raising prices to increase both sales revenues and profits, the firm put the crocodile logo on a wide variety of products: shorts, perfume, sunglasses, tennis shoes, belts, deck shoes, walking shoes, watches, even cars. The products then were distributed to a wider variety of retail- ers, including such low-end stores as Mervyns. An Izod sales manager for the big Southern California market at the time responded to a question about the success of the company by noting, “We don’t know why we’re doing so well—we’re just scrambling to fill all the orders.” But not knowing why the products were selling so well meant that they also couldn’t see the coming crash. In the mid-1980s,

the crocodile was ubiquitous, which is not a good position for a designer product. Customers stopped buying, and the decline in sales was dramatic. Only after some 15 years has the company made a reasonable recovery. Other luxury/designer brands have learned to man- age their growth more carefully. Even in the brand craze striking China and high income groups around the world, leather goods maker Louis Vuitton (which often uses alligator to make its products) has chosen to grow relatively slowly. Recently the company expanded its capacity by adding a seventeenth factory in Marsaz, France, that employs 70 people. That is just a drop in the bucket for the $7 billion international marketer. “Our paradox is how to grow without diluting our image,” said CEO Yves Carcelle at the factory opening. It is perhaps the nicest decision an international marketer must make: Raise prices or broaden distribution? Carcelle seems to have learned from his crocodile compatriots.

Source: Christina Passariello, “At Vuitton, Growth in Small Batches,” The Wall Street Journal, June 27, 2011, pp. B1, B10.

17Wade M. Danis, Dan S. Chiaburu, and Majorie A. Lyles, “The Impact of Managerial Networking Intensity and Market-Based Strategies on Firm Growth during Institutional Upheaval: A Study of Small and Medium-Sized Enterprises in a Transition Economy,” Journal of International Business Studies 41, no. 2 (2010), pp. 287–307.

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Foreign market opportunities do not always parallel corporate objectives and resources; 18 it may be necessary to change the objectives, alter the scale of international plans, or aban- don them. One market may offer immediate profit but have a poor long-run outlook, while another may offer the reverse. Only when corporate objectives are clear can such differences be reconciled effectively.

The planning approach taken by an international firm affects the degree of international- ization to which management is philosophically committed. Such commitment affects the specific international strategies and decisions of the firm. 19 After company objectives have been identified, management needs to determine whether it is prepared to make the level of commitment required for successful international operations—commitment in terms of dollars to be invested, personnel for managing the international organization, and determi- nation to stay in the market long enough to realize a return on these investments. 20

A company uncertain of its prospects is likely to enter a market timidly, using inefficient marketing methods, channels, or organizational forms, thus setting the stage for the failure of a venture that might have succeeded with full commitment and support by the parent company. 21 Any long-term marketing plan should be fully supported by senior manage- ment and have realistic time goals set for sales growth. Occasionally, casual market entry is successful, but more often than not, market success requires long-term commitment. 22

Finally, a new series of studies is demonstrating a strong regional preference for multina- tional companies as they expand their operations. 23 Part of this preference is due to the chal- lenges associated with cultural distance 24 and part with physical distance, 25 particularly that related to the difficulties of doing business across time zones. 26 As we mentioned previously, most countries and companies trade most with their neighbors. Managers’ characteristics and preferences also affect this choice. 27 Others report that firms also gain competitive advantages

International Commitment

22Thomas Hutzschenreuter, Torben Pedersen, and Henk W. Voldberda, “The Role of Path Dependency and Managerial Intentionality: A Perspective on International Business Research,” Journal of International Business Studies 38 (2007), pp. 1055–68. 23Luis Felipe Lages, Sandy D. Jap, and David A. Griffith, “The Role of Past Performance in Export Ventures: A Short-Term Reactive Approach,” Journal of International Business Studies 39 (2008), pp. 304–25. 24John H. Dunning, Masataka Fujita, and Nevena Yakova, “Some Macro-Data on the Regionalization/ Globalization Debate: A Comment on the Rugman/Verbeke Analysis,” Journal of International Business Studies 38 (2007), pp. 177–99; Ricardo G. Flores and Ruth V. Aguilera, “Globalization and Location Choice: An Analysis of U.S. Multinational Firms in 1980 and 2000,” Journal of International Business Studies 38 (2007), pp. 1187–210; Simon Collinson and Alan M. Rugman, “The Regional Nature of Japanese Multinational Business,” Journal of International Business Studies 39 (2008), pp. 215–30; Magnus Hultman, Constantine S. Katsikeas, and Matthew J. Robson, “Export Promotion Strategy and Performance: The Role of International Experience,” Journal of International Marketing 19, no. 4 (2011), pp. 17–39. 25Jody Evans, Felix T. Mavondo, and Kerrie Bridson, “Psychic Distance: Antecedents, Retail Strategy Implications, and Performance Outcomes,” Journal of International Marketing 16, no. 2 (2008), pp. 32–63. 26Lazlo Tihanyi, David A. Griffith, and Craig J. Russell, “The Effect of Cultural Distance on Entry Mode Choice, International Diversification, and MNE Performance: A Meta-Analysis,” Journal of International Business Studies 36 (2005), pp. 270–83; Thomas Hutzschenreuter and Johannes C. Voll, “Performance Effects of ‘Added Cultural Distance’ in the Path of International Expansion: The Case of German Multinational Enterprises,” Journal of International Business Studies 39 (2008), pp. 53–70. 27 Elitsa R. Banalieva and Kimberly A. Eddleston, “Home-Region Focus and Performance of Family Firms: The Role of Family vs. Non-Family Leaders,” Journal of International Business Studies 42, no. 8 (2011), pp. 1060–72.

18 Jan Kemper, Andreas Engelen, and Malte Brettel, “How Top Management’s Social Capital Fosters the Devel- opment of Specialized Marketing Capabilities,” Journal of International Marketing 19, no. 3 (2011), pp. 87–112. 19 Antonio Navarro, Francisco J. Acedo, Matthew J. Robson, Emilio Ruzo, and Fernando Losada, “Antecedents and Consequences of Firms’ Export Commitment: An Empirical Study,” Journal of International Marketing 18, no. 3 (2010) pp. 41–61. 20Orly Levy, Schon Beechler, Sully Taylor, and Nakiey A. Boyacigiller, “What We Talk about When We Talk about ‘Global Mindset’: Managerial Cognition in Multinational Corporations,” Journal of International Business Studies 38 (2007), pp. 231–58. 21 Bradley R. Barnes, Leonidas C. Leonidou, Noel Y.M. Siu, and Constantinos N. Leonidou, “Opportunism as the Inhibiting Trigger for Developing Long-Term–Oriented Western Export–Hong Kong Importer Relationships,” Journal of International Marketing 18, no. 2 (2010), pp. 35–63.

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348 Part 4 Developing Global Marketing Strategies

from clustering operations in specific regions. 28 Yet to some degree, 29 researchers question the existence of global strategies, maintaining that only nine American Fortune 500 companies deserve the term “global” with respect to their operational coverage of the planet. 30 We can agree that strategic choices currently favor regional foci, but the trend is toward steadily in- creasing globalization of trade agreements, trade, and company strategies, as we mentioned in the previous chapter. Competition and the new ease of global communications is forcing managers around the world to make greater commitments to global marketing.

Whether a company is marketing in several countries or is entering a foreign market for the first time, planning is essential to success. The first-time foreign marketer must decide what products to develop, in which markets, and with what level of resource commitment. For the company that is already committed, the key decisions involve allocating effort and resources among countries and product(s), deciding on new market segments to develop or old ones to withdraw from, and determining which products to develop or drop. Guide- lines and systematic procedures are necessary for evaluating international opportunities and risks and for developing strategic plans to take advantage of such opportunities. 31 The process illustrated in Exhibit 12.1 offers a systematic guide to planning for the multina- tional firm operating in several countries.

Phase 1: Preliminary Analysis and Screening—Matching Company and Country Needs. Whether a company is new to international marketing or heavily in- volved, an evaluation of potential markets is the first step in the planning process. A critical first step in the international planning process is deciding in which existing country market to make a market investment. A company’s strengths and weaknesses, products, philoso- phies, modes of operation, 32 and objectives must be matched with a country’s constrain- ing factors and market potential. 33 In the first part of the planning process, countries are analyzed and screened to eliminate those that do not offer sufficient potential for further consideration. Emerging markets pose a special problem because many have inadequate marketing infrastructures, distribution channels are underdeveloped, and income levels and distribution vary among countries.

The next step is to establish screening criteria against which prospective countries can be evaluated. These criteria are ascertained by an analysis of company objectives, resources, and other corporate capabilities and limitations. It is important to determine the reasons for entering a foreign market and the returns expected from such an investment. A company’s commitment to international business and its objectives for going international are impor- tant in establishing evaluation criteria. Minimum market potential, minimum profit, return

The Planning Process

LO2 The need for planning to achieve company goals

28Joseph Johnson and Gerard J. Tellis, “Drivers of Success for Market Entry into China and India,” Journal of Marketing 72, no. 3 (2008), pp. 1–13; Jennifer D. Chandler and John L. Graham, “Relationship-Oriented Cultures, Corruption, and International Marketing Success,” Journal of Business Ethics 92, no. 2 (2010), pp. 251–67. 29Gongming Qian, Lee Li, Ji Li, and Zhengming Qian, “Regional Diversification and Firm Performance,” Journal of International Business Studies 39 (2008), pp. 197–214; Stephanie A. Fernhaber, Brett Anitra Gilbert, and Patricia P. McDougall, “International Entrepreneurship and Geographic Location: An Empirical Examination of New Venture Internationalization,” Journal of International Business Studies 39 (2008), pp. 267–90. 30 Thomas Osegowitsch and Andre Sammartino, “Reassessing (Home-) Regionalization,” Journal of International Business Studies 39 (2008), pp. 184–96. 31Alan M. Rugman and Alain Verbeke, “The Theory and Practice of Regional Strategy: A Response to Osegowitsch and Sammartino,” Journal of International Business Studies 39 (2008), pp. 326–32. 32Gabriel R.G. Benito, Bent Petersen, and Lawrence S. Welch, “Towards More Realistic Conceptualizations of Foreign Operation Modes,” Journal of International Business Studies 40, no. 9 (2009), pp. 1455–70; Paula Hortinha, Carmen Lages, and Luis Filipe Lages, “The Trade-Off between Customer and Technology Orientations: Impact on Innovative Capabilities and Export Performance,” Journal of International Marketing 19, no. 3 (2011), pp. 36–58. 33Namrata Malhotra and C. R. (Bob) Corredoira, “An Organizational Model for Understanding Internationalization Processes,” Journal of International Business Studies 41, no. 2 (2010), pp. 330–49.

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Chapter 12 Global Marketing Management: Planning and Organization 349

on investment, acceptable competitive levels, standards of political stability, acceptable legal requirements, and other measures appropriate for the company’s products are examples of the evaluation criteria to be established. 34

Once evaluation criteria are set, a complete analysis of the environment within which a company plans to operate is made. The environment consists of the uncontrollable elements discussed previously and includes both home-country and host-country constraints, mar- keting objectives, and any other company limitations or strengths that exist at the begin- ning of each planning period. Although an understanding of uncontrollable environments is important in domestic market planning, the task is more complex in foreign marketing, because each country under consideration presents the foreign marketer with a different set of unfamiliar environmental constraints. This stage in the planning process, more than anything else, distinguishes international from domestic marketing planning.

The results of Phase 1 provide the marketer with the basic information necessary to eval- uate the potential of a proposed country market, identify problems that would eliminate the country from further consideration, identify environmental elements that need further analysis, determine which part of the marketing mix can be standardized and which part of and how the marketing mix must be adapted to meet local market needs, and develop and implement a marketing action plan.

Information derived from each phase, market research, and evaluation of program performance

Phase 1 Preliminary analysis and screening: Matching company/country needs

Environmental factors, company character,

and screening criteria

Company character

Home-country constraints

Host-country(s) constraints

• Philosophy • Objectives • Resources • Management style • Organization • Financial limitations • Management and marketing skills • Products • Other

• Political • Legal • Economic • Other

• Economic • Political/legal • Competitive • Level of technology • Culture • Structures of distribution • Geography • Competition

Matching mix requirements defining and selecting

market segments

Product

Price

Promotion

Distribution

• Adaptation • Brand name • Features • Packaging • Service • Warranty • Style • Standards

• Credit • Discounts

• Advertising • Personal selling • Media • Message • Sales promotion

• Logistics • Channels

Marketing plan development

• Situation analysis

• Objectives and goals

• Strategy and tactics

• Selecting mode of entry

• Budgets

• Action programs

Implementation, evaluation, and control

• Objectives

• Standards

• Assign responsibility

• Measure performance

• Correct for error

Phase 2 Defining market segments and

adapting the marketing mix accordingly

Phase 3 Developing the marketing plan

Phase 4 Implementation and

control

Exhibit 12.1 International Planning Process

34 Kevin Zheng Zhou, James R. Brown, Chekitan S. Dev, and Sanjeev Agarwal, “The Effects of Customer and Competitor Orientations on Performance in Global Markets: A Contingency Analysis,” Journal of International Business Studies 38 (2007), pp. 303–19.

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350 Part 4 Developing Global Marketing Strategies

Information generated in Phase 1 helps companies avoid the kinds of mistakes that plagued Radio Shack Corporation, a leading merchandiser of consumer electronic equip- ment in the United States, when it first went international. Radio Shack’s early attempts at international marketing in western Europe resulted in a series of costly mistakes that could have been avoided had it properly analyzed the uncontrollable elements of the countries targeted. The company staged its first Christmas promotion in anticipation of December 25 in Holland, unaware that the Dutch celebrate St. Nicholas Day and give gifts on December 6. Furthermore, legal problems in various countries interfered with some plans. German courts promptly stopped a free flashlight promotion in German stores because giveaways violated German sales laws. In Belgium, the company overlooked a law requiring a government tax stamp on all window signs, and poorly selected store sites resulted in many of the new stores closing shortly after opening.

With the analysis in Phase 1 completed, the decision maker faces the more specific task of selecting country target markets and segments, identifying problems and opportunities in these markets, and beginning the process of creating marketing programs.

Phase 2: Defining Target Markets and Adapting the Marketing Mix Accordingly. A more detailed examination of the components of the marketing mix is the purpose of Phase 2. Once target markets are selected, the marketing mix must be evaluated in light of the data generated in Phase 1. Incorrect decisions at this point lead to products inappropriate for the intended market or costly mistakes in pricing, advertising, and promotion. The primary goal of Phase 2 is to decide on a marketing mix adjusted to the cultural constraints imposed by the uncontrollable elements of the environment that effectively achieves corporate objectives and goals. 35

The process used by the Nestlé Company is an example of the type of analysis done in Phase 2. Each product manager has a country fact book that includes much of the informa- tion suggested in Phase 1. The country fact book analyzes in detail a variety of culturally related questions. In Germany, the product manager for coffee must furnish answers to a number of questions. How does a German rank coffee in the hierarchy of consumer prod- ucts? Is Germany a high or a low per capita consumption market? (These facts alone can be of enormous consequence. In Sweden the annual per capita consumption of coffee is 8.2 kilo- grams, in the United States 4.2, and in Japan it’s only 3.3.) 36 How is coffee used—in bean form, ground, or powdered? If it is ground, how is it brewed? Which coffee is preferred—Brazilian Santos blended with Colombian coffee, or robusta from the Ivory Coast? Is it roasted? Do the people prefer dark roasted or blonde coffee? (The color of Nestlé’s instant coffee must resemble as closely as possible the color of the coffee consumed in the country.)

As a result of the answers to these and other questions, Nestlé produces 200 types of in- stant coffee, from the dark robust espresso preferred in Latin countries to the lighter blends popular in the United States. Almost $50 million a year is spent in four research laborato- ries around the world experimenting with new shadings in color, aroma, and flavor. Do the Germans drink coffee after lunch or with their breakfast? Do they take it black or with cream or milk? Do they drink coffee in the evening? Do they sweeten it? (In France, the an- swers are clear: In the morning, coffee with milk; at noon, black coffee—that is, two totally different coffees.) At what age do people begin drinking coffee? Is it a traditional beverage, as in France; is it a form of rebellion among the young, as in England, where coffee drinking has been taken up in defiance of tea-drinking parents; or is it a gift, as in Japan? There is a coffee boom in tea-drinking Japan, where Nescafé is considered a luxury gift item; instead of chocolates and flowers, Nescafé is toted in fancy containers to dinners and birthday par- ties. With such depth of information, the product manager can evaluate the marketing mix in terms of the information in the country fact book.

Phase 2 also permits the marketer to determine possibilities for applying marketing tac- tics across national markets. The search for similar segments across countries can often

35 Thomas L. Powers and Jeffrey J. Loyka, “Adaptation of Marketing Mix Elements in International Markets,” Journal of Global Marketing 23, no. 1 (2010), pp. 65–79. 36 Coffee Consumption, World Resources Institute, 2012.

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Chapter 12 Global Marketing Management: Planning and Organization 351

lead to opportunities for economies of scale in marketing programs. This opportunity was the case for Nestlé when research revealed that young coffee drinkers in England and Japan had identical motivations. As a result, Nestlé now uses principally the same message in both markets.

Frequently, the results of the analysis in Phase 2 indicate that the marketing mix will require such drastic adaptation that a decision not to enter a particular market is made. For example, a product may have to be reduced in physical size to fit the needs of the market, but the additional manufacturing cost of a smaller size may be too high to justify mar- ket entry. Also, the price required to be profitable might be too high for a majority of the market to afford. If there is no way to reduce the price, sales potential at the higher price may be too low to justify entry.

The answers to three major questions are generated in Phase 2:

1. Are there identifiable market segments that allow for common marketing mix tac- tics across countries?

2. Which cultural/environmental adaptations are necessary for successful acceptance of the marketing mix?

3. Will adaptation costs allow profitable market entry?

Based on the results in Phase 2, a second screening of countries may take place, with some countries dropped from further consideration. The next phase in the planning pro- cess is the development of a marketing plan.

Phase 3: Developing the Marketing Plan. At this stage of the planning process, a marketing plan is developed for the target market—whether it is a single country or a global market set. The marketing plan begins with a situation analysis and culminates in the selection of an entry mode and a specific action program for the market. The specific plan establishes what is to be done, by whom, how it is to be done, and when. Included are budgets and sales and profit expectations. Just as in Phase 2, a decision not to enter a specific market may be made if it is determined that company marketing objectives and goals cannot be met.

Phase 4: Implementation and Control. Although we present the model as a series of sequential phases, the planning process is a dynamic, continuous set of interact- ing variables with information continuously building among phases. The phases outline a crucial path to be followed for effective, systematic planning.

A “go” decision in Phase 3 triggers implementation of specific plans and anticipation of successful marketing. However, the planning process does not end at this point. All marketing

As they say, as one door closes, another opens up—indeed, sometimes two! Given all the tea in China, it’s particularly amazing that for almost eight years you could buy a mocha frappuccino in the Forbidden City in Beijing. The yellow roof symbolizes Imperial grounds, but we don’t think the Emperor had grounds of the coffee sort in mind when he built the place in the 1400s. China joining the WTO some six centuries later opened up the market in new ways to franchisers from around the world. However, unlike the other 240 Starbucks stores in China, this one stirred strong protests by the local media and was eventually closed in the summer of 2007. Meanwhile, about one month after the Forbidden City store was forbidden in China, the company’s first Russian store opened in Moscow. On a cold afternoon in Moscow, Russians and foreign tourists can choose between grabbing a cappuccino at either Starbucks or McDonald’s McCafe. The two are just a couple of blocks from each other on Moscow’s most famous traditional shopping street, the Arbat. The American companies were smart enough this time around not to try locating in Red Square.

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352 Part 4 Developing Global Marketing Strategies

plans require coordination and control during the period of implementation. 37 Many busi- nesses do not control marketing plans as thoroughly as they could, even though continu- ous monitoring 38 and control could increase their success. An evaluation and control system requires performance-objective action, that is, bringing the plan back on track should stan- dards of performance fall short. Such a system also assumes reasonable metrics of performance are accessible. A global orientation facilitates the difficult but extremely important manage- ment tasks of coordinating and controlling the complexities of international marketing.

Utilizing a planning process and system encourages the decision maker to consider all variables that affect the success of a company’s plan. Furthermore, it provides the basis for viewing all country markets and their interrelationships as an integrated global unit. By fol- lowing the guidelines presented in Part Six of this text, “The Country Notebook—A Guide for Developing a Marketing Plan,” the international marketer can put the strategic planning process into operation.

With the information developed in the planning process and a country market selected, the decision regarding the entry mode can be made. The choice of mode of entry is one of the more critical decisions for the firm because the choice will define the firm’s operations and affect all future decisions in that market.

37 Adamantios Diamantopoulos and Nikolaos Kakkos, “Managerial Assessments of Export Performance: Conceptual Framework and Empirical Illustration,” Journal of International Marketing 15 (2007), pp. 1–31. 38 Christian Homburg, Joseph P. Cannon, Harley Krohmer, and Ingo Kiedaisch, “Governance of International Business Relationships: A Cross-Cultural Study on Alternative Governance Methods,” Journal of International Marketing 17, no. 3 (2009), pp. 1–20. 39 Harry G. Barkema and Rian Drogendijk, “Internationalizing in Small, Incremental or Large Steps?” Journal of International Business Studies 39 (2008), pp. 1132–48; Gerald Yong Gao and Yigang Pan, “The Pace of MNCs’ Sequential Entries: Cumulative Entry Experience and the Dynamic Process,” Journal of International Business Studies 41, no. 9 (2011), pp. 1572–80.

Alternative Market-Entry Strategies A company has four different modes of foreign market entry from which to select: exporting, contractual agreements, strategic alliances, and direct foreign investment. The different modes of entry can be further classified on the basis of the equity or nonequity requirements of each mode. The amount of equity required by the company to use different modes affects the risk, return, and control that it will have in each mode. For example, indirect exporting requires no equity investment and thus has a low risk, low rate of return, and little control, whereas direct foreign investment requires the most equity of the four modes and creates the greatest risk while offering the most control and the potential highest return.

Companies most often begin with modest export involvement. As sales revenues grow, the firms often proceed down through the series of steps listed in Exhibit 12.2 . 39 Success- ful smaller firms are often particularly adept at exploiting networks of personal and com- mercial relationships to mitigate the financial risks of initial entry. Also, experience in larger numbers of foreign markets can increase the number of entry strategies used. In fact, a company in several country markets may employ a variety of entry modes because each country market poses a different set of conditions. 40 For example, JLG Industries in Pennsylvania makes self-propelled aerial work platforms (cherry pickers) and sells them all over the world. The firm actually manufactured in Scotland and Australia beginning in the 1970s, but it was forced to close the plants in the 1990s. However, the company’s international sales have burgeoned again. The growth in European business allowed for a simplification of distribution channels through the elimination of middlemen; dealerships

40 Taewon Suh, Mueun Bae, and Sumit K. Kundu, “Smaller Firms’ Perceived Cost and Attractiveness in International Markets,” Journal of Global Marketing 21 (2007), pp. 5–18; Anna Nadolska and Harry G. Barkema, “Learning to Internationalise: The Pace and Success of Foreign Acquisitions,” Journal of International Business Studies 38 (2007), pp. 1170–86; Susan B. Douglas and C. Samuel Craig, “Convergence and Divergence: Developing a Semiglobal Marketing Strategy,” Journal of International Marketing 19, no. 1 (2011), pp. 82–100; Ruby P. Lee, “Extending the Environment-Strategy-Performance Framework: The Roles of Multinational Corporation Network Strength, Market Responsiveness, and Product Innovation,” Journal of International Marketing 18, no. 4 (2010), pp. 58–73.

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Chapter 12 Global Marketing Management: Planning and Organization 353

have been purchased in Germany, Norway, Sweden, and the United Kingdom. JLG set up dealership joint ventures in Thailand and Brazil, and sales have been brisk despite volatility problems in those countries. The company also has established sales and service businesses from scratch in Scotland, Italy, and South Africa.

Exporting accounts for some 10 percent of global economic activity. Exporting can be either direct or indirect. With direct exporting , the company sells to a customer in an- other country. This method is the most common approach employed by companies tak- ing their first international step because the risks of financial loss can be minimized. In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country, which in turn exports the product. Customers include large retailers such as Walmart or Sears, wholesale supply houses, trading companies, and others that buy to supply customers abroad.

Early motives for exporting often are to skim the cream from the market or gain business to absorb overhead. Research recommends that a more focused 41 and learning-based ap- proach 42 to a few international markets will work best for new exporters. Early involvement may also be opportunistic and come in the form of an inquiry from a foreign customer or ini- tiatives from an importer in the foreign market. This motive is the case with Pilsner Urquell, the revered Czech beer, which for many years has sold in the United States through Guinness Bass Import Corporation (GBIC). However, the Czech firm severed its relationship with the importer because it wasn’t getting the attention of the other imported beers in GBIC’s port- folio. The firm established its own sales force of two dozen to handle five key metropolitan areas in the United States. Prices were reduced and a global media plan developed with a British ad agency. The firm may import other brands from the Czech parent as well.

Exporting is also a common approach for mature international companies with strong marketing and relational capabilities. 43 Some of America’s largest companies engage in exporting as their major market-entry method. Indeed, Boeing is the best example, as America’s largest exporter. The mechanics of exporting and the different middlemen avail- able to facilitate the exporting process are discussed in detail in Chapter 15.

Exporting

LO3 The important factors for each alternative market- entry strategy

Internet

Exporter

Importer

Distributor

Direct sales

Licensing and franchising

Strategic alliances

Joint ventures and consortia

Direct foreign investment

Contractual agreements

Strategic alliances

Ownership

E x p

o rt

in g

Greater control and greater risk

Exhibit 12.2 Alternative Market-Entry Strategies

41 Lance Eliot Brouthers, George Nakos, John Hadarcou, and Keith D. Brouthers, “Key Factors for Successful Export Performance for Small Firms,” Journal of International Marketing 17, no. 3 (2009), pp. 21–38. 42 Joseph Johnson, Eden Yin, and Hueiting Tsai, “Persistence and Learning: Success Factors of Taiwanese Firms in International Markets,” Journal of International Marketing 17, no. 3 (2009), pp. 39–54. 43 Chris Styles, Paul G. Patterson, and Farid Ahmed, “A Relational Model of Export Performance,” Journal of International Business Studies 39, no. 5 (2008), pp. 880–900.

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354 Part 4 Developing Global Marketing Strategies

The Internet. The Internet is becoming increasingly important as a foreign market entry method. Initially, Internet marketing focused on domestic sales. However, a surpris- ingly large number of companies started receiving orders from customers in other coun- tries, resulting in the concept of international Internet marketing (IIM). PicturePhone Direct, a mail-order reseller of desktop videoconferencing equipment, posted its catalog on the Internet expecting to concentrate on the northeastern United States. To the company’s surprise, PicturePhone’s sales staff received orders from Israel, Portugal, and Germany.

Other companies have had similar experiences and are actively designing Internet cata- logs targeting specific countries with multilingual websites. Dell Computer Corporation has expanded its strategy of selling computers over the Internet to foreign sites as well. Dell began selling computers via the Internet to Malaysia, Australia, Hong Kong, New Zealand, Singapore, Taiwan, and other Asian countries through a “virtual store” on the Internet. The same selling mode has been launched in Europe.

Amazon.com jumped into the IIM game with both feet. It hired a top Apple Computer executive to manage its fast growing international business. Just 15 months after setting up book and CD e-tailing sites in Germany and the United Kingdom, the new overseas Amazon websites surged to become the most heavily trafficked commercial venues in both markets. Among the companies with the most profitable e-tailing businesses are former catalog companies such as Lands’ End and L.L. Bean. Interestingly, Lands’ End’s success in foreign markets was tainted by unexpected problems in Germany. German law bans “ad- vertising gimmicks”—and that’s what regulators there called Lands’ End’s “unconditional lifetime guarantee.” Indeed, the firm took the dispute all the way to the German supreme court and lost. Moreover, the uncertainty swirling around the European Union’s approach to taxing Internet sales is continuing cause for great concern.

As discussed in Chapter 2, the full impact of the Internet on international marketing is yet to be determined. However, IIM should not be overlooked as an alternative market- entry strategy by the small or large company. Coupled with the international scope of credit card companies such as MasterCard and Visa and international delivery services such as UPS and Federal Express, deliveries to foreign countries can be relatively effortless.

Direct Sales. Particularly for high-technology and big ticket industrial products, a di- rect sales force may be required in a foreign country. This requirement may mean establish- ing an office with local and/or expatriate managers and staff, depending of course on the size of the market and potential sales revenues. International sales management is one of the topics covered in detail in Chapter 17.

Contractual agreements are long-term, nonequity associations between a company and an- other in a foreign market. Contractual agreements generally involve the transfer of technol- ogy, processes, trademarks, and/or human skills. In short, they serve as a means of transfer of knowledge rather than equity.

Licensing. A means of establishing a foothold in foreign markets without large capital outlays is licensing . Patent rights, trademark rights, and the rights to use technological processes are granted in foreign licensing. It is a favorite strategy for small and medium- sized companies, though by no means limited to such companies. Common examples of industries that use licensing arrangements in foreign markets are television program- ming and pharmaceuticals. Not many confine their foreign operations to licensing alone; it is generally viewed as a supplement to exporting or manufacturing, rather than the only means of entry into foreign markets. The advantages of licensing are most apparent when capital is scarce, import restrictions forbid other means of entry, a country is sensitive to foreign ownership, or patents and trademarks must be protected against cancellation for nonuse. The risks of licensing are choosing the wrong partner, quality and other produc- tion problems, payment problems, contract enforcement, and loss of marketing control. 44

Contractual Agreements

44 Preet S. Aulakh, Marshall S. Jiang, and Yigang Pan, “International Technology Licensing: Monopoly Rents, Transaction Costs, and Exclusive Rights,” Journal of International Business Studies 41, no. 4 (2010), pp. 587–605.

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Chapter 12 Global Marketing Management: Planning and Organization 355

Although licensing may be the least profitable way of entering a market, the risks and headaches are less than those for direct investments. It is a legitimate means of capital- izing on intellectual property in a foreign market, and such agreements can also benefit the economies of target countries. Licensing takes several forms. Licenses may be granted for production processes, for the use of a trade name, or for the distribution of imported products. Licenses may be closely controlled or be autonomous, and they permit expansion without great capital or personnel commitment if licensees have the requisite capabilities. Not all experiences with licensing are successful because of the burden of finding, supervis- ing, and inspiring licensees. The duration of licensing agreements depends to a large degree on technology and market uncertainties—more uncertainty favors shorter contracts. 45

Franchising. Franchising is a rapidly growing form of licensing in which the fran- chiser provides a standard package of products, systems, and management services, and the franchisee provides market knowledge, capital, and personal involvement in management. The combination of skills permits flexibility in dealing with local market conditions and yet provides the parent firm with a reasonable degree of control. The key word in the previous sentence is “reasonable”—companies in recent years have chosen to buy back stores from franchisees. Recently Starbucks has taken this step in western provinces of China. 46 The franchiser can follow through on marketing of the products to the point of final sale. It is an important form of vertical market integration. Potentially, the franchise system provides an effective blending of skill centralization and operational decentralization; it has become an increasingly important form of international marketing. In some cases, franchising is having a profound effect on traditional businesses. In England, for example, annual fran- chised sales of fast foods are estimated at nearly $2 billion, which accounts for 30 percent of all foods eaten outside the home. The key factors that influence success of franchising approaches are monitoring costs (based on physical and cultural distances), the principal’s international experience, and the brand equity in the new market.

Prior to 1970, international franchising was not a major activity. A survey by the Interna- tional Franchising Association revealed that only 14 percent of its member firms had fran- chises outside of the United States, and the majority of those were in Canada. Now hundreds of thousands of franchises of U.S. firms are located in countries throughout the world. Fran- chises include soft drinks, motels (including membership “organizations” like Best Western International), retailing, fast foods, car rentals, automotive services, recreational services, and a variety of business services from print shops to sign shops. Canada is the dominant market for U.S. franchisers, with Japan and the United Kingdom second and third in importance. The Asia Pacific Rim has seen rapid growth as companies look to Asia for future expansion.

45 Marshall S. Jiang, Preet S. Aulakh, and Yigang Pan, “Licensing Duration in Foreign Markets: A Real Options Perspective,” Journal of International Business Studies 40, no. 4 (2009), pp. 559–77.

Maybe they can help you find a home with a view of the Black Sea here at the Century 21 office in Istanbul, Turkey. We know they’ll be happy to sell you a piece of chicken from the Colonel’s place in Eilat, Israel, just across the Red Sea from Aqaba, Jordan.

46 Tang Zhihao, “Starbucks Buys Back Control of Stores,” China Daily, June 3, 2011, p. 14.

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Despite temporary setbacks during the global economic downturn right after the turn of the millennium, franchising is still expected to be the fastest growing market-entry strat- egy. Franchises were often among the first types of foreign retail business to open in the emerging market economies of eastern Europe, the former republics of Russia, and China. McDonald’s is in Moscow (its first store seated 700 inside and had 27 cash registers), and KFC is in China (the Beijing KFC store has the highest sales volume of any KFC store in the world). The same factors that spurred the growth of franchising in the U.S. domestic economy have led to its growth in foreign markets. Franchising is an attractive form of cor- porate organization for companies wishing to expand quickly with low capital investment. The franchising system combines the knowledge of the franchiser with the local knowledge and entrepreneurial spirit of the franchisee. Foreign laws and regulations are friendly to- ward franchising because it tends to foster local ownership, operations, and employment.

Lil’Orbits, a Minneapolis-based company that sells donut-making equipment and ingre- dients to entrepreneurs, is an example of how a small company can use licensing and fran- chising to enter foreign markets. Lil’Orbits sells a donut maker that turns out 1.5-inch donuts while the customer waits. The typical buyer in the United States buys equipment and mix directly from the company without royalties or franchise fees. The buyer has a small shop or kiosk and sells donuts by the dozen for takeout or individually along with a beverage.

Successful in the United States, Lil’Orbits ran an advertisement in Commercial News USA , a magazine showcasing products and services in foreign countries, that attracted 400 inquiries. Pleased with the response, the company set up an international franchise op- eration based on royalties and franchise fees. Now a network of international franchised distributors markets the machines and ingredients to potential vendors. The distributors pay Lil’Orbits a franchise fee and buy machines and ingredients directly from Lil’Orbits or from one of the licensed vendors worldwide, from which Lil’Orbits receives a royalty. This entry strategy has enabled the company to enter foreign markets with minimum capital investment outside the home country. The company has over 20,000 franchised dealers in 85 countries. About 60 percent of the company’s business is international.

Although franchising enables a company to expand quickly with minimum capital, there are costs associated with servicing franchisees. For example, to accommodate differ- ent tastes around the world, Lil’Orbits had to develop a more pastrylike, less sweet mix than that used in the United States. Other cultural differences have had to be met as well. For example, customers in France and Belgium could not pronounce the trade name Lil’Orbits,

CROSSING BORDERS 12.3 The Men Who Would Be Pizza Kings

In more senses than one, pizza outlets are mushrooming all over India. The wait for pizza lovers in places like Surat, Kochi, and Bhubaneshwar is finally over. Both American franchisers Domino’s and Pizza Hut now have over 200 stores each in the country. Chennai-based Pizza Corner, having established itself in the south, has now boldly ventured into the north—it has already opened three outlets in Delhi and is planning to increase the number to eight. While Domino’s is trying to dish out a pizza for every ethnic group, Pizza Hut is trying to expose Indians to the pizza’s Chinese cousin. It has come up with the “Orien- tal,” which has hot Chinese sauce, spring onions, and sesame seeds as its toppings. It was developed based on the Indian fondness for Chinese food. This is not to

say that Pizza Hut does not pay heed to the spice-soaked Indian version. Apart from the Oriental, it is also dishing out a spicy paneer tikka pizza. Milk shakes are on the menu, too. Most recently an Indian dairy company has been earning market share in both pizzas and ice cream. Things are getting interesting there fast. And, in spite of Kipling’s prophesy that the two streams shall never meet, the Indianization of the pizza is truly here.

Sources: Smita Tripathi, “Butter Chicken Pizza in Ludhiana,” Business Standard, June 17, 2000, p. 2; Rahul Chandawarkar, “Collegians Mix Money with Study Material,” Times of India, June 22, 2000; Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus, and Giroux, 2005); “Dominos Pizza India Plans 500 Stores in Country,” Indian Business Insight , February 14, 2008, p. 20; Julie Jargon and Arlene Chang, “Yum Brands Bets on India’s Young for Growth,” The Wall Street Journal , December 12, 2009, p. B1; www.pizzahut.co.in, 2012.

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Chapter 12 Global Marketing Management: Planning and Organization 357

so Orbie is used instead. Toppings also had to be adjusted to accommodate different tastes. Cinnamon sugar is the most widely accepted topping, but in China, cinnamon is consid- ered a medicine, so only sugar is used. In the Mediterranean region, the Greeks like honey, and chocolate sauce is popular in Spain. Powdered sugar is more popular than granulated sugar in France, where the donuts are eaten in cornucopia cups instead of on plates.

A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a com- mon objective. Strategic alliances have grown in importance over the last few decades as a competitive strategy in global marketing management. Strategic international alliances are sought as a way to shore up weaknesses and increase competitive strengths—that is, complementarity is key. 47 Firms enter into SIAs for several reasons: opportunities for rapid expansion into new markets, access to new technology, 48 more efficient production and in- novation, reduced marketing costs, strategic competitive moves, and access to additional sources of products 49 and capital. Finally, evidence suggests that SIAs often contribute nicely to profits.

Among some of the more prominent SIAs are Nokia (Finland)/ATT, Alibaba (China)/ Microsoft, Tata (India)/Starbucks, and Renault (France)/Nissan (Japan). But perhaps the

most visible SIAs are now in the airline industry. American Airlines, Cathay Pacific, British Airways, Japan Airlines, Finnair, Mexicana, Malev, Iberia, LAN, Royal Jordanian, and Quantas are partners in the Oneworld Alliance, which inte grates schedules and mileage programs. Competing with Oneworld are the Star Alliance (led by United, Continental, and Lufthansa) and SkyTeam (led by Air France, Delta, and KLM). These kinds of strategic international alliances imply that there is a common objective; that one partner’s weak- ness is offset by the other’s strength; that reaching the objec- tive alone would be too costly, take too much time, or be too risky; and that together their respective strengths make possible what otherwise would be unattainable. For example, during the recent turmoil in the global airline industry, Star Alliance began moving in the direction of buying aircraft, a new strategic innovation. Relationships appear particularly

strong in times of troubles—Japan Airlines leans heavily in the direction of American Airlines (both Oneworld members) rather than “outsider” Delta in its current merger/ acquisition/investment talks. 50

An SIA with multiple objectives involves C-Itoh (Japan), Tyson Foods (United States), and Provemex (Mexico). It is an alliance that processes Japanese-style yakitori (bits of mar- inated and grilled chicken on a bamboo stick) for export to Japan and other Asian coun- tries. Each company had a goal and made a contribution to the alliance. C-Itoh’s goal was to find a lower-cost supply of yakitori; because it is so labor intensive, it was becoming in- creasingly costly and noncompetitive to produce in Japan. C-Itoh’s contribution was access to its distribution system and markets throughout Japan and Asia. Tyson’s goal was  new

Strategic International

Alliances

LO4 The increasing importance of international strategic alliances

47 Eric Fang and Shaoming Zou, “Antecedents and Consequences of Marketing Dynamic Capabilities in International Joint Ventures,” Journal of International Business Studies 39, no. 1 (2008), pp. 1–27; Tony W. Tong and Jeffrey J. Reuer, “Competitive Consequences of Interfirm Collaboration: How Joint Ventures Shape Industry Profitability,” Journal of International Business Studies 41, no. 6 (2010), pp. 1056–73. 48 http://www.lilorbits.com , 2012. 49 Marjorie A. Lyles and Jane E. Salk, “Knowledge Acquisition from Foreign Parents in International Joint Ventures: An Empirical Examination of the Hungarian Context,” Journal of International Business Studies 38 (2007), pp. 3–18; Masaaki Kotabe, Denise Dunlap-Hinkler, Ronaldo Parente, and Harsh A. Mishra, “Determination of Cross-National Knowledge Transfer and Its Effect on Innovation,” Journal of International Business Studies 38 (2007), pp. 259–82. 50 Mariko Sanchanta and Mike Esterl, “JAL Stays in AMR Alliance, Delta Out,” The Wall Street Journal , February 7, 2010, online.

In the Star Alliance strategic alliance, Lufthansa and Thai Airlines share several aspects of their operations, including ticketing and reservations, catering, cargo, and airport slots. As the global airline industry continues to consolidate, more strategic partnerships are being formed and disappearing.

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358 Part 4 Developing Global Marketing Strategies

markets for its dark chicken meat, a by-product of demand for mostly white meat in the U.S. market. Tyson exported some of its excess dark meat to Asia and knew that C-Itoh wanted to expand its supplier base. But Tyson faced the same high labor costs as C-Itoh. Provemex, the link that made it all work, had as its goal expansion beyond raising and slaughtering chickens into higher value-added products for international markets. Provemex’s contribu- tion was to provide highly cost-competitive labor.

Through the alliance, they all benefited. Provemex acquired the know-how to bone the dark meat used in yakitori and was able to vertically integrate its operations and secure a foothold in a lucrative export market. Tyson earned more from the sale of surplus chicken legs than was previously possible and gained an increased share of the Asian market. C-Itoh had a steady supply of competitively priced yakitori for its vast distribution and marketing network. Thus, three companies with individual strengths created a successful alliance in which each contributes and each benefits.

Many companies also are entering SIAs to be in a strategic position to be competitive and to benefit from the expected growth in the single European market. As a case in point, when General Mills wanted a share of the rapidly growing breakfast-cereal market in Europe, it joined with Nestlé to create Cereal Partners Worldwide. The European cereal market was projected to be worth hundreds of millions of dollars as health-conscious Europeans changed their breakfast diet from eggs and bacon to dry cereal. General Mills’s main U.S. competitor, Kellogg, had been in Europe since 1920 and controlled about half of the market.

For General Mills to enter the market from scratch would have been extremely costly. Although the cereal business uses cheap commodities as its raw materials, it is both capital and marketing intensive; sales volume must be high before profits begin to develop. Only recently has Kellogg earned significant profits in Europe. For General Mills to reach its goal alone would have required a manufacturing base and a massive sales force. Further- more, Kellogg’s stranglehold on supermarkets would have been difficult for an unknown to breach easily. The solution was a joint venture with Nestlé. Nestlé had everything General Mills lacked—a well-known brand name, a network of plants, and a powerful distribution system—except for the one thing that General Mills could provide: strong cereal brands.

The deal was mutually beneficial. General Mills provided the knowledge in cereal tech- nology, including some of its proprietary manufacturing equipment, its stable of proven brands, and its knack for pitching these products to consumers. Nestlé provided its name on the box, access to retailers, and production capacity that could be converted to making Gen- eral Mills’s cereals. In time, Cereal Partners Worldwide intends to extend its marketing effort beyond Europe. In Asia, Africa, and Latin America, Cereal Partners Worldwide will have an important advantage over the competition because Nestlé is a dominant food producer.

As international strategic alliances have grown in importance, more emphasis has been placed on a systematic approach to forming them. Most experts in the field agree that the steps outlined in Exhibit 12.3 will lead to successful and high-performance strategic alli- ances. In particular, we note the wide agreement regarding the importance of building trust in the interpersonal and institutional relationships as a prerequisite of success. 51 Of course, in international business there are no guarantees; the interface between differing ethical, cultural, and legal systems often makes matters more difficult. 52 And a key activity in all the steps outlined in the exhibit is international negotiation, the subject of Chapter 19. 53

51 Robert E. Spekman, Lynn A. Isabella, with Thomas C. MacAvoy, Alliance Competence (New York: Wiley, 2000). 52 Haisu Zhang, Chegli Shu, Xu Jaing, and Alan J. Malter, “Managing Knowledge for Innovation: The Role of Cooperation, Competition, and Alliance Nationality,” Journal of International Marketing 18, no. 4 (2010), pp. 74–94; Kai Li, Dale Griffin, Heng Yue, and Longkai Zhao, “National Culture and Capital Structure Decisions: Evidence from Foreign Joint Ventures in China,” Journal of International Business Studies 42, no. 4 (2011), pp. 477–503; Anupama Phene and Stephen Tallman, “Complexity, Context, and Governance in Biotechnology Alliances,” Journal of International Business Studies 43, no. 1 (2012), pp. 61–83. 53 Kam-hon Lee, Gong-ming Qian, Julie H. Yu, and Ying Ho, “Trading Favors for Marketing Advantage: Evidence from Hong Kong, China, and the United States,” Journal of International Marketing 13 (2005), pp. 1–35; Daniel C. Bello, Constantine S. Katsikeas, and Matthew J. Robson, “Does Accommodating a Self-Serving Partner in an International Marketing Alliance Pay Off?” Journal of Marketing 74, no. 6 (2011), pp. 77–93.

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Chapter 12 Global Marketing Management: Planning and Organization 359

International Joint Ventures. International joint ventures (IJVs) as a means of for- eign market entry have accelerated sharply during the last 30 years. Besides serving as a means of lessening political and economic risks by the amount of the partner’s contribution to the venture, IJVs provide a way to enter markets that pose legal and cultural barriers that is less risky than acquisition of an existing company.

A joint venture is different from other types of strategic alliances or collaborative re- lationships in that a joint venture is a partnership of two or more participating companies that have joined forces to create a separate legal entity. Joint ventures are different from minority holdings by an MNC in a local firm.

Four characteristics define joint ventures: (1) JVs are established, separate, legal entities; (2) they acknowledge intent by the partners to share in the management of the JV; (3) they are partnerships between legally incorporated entities, such as companies, chartered orga- nizations, or governments, and not between individuals; and (4) equity positions are held by each of the partners.

However, IJVs can be hard to manage. The choice of partners and the qualities of the relationships between the executives are important factors leading to success. Several other factors contribute to their success or failure as well: how control is shared, relations with parents, institutional (legal) environments, 54 marketing capabilities, 55 experience, 56 and the

Exhibit 12.3 Building Strategic Alliances

Primary Relationship Activity

Typical Actions, Interactions, Activities

Key Relationship Skill

Dating Senior executives leveraging personal networks Wondering how to respond to inquiries Wondering how to seek out possibilities

Good radar; good relationship self-awareness

Imaging Seeing the reality in possibilities Creating a shared vision from being together Involving trusted senior managers

Creating intimacy

Initiating Bringing key executives into action Creating trust through face-to-face time

Trust building

Interfacing Facilitating the creating of personal relationships at many levels

Traveling to partner facilities and engaging in technical conversations

Blending social and business time

Partnering

Committing Demonstrating that managers are fully committed to the alliance and each other

Managing the conflict inherent in making hard choices

Accepting the reality of the alliance and its relationships

Commitment

Fine-tuning Relying on mature and established relationships Facilitating interaction and relationships with future

successors

Growing with another

Source: Adapted from Robert E. Spekman, Lynn A. Isabella, with Thomas C. MacAvoy, Alliance Competence (New York: Wiley, 2000), p. 81. Reprinted with permission of John Wiley & Sons, Inc.

54 Rene Belderbos and Jianglei Zou, “On the Growth of Foreign Affiliates: Multinational Plant Networks, Joint Ventures, and Flexibility,” Journal of International Business Studies 38 (2007), pp. 1095–112. 55 Eric (Er) Fang and Shaoming Zou, “Antecedents and Consequences of Marketing Dynamic Capabilities in International Joint Ventures,” Journal of International Business Studies 40, no. 5 (2009), pp. 742–61. 56 Sengun Yeniyurt, Janell D. Townsend, S. Tamer Cavusgil, and Pervez Ghauri, “Mimetic and Experiential Effects in International Marketing Alliance Formations of U.S. Pharmaceuticals Firms: An Event History Analysis,” Journal of International Business Studies 40, no. 2 (2009), pp. 301–20.

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360 Part 4 Developing Global Marketing Strategies

extent to which knowledge is shared across partners. 57 Despite this complexity, nearly all companies active in world trade participate in at least one international joint venture some- where; many companies have dozens of joint ventures. A recent Conference Board study indicated that 40 percent of Fortune 500 companies were engaged in one or more IJVs. Particularly in telecommunications and Internet markets, joint ventures are increasingly favored.

Around the Asia Pacific Rim, where U.S. companies face unfamiliar legal and cultural barriers, joint ventures are preferred to buying existing businesses. Local partners can often lead the way through legal mazes and provide the outsider with help in understanding cultural nuances. A JV can be attractive to an international marketer when it enables a company to utilize the specialized skills of a local partner, when it allows the marketer to gain access to a partner’s local distribution system, when a company seeks to enter a market where wholly owned activities are prohibited, when it provides access to markets protected by tariffs or quotas, and when the firm lacks the capital or personnel capabilities to expand its international activities.

In China, a country considered to be among the most challenging in Asia, 58 more than 50,000 joint ventures have been established in the 30 years since the government began allowing IJVs there. Among the many reasons IJVs are so popular is that they offer a way of getting around high Chinese tariffs, allowing a company to gain a competitive price ad- vantage over imports. Manufacturing locally with a Chinese partner rather than importing achieves additional savings as a result of low-cost Chinese labor. Many Western brands are manufactured and marketed in China at prices that would not be possible if the products were imported.

Consortia. Consortia are similar to joint ventures and could be classified as such except for two unique characteristics: (1) They typically involve a large number of par- ticipants and (2) they frequently operate in a country or market in which none of the participants is currently active. Consortia are developed to pool financial and manage- rial resources and to lessen risks. Often, huge construction projects are built under a consortium arrangement in which major contractors with different specialties form a separate company specifically to negotiate for and produce one job. One firm usually acts as the lead firm, or the newly formed corporation may exist independently of its originators.

Without a doubt, the most prominent international consortium has been Airbus, Boeing’s European competitor in the global commercial aircraft market. Airbus Industrie was originally formed when four major European aerospace firms agreed to work together to build commercial airliners. In 2000, the four agreed to transform the consortium into a global company to achieve operations efficiencies that would allow it to compete better against Boeing. Meanwhile, Boeing joined together with its own consortium to develop the new 787 Dreamliner aircraft. 59

Sematech, the other candidate for most prominent consortium, was originally an ex- clusively American operation. Sematech is an R&D consortium formed in Austin, Texas, during the 1980s to regain America’s lead in semiconductor development and sales from Japan. Members included firms such as IBM, Intel, Texas Instruments, Motorola, and Hewlett-Packard. However, at the turn of the millennium even Sematech went inter- national. Several of the founding American companies left and were replaced by firms

58 Timothy J. Wilkinson, Andrew R. Thomas, and Jon M. Hawes, “Managing Relationships with Chinese Joint Venture Partners,” Journal of Global Marketing 22, no. 2 (2009), pp. 109–20.

57 Changhui Zhou and Jing Li, “Product Innovation in Emerging Market-Based International Joint Ventures: An Organizational Ecology Perspective,” Journal of International Business Studies 39, no. 7 (2008), pp. 1114– 32; Jean-Paul Roy and Christine Oliver, “International Joint Venture Partner Selection: The Role of the Host-Country Legal Environment,” Journal of International Business Studies 40, no. 5 (2009), pp. 779–802.

59 Yan Zhang, Haiyang Li, Michael A. Hitt, and Geng Cui, “R&D Intensity and International Joint Venture Performance in an Emerging Market: Moderating Effects of Market Focus and Ownership Structure,” Journal of International Business Studies 38 (2007), pp. 944–60.

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Chapter 12 Global Marketing Management: Planning and Organization 361

from Taiwan, Korea, Germany, and the Netherlands (still none from Japan). The firm is also broadening its own investment portfolio to include a greater variety of international companies.

All strategic international alliances are susceptible to problems of coordination. For ex- ample, some analysts blamed the international breadth of Boeing’s 787 Dreamliner con- sortium for the costly delays in manufacturing the new jet. Further, circumstances and/or partners can change in ways that render agreements untenable, and often such corporate relationships are short lived. Ford and Nissan launched a joint venture minivan in 1992 called the Mercury Villager/Nissan Quest. The car was mildly successful in the U.S. market, but in 2002 the joint venture stopped producing the cars—that’s two years earlier than the original contract called for. Now that Nissan is controlled by French automaker Renault, it began producing its own minivan in 2003 for sale in the United States. When General Motors formed a joint venture with Daewoo, its purpose was to achieve a significant posi- tion in the Asian car market. Instead, Daewoo used the alliance to enhance its own auto- mobile technology, and by the time the partnership was terminated, GM had created a new global competitor for itself.

Nestlé has been involved in a particularly ugly dissolution dispute with Dabur India. The Swiss firm owned 60 percent and the Indian firm 40 percent of a joint venture biscuit company, Excelcia Foods. Following months of acrimony, Dabur filed a petition with the Indian government accusing Nestlé of indulging in oppression of the minority shareholder and of mismanaging the JV company. In particular, Dabur alleged that Nestlé was purpose- fully running Excelcia into bankruptcy so that Nestlé could wriggle out of its “non-compete obligations and go after the India-biscuit market using another brand.” Nestlé countered that the problem had more to do with the partners’ inability to agree on a mutually accept- able business plan. The dispute was eventually settled out of court by Nestlé buying Dabur’s 40 percent interest, shortly after which Excelcia was closed in lieu of restructuring.

A fourth means of foreign market development and entry is direct foreign investment , that is, investment within a foreign country. Companies may invest locally to capitalize on low- cost labor, to avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw materials and technology, or as a means of gaining market entry. 60 Firms may either invest in or buy local companies or establish new operations facilities. The local firms enjoy important benefits aside from the investments themselves, such as substantial technology transfers 61 and the capability to export to a more diversified cus- tomer base. 62 As with the other modes of market entry, several factors have been found to influence the structure and performance of direct investments: (1) timing 63 —first movers have advantages but are more risky; (2) the growing complexity and contingencies of con- tracts; (3) transaction cost structures; (4) technology and knowledge transfer; 64 (5) degree of product differentiation; (6) the previous experiences and cultural diversity of acquired

Direct Foreign Investment

60 Riikka M. Sarala and Eero Vaara, “Cultural Differences, Convergence, and Crossconvergence as Explanations of Knowledge Transfer in International Acquisitions,” Journal of International Business Studies 41, no. 8 (2010), pp. 1365–90. 61 Donna L. Paul and Rossitza B. Wooster, “Strategic Investments by US Firms in Transition Economies,” Journal of International Business Studies 39 (2008), pp. 249–66. 62 Jasjit Singh, “Asymmetry of Knowledge Spillovers between MNCs and Host Country Firms,” Journal of International Business Studies 38 (2007), pp. 764–86.

64 Hongxin Zhao, Yadong Luo, and Taewon Suh, “Transaction Cost Determinants and Ownership-Based Entry Mode Choice: A Meta-Analytic Review,” Journal of International Business Studies 35, no. 6 (2004), pp. 524–44; Henrik Bresman, Julian Birkinshaw, and Robert Nobel, “Knowledge Transfer in International Acquisitions,” Journal of International Business Studies 41, no. 1 (2010), pp. 5–20; Julian Birkinshaw, Henrik Bressman, and Robert Nobel, “Knowledge Transfer in International Acquisitions: A Retrospective,” Journal of International Business Studies 41, no. 1 (2010), pp. 21–26.

63Chris Changwha Chung, Seung-Hyun Lee, Paul W. Beamish, and Takehiko Isobe, “Subsidiary Expansion/ Contraction during Times of Economic Crisis,” Journal of International Business Studies 41, no. 3 (2010), pp. 500–516; Sea-Jin Chang and Nay Hyuk Rhee, “Rapid FDI Expansion and Firm Performance,” Journal of International Business Studies 42, no. 8 (2011) pp. 995–1015.

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firms; 65 and (7) advertising and reputation barriers. This mix of considerations and risks makes for increasingly difficult decisions about such foreign investments. But as off-putting legal restrictions 66 continue to ease with WTO and other international agreements, more and more large firms are choosing to enter markets via direct investment.

The growth of free trade areas that are tariff-free among members but have a common tariff for nonmembers creates an opportunity that can be capitalized on by direct invest- ment. Similar to its Japanese competitors, Korea’s Samsung has invested some $500 million to build television tube plants in Tijuana, Mexico, to feed the already huge NAFTA televi- sion industry centered there. Kyocera Corporation, a Japanese high-tech company, bought Qualcomm’s wireless consumer phone business as a means of fast entry into the American market. Google bought Motorola for its technology, but also to enhance its participation in the Chinese market. Nestlé is seeking business in China through its purchase of local candy maker Hsu Fu Chi. Disney acquired UTV Software Communications Ltd. of India, aiming to open up both broadcast and mobile-gaming businesses in that important market. Finally, Nestlé is building a new milk factory in Thailand to serve the ASEAN Free Trade Area.

A hallmark of global companies today is the establishment of manufacturing operations throughout the world. This trend will increase as barriers to free trade are eliminated and companies can locate manufacturing wherever it is most cost effective. The selection of an entry mode and partners are critical decisions, because the nature of the firm’s operations in the country market is affected by and depends on the choices made. The entry mode affects the future decisions because each mode entails an accompanying level of resource commitment, and changing from one entry mode to another without considerable loss of time and money is difficult.

66 Desislava Dikova, Padma Roa Sahib, and Arjen van Witteloostuijn, “Cross-Border Acquisition Abandonment and Completion: The Effect of Institutional Differences and Organizational Learning in the International Business Service Industry, 1981–2001,” Journal of International Business Studies 41, no. 2 (2010), pp. 223–45. 67 Zuohao Chun Zhang and Flora F. Gu, “Intra- and Interfirm Coordination of Export Manufacturers: A Cluster Analysis of Indigenous Chinese Exporters,” Journal of International Marketing 16, no. 3 (2008), pp. 108–35. 68 Andreas Engelen and Malte Brettel, “A Cross-Cultural Perspective of Marketing Departments’ Influence Tactics,” Journal of International Marketing 19, no. 2 (2011), pp. 73–94; Peter C. Verhoef, Peter S.H. Leeflang, Jochen Reiner, Martin Natter, William Baker, Amir Griinstein, Anders Gustafsson, Pamela Morrison, and John Saunders, “A Cross-National Investigation into the Marketing Department’s Influence within the Firm: Toward Initial Empirical Generalizations,” Journal of International Marketing 19, no. 3 (2011), pp. 59–86.

65 Lilach Nachum and Cliff Wymbs, “Product Differentiation, External Economies, and MNE Location Choices: M&A Global Cities,” Journal of International Business Studies 36 (2005), pp. 415–34; Rajesh Chakrabarti, Swasti Gupta-Mukherjee, and Narayanan Jayaraman, “Mars-Venus Marriages: Culture and Cross-Border M&A,” Journal of International Business Studies 40, no. 2 (2009), pp. 216–36; Jonas F. Puck, Dirk Holtbrugge, and Alexander T. Mohr, “Beyond Entry Mode Choice: Explaining the Conversion of Joint Ventures into Wholly Owned Subsidiaries in the People’s Republic of China,” Journal of International Business Studies 40, no. 3 (2009), pp. 388–404; Mary Yoko Brannen and Mark F. Peterson, “Merging without Alienating: Interventions Promoting Cross-Cultural Organizational Integration and Their Limitations,” Journal of International Business Studies 40, no. 3 (2009), pp. 468–89; Taco H. Reus and Bruce T. Lamont, “The Double-Edged Sword of Cultural Distance in International Acquisitions,” Journal of International Business Studies 40, no. 8 (2009), pp. 128–36; Bulent Aybar and Aysun Ficici, “Cross-Border Acquisitions and Firm Value: An Analysis of Emerging-Market Multinationals,” Journal of International Business Studies 40, no. 8 (2009), pp. 1317–38; Udo Zander and Lena Zander, “Opening the Grey Box: Social Communities, Knowledge, and Culture in Acquisitions,” Journal of International Business Studies 41, no. 1 (2010), pp. 27–37.

Organizing for Global Competition An international marketing plan should optimize the resources committed to company objectives. The organizational plan includes the type of organiza- tional arrangements and management process to be used and the scope and location of responsibility. Because organizations need to reflect a wide range of company- specific characteristics—such as size, level of policy decisions, length of chain of command, staff support, source of natural, personnel, and vendor resources, 67 degree of control, cultural differences in decision-making styles, 68 centralization, and type or level of marketing

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Chapter 12 Global Marketing Management: Planning and Organization 363

70 Gerald Albaum, Joel Herche, Julie Yu, Felicitas Evangelista, Brian Murphy, and Patrick Poon, “Differences in Marketing Managers’ Decision Making Styles within the Asia-Pacific Region: Implications for Strategic Alliances,” Journal of Global Marketing 21 (2007), pp. 63–72; Alain Verbke and Thomas P. Kenworthy, “Multidivisional vs. Metanational Governance of the Multinational Enterprise,” Journal of International Business Studies 39, no. 6 (2008), pp. 940–56; Beibei Dong, Shaoming Zou, and Charles R. Taylor, “Factors that Influence Multinational Corporations’ Control of Their Operations in Foreign Markets: An Empirical Investigation,” Journal of International Marketing 16, no. 1 (2008), pp. 98–119. 71 Ingmar Bjorkman, Carl F. Fey, and Hyeon Jeong Park, “Institutional Theory and MNC Subsidiary HRM Practices: Evidence from a Three-Country Study,” Journal of International Business Studies 38 (2007), pp. 430–46. 72 Claude Obadia and Irena Vida, “Endogenous Opportunism in Small and Medium-Sized Enterprises’ Foreign Subsidiaries: Classification and Research Propositions,” Journal of International Marketing 14 (2006), pp. 57–86. 73 Kelly Hewett and William O. Bearden, “Dependence, Trust, and Relational Behavior on the Part of Foreign Subsidiary Marketing Operations: Implications for Managing Global Marketing Operations,” Journal of Marketing 65, no. 4 (October 2001), pp. 51–66.

involvement— trade-offs abound, 69 and devising a standard organizational structure is dif- ficult. 70 Many ambitious multinational plans meet with less than full success because of confused lines of authority, poor communications, and lack of cooperation between head- quarters and subsidiary organizations. 71

A single organizational structure that effectively integrates domestic and international mar- keting activities has yet to be devised. 72 Companies face the need to maximize the international potential of their products and services without diluting their domestic marketing efforts. Companies are usually structured around one of three alternatives: (1) global product divisions responsible for product sales throughout the world; (2) geographical divisions responsible for all products and functions within a given geographical area; or (3) a matrix organization con- sisting of either of these arrangements with centralized sales and marketing run by a centralized functional staff, or a combination of area operations and global product management.

Companies that adopt the global product division structure are generally experiencing rapid growth and have broad, diverse product lines. General Electric is a good example, having reor- ganized its global operations into six product divisions—infrastructure, industrial, commercial financial services, NBC Universal, healthcare, and consumer finance. 73 Geographic structures work best when a close relationship with national and local governments is important.

The matrix form—the most extensive of the three organizational structures—is popu- lar with companies as they reorganize for global competition. A matrix structure permits management to respond to the conflicts that arise among functional activity, product, and geography. It is designed to encourage sharing of experience, resources, expertise, technol- ogy, and information among global business units. At its core is better decision making, in which multiple points of view affecting functional activity, product, and geography are examined and shared. A matrix organization can also better accommodate customers who themselves have global operations and global requirements.

A company may be organized by product lines but have geographical subdivisions under the product categories. Both may be supplemented by functional staff support. Exhibit 12.4 shows such a combination. Modifications of this basic arrangement are used by a majority of large companies doing business internationally.

The turbulence of global markets requires flexible organizational structures though. Forty-three large U.S. companies studied indicated that they planned a total of 137 organi- zational changes for their international operations over a five-year period. Included were such changes as centralizing international decision making, creating global divisions, form- ing centers of excellence, and establishing international business units. Bausch & Lomb, one of the companies in the study, revamped its international organizational structure by collapsing its international division into a worldwide system of three regions and setting up business management committees to oversee global marketing and manufacturing

69 Paula Hortinha, Carmen Lages, and Luis Filipe Lages, “The Trade-Off between Customer and Technology Orientations: Impact on Innovation Capabilities and Export Performance,” Journal of International Marketing 19, no. 3 (2011), pp. 36–58; Tao (Tony) Gao and Linda Hui Shi, “How Do Multinational Suppliers Formulate Mechanisms of Global Account Coordination? An Integrative Framework and Empirical Study,” Journal of International Marketing 19, no. 4 (2011), pp. 61–87 .

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364 Part 4 Developing Global Marketing Strategies

strategies for four major product lines. Bausch & Lomb’s goal was to better coordinate cen- tral activities without losing touch at the local level.

To the extent that there is a trend, two factors seem to be sought, regardless of the orga- nizational structure: a single locus for direction and control and the creation of a simple line organization that is based on a more decentralized network of local companies.

Considerations of where decisions will be made, by whom, and by which method constitute a major element of organizational strategy. Management policy must be explicit about which decisions are to be made at corporate headquarters, which at international headquarters, which at regional levels, and which at national or even local levels. Most companies also limit the amount of money to be spent at each level. Decision levels for determination of policy, strategy, and tactical decisions must be established. Tactical decisions normally should be made at the lowest possible level, without country-by-country duplication. This guideline requires American headquarters’ managers to trust the expertise of their local managers. 74

An infinite number of organizational patterns for the headquarters’ activities of multina- tional firms exist, but most fit into one of three categories: centralized, 75 regionalized, 76 or decentralized organizations. The fact that all of the systems are used indicates that each has certain advantages and disadvantages. The chief advantages of centralization are the avail- ability of experts at one location, the ability to exercise a high degree of control on both the planning and implementation phases, and the centralization of all records and information.

Some companies effect extreme decentralization by selecting competent local managers and giving them full responsibility for national or regional operations. These executives

Locus of Decision

Centralized versus Decentralized

Organizations

Company President

Vice President Marketing

Director: Truck

marketing

Director: Passenger car

marketing

Sales Sales Sales Sales Sales Sales

Manager African

Distribution

Manager European

Distribution

Manager North American

Distribution

Manager North American

Distribution

Manager South American

Distribution

Manager African

Distribution

Adv. Adv. Adv.Adv. Adv. Adv.

Research Research

Exhibit 12.4 Schematic Marketing Organization Plan Combining Product, Geographic, and Functional Approaches

75 Rajdeep Grewal, Murali Chandrashekaran, and Robert F. Dwyer, “Navigating Local Environments with Global Strategies: A Contingency Model of Multinational Subsidiary Performance,” Marketing Science 27, no. 5 (2008), pp. 886–902. 76 Jean-Luc Arregle, Paul W. Beamish, and Louis Hebert, “The Regional Dimension of MNE’s Foreign Subsidiary Localization,” Journal of International Business Studies 40, no. 1 (2009), pp. 86–107.

74 Francesco Ciabuschi, Mats Forsgren, and Oscar Martin Martin, “Rationality vs. Ignorance: The Role of MNE Headquarters in Subsidiaries’ Innovation Processes,” Journal of International Business Studies 42, no. 7 (2011), pp. 958–70.

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Chapter 12 Global Marketing Management: Planning and Organization 365

are in direct day-to-day contact with the market but lack a broad company view, which can mean partial loss of control for the parent company.

In many cases, whether a company’s formal organizational structure is centralized or decentralized, the informal organization reflects some aspect of all organizational systems. This reflection is especially true relative to the locus of decision making. Studies show that even though product decisions may be highly centralized, subsidiaries may have a substan- tial amount of local influence in pricing, advertising, and distribution decisions. If a prod- uct is culturally sensitive, the decisions are more likely to be decentralized.

Summary

Expanding markets around the world have increased competition for all levels of international marketing. To keep abreast of the competition and maintain a viable position for increasingly com- petitive markets, a global perspective is necessary. Global competi- tion also requires quality products designed to meet ever-changing customer needs and rapidly advancing technology. Cost contain- ment, customer satisfaction, and a greater number of players mean

that every opportunity to refine international business practices must be examined in light of company goals. Collaborative rela- tionships, strategic international alliances, strategic planning, and alternative market-entry strategies are important avenues to global marketing that must be implemented in the planning and organi- zation of global marketing management.

Questions

1. Define the key terms listed above. 2. Defi ne strategic planning. How does strategic planning for in-

ternational marketing diff er from that for domestic marketing? 3. Discuss the benefi ts to an MNC of accepting the global market

concept. Explain the three points that defi ne a global approach to international marketing.

4. Discuss the eff ect of shorter product life cycles on a company’s planning process.

5. What is the importance of collaborative relationships to competition?

6. In Phases 1 and 2 of the international planning process, coun- tries may be dropped from further consideration as potential markets. Discuss some of the conditions that may exist in a country that would lead a marketer to exclude a country in each phase.

7. Assume that you are the director of international marketing for a company producing refrigerators. Select one country in Latin America and one in Europe and develop screening crite- ria to use in evaluating the two countries. Make any additional assumptions that are necessary about your company.

8. “Th e dichotomy typically drawn between export marketing and overseas marketing is partly fi ctional; from a marketing

standpoint, they are but alternative methods of capitalizing on foreign market opportunities.” Discuss.

9. How will entry into a developed foreign market diff er from entry into a relatively untapped market?

10. Why do companies change their organizations when they go from being an international to a global company?

11. Formulate a general rule for deciding where international business decisions should be made.

12. Explain the popularity of joint ventures. 13. Compare the organizational implications of joint ventures ver-

sus licensing. 14. Visit the websites of General Motors and Ford, both car manu-

facturers in the United States. Search their sites and compare their international involvement. How would you classify each—as exporter, international, or global?

15. Using the sources in Question 14, list the diff erent entry modes each company uses.

16. Visit the Nestlé Corporation website ( www.nestle.com/ ) and the Unilever website ( www.unilever.com/ ). Compare their strategies toward international markets. In what ways (other than product categories) do they diff er in their international marketing?

Key Terms

Corporate planning Strategic planning Tactical planning

Direct exporting Indirect exporting Licensing

Franchising Strategic international

alliance (SIA)

Joint venture

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