MT219 marketing
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businesses have lost significant market share to imported products. In electronics, cameras,
automobiles, fine china, tractors, leather goods, and a host of other consumer and industrial
products, U.S. companies have struggled at home to maintain their market shares against
foreign competitors.
5-1a: Importance of Global Marketing to the United States
Many countries depend more on international commerce than the United States does. For
example, France, Britain, and Germany all derive more than 19 percent of their gross
domestic product from world trade, which is considerably more than the United States does.
Gross domestic product (GDP) is the total market value of all final goods and services
produced in a country for a given time period (usually a year or a quarter of a year). Final
in the definition refers to final products that are sold, not to intermediate products used in
the assembly of a final product. For example, if the value of a brake (an intermediate
product) and that of a car (the final product) were both counted, the brake would be
counted twice. Therefore, GDP counts only the final goods and services to get the true value
of a country’s production.
gross domestic product (GDP)
the total market value of all final goods and services produced in a country for a given
time period
Nevertheless, the impact of international business on the U.S. economy is still impressive:
The United States exports about a fifth of its industrial production.
More than 10 million Americans hold jobs that are supported by exports, accounting
for 7 percent of employment.
Exports represent approximately 13 percent of our GDP.
Every U.S. state has realized net employment gains directly attributed to foreign trade.
The United States exports over $1.7 trillion in goods and services each year.
About 85 percent of all U.S. exports of manufactured goods are shipped by 250 companies,
and less than 10 percent of all manufacturing businesses, or around 25,000 companies,
export their goods on a regular basis. Most small- and medium-sized firms are essentially
nonparticipants in global trade and marketing. Only the very large multinational companies
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have seriously attempted to compete worldwide. Fortunately, more small companies are
now aggressively pursuing international markets. To increase U.S. exports, in March 2010
President Barack Obama created the National Export Initiative (NEI). The NEI’s goal is to
double U.S. exports over the next five years and support 2 million U.S. jobs.
5-1b: The Impact of Trade and Globalization
The protests during meetings of the World Trade Organization, the World Bank, and the
International Monetary Fund (the three organizations are discussed later in the chapter)
show that many people fear world trade and globalization. What do they fear? The
negatives of global trade are as follows:
Millions of Americans have lost jobs due to imports, production shifts abroad, or
outsourcing of tech jobs. Some find new jobs, but they often pay less.
Millions of others fear losing their jobs, especially at those companies operating under
competitive pressure.
Employers often threaten to outsource jobs if workers do not accept pay cuts.
Service and white-collar jobs are increasingly vulnerable to operations moving
offshore.
JOB OUTSOURCING
The notion of job outsourcing (sending U.S. jobs abroad) has been highly controversial for
the past several years. Many executives say that it leads to corporate growth, efficiency,
productivity, and revenue growth. Most companies see cost savings as a key driver in
outsourcing. Detroit has suffered as many factories in the auto industry have been shut
down and
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relocated around the world. For example, Ford’s newly reintroduced line of compact sedans
and hatchbacks, called the Fiesta, is being built in several countries, including Mexico.
job outsourcing
sending U.S. jobs abroad
FORD’S FIESTA IS ONE EXAMPLE OF AN OUTSOURCED JOB.
BENEFITS OF GLOBALIZATION
Traditional economic theory says that globalization relies on competition to drive down
prices and increase product and service quality. Business goes to the countries that operate
most efficiently and/or have the technology to produce what is needed. In summary,
globalization expands economic freedom, spurs competition, and raises the productivity
and living standards of people in countries that open themselves to the global marketplace.
For less developed countries, globalization also offers access to foreign capital, global export
markets, and advanced technology while breaking the monopoly of inefficient and
protected domestic producers. Faster growth, in turn, reduces poverty, encourages
democratization, and promotes higher labor and environmental standards. Though
government officials may face more difficult choices as a result of globalization, their
citizens enjoy greater individual freedom. In this sense, globalization acts as a check on
governmental power by making it more difficult for governments to abuse the freedom and
property of their citizens.
Globalization deserves credit for helping lift many millions out of poverty and for
improving standards of living of low-wage families. In developing countries around the
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world, globalization has created a vibrant middle class that has elevated the standard of
living for hundreds of millions of people.
5-2: MULTINATIONAL FIRMS
The United States has a number of large companies that are global marketers. Many of them
have been very successful. A company that is heavily engaged in international trade,
beyond exporting and importing, is called a multinational corporation. A multinational
corporation moves resources, goods, services, and skills across national boundaries without
regard to the country in which its headquarters is located.
multinational corporation
a company that is heavily engaged in international trade, beyond exporting and
importing
Multinationals often develop their global business in stages. In the first stage, companies
operate in one country and sell in others. Second-stage multinationals set up foreign
subsidiaries to handle sales in one country. In the third stage, multinationals operate an
entire line of business in another country. The fourth stage has evolved primarily due to the
Internet and involves mostly high-tech companies. For these firms, the executive suite is
virtual. Their top executives and core corporate functions are in different countries,
wherever the firms can gain a competitive edge through the availability of talent or capital,
low costs, or proximity to their most important customers.
A multinational company may have several worldwide headquarters, depending on where
certain markets or technologies are. Britain’s APV, a maker of food-processing equipment,
has a different headquarters for each of its worldwide businesses.
Many U.S.-based multinationals earn a large percentage of their total revenue abroad.
Exhibit 5.1 shows revenue abroad for some industrial companies. Caterpillar, the
construction-equipment company, receives 67 percent of its revenue from overseas, and
General Electric earns 54 percent of its revenue abroad.
Exhibit 5.1: INDUSTRIAL COMPANIES WITH THE LARGEST OVERSEAS REVENUE
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Company Percent Foreign Revenue
Percent Growth of International Exposure (April 2008–April 2009)
Caterpillar 67 120
General Electric
54 64
United Technologies
46 59
Deere 35 57
Honeywell 39 58
Source: David MacDougall, “Caterpillar Makes the Case for Going Abroad,” TheStreet, April 27, 2010.
5-2a: Are Multinationals Beneficial?
Although multinationals comprise far less than 1 percent of U.S. companies, they account
for about 19 percent of all private jobs, 25 percent of all private wages, 48 percent of total
exports of goods, and a remarkable 74 percent of nonpublic R&D spending. For decades, U.S.
multinationals have driven an outsized share of U.S. productivity growth, the foundation of
rising standards of living for everyone. They are responsible for 41 percent of the increase
in
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private labor productivity since 1990. More investment and employment abroad have
tended to create more American investment and jobs as well. From 1988 to 2007,
employment in foreign affiliates rose to 10 million from 4.8 million. During that same
period, employment in U.S. parent companies rose to 22 million from 17.7 million. Some
multinationals have shifted income to low-tax countries, which has reduced corporate
income tax payments in America. The multinationals claim that this was necessary because
the United States has a very complicated tax structure with one of the highest corporate
income tax rates among industrialized nations.
The role of multinational corporations in developing nations is a subject of controversy. The
ability of multinationals to tap financial, physical, and human resources from all over the
world and combine them economically and profitably can be of benefit to any country. They
also often possess and can transfer the most up-to-date technology. Critics, however, claim
that often the wrong kind of technology is transferred to developing nations. Usually, it is
capital intensive (requiring a greater expenditure for equipment than for labor) and thus
does not substantially increase employment. A “modern sector” then emerges in the nation,
employing a small proportion of the labor force with relatively high productivity and
income levels and with increasingly capital-intensive technologies. In addition,
multinationals sometimes support reactionary and oppressive regimes if it is in their best
interests to do so. Other critics say that the firms take more wealth out of developing
nations than they bring in, thus widening the gap between rich and poor nations. The
petroleum industry in particular has been heavily criticized in the past for its actions in
some developing countries.
capital intensive
using more capital than labor in the production process
To counter such criticism, more and more multinationals are taking a proactive role in
being good global citizens. Sometimes companies are spurred to action by government
regulation, and in other cases multinationals are attempting to protect their good brand
names.
5-2b: Global Marketing Standardization
Traditionally, marketing-oriented multinational corporations have operated somewhat
differently in each country. They use a strategy of providing different product features,
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packaging, advertising, and so on. However, Ted Levitt, a former Harvard professor,
described a trend toward what he referred to as “global marketing,” with a slightly different
meaning. He contended that communication and technology have made the world smaller
so that almost all consumers everywhere want all the things they have heard about, seen, or
experienced. Thus, he saw the emergence of global markets for standardized consumer
products on a huge scale, as opposed to segmented foreign markets with different products.
In this book, global marketing is defined as individuals and organizations using a global
vision to effectively market goods and services across national boundaries. To make the
distinction, we can refer to Levitt’s notion as global marketing standardization.
global marketing standardization
production of uniform products that can be sold the same way all over the world
Global marketing standardization presumes that the markets throughout the world are
becoming more alike. Firms practicing global marketing standardization
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produce “globally standardized products” to be sold the same way all over the world.
Uniform production should enable companies to lower production and marketing costs and
increase profits. Levitt cited Coca-Cola, Colgate-Palmolive, and McDonald’s as successful
global marketers. His critics point out, however, that the success of these three companies is
really based on variation, not on offering the same product everywhere. McDonald’s, for
example, changes its salad dressings and provides self-serve espresso for French tastes. It
sells bulgogi burgers in South Korea and falafel burgers in Egypt. Further, the fact that Coca-
Cola and Colgate-Palmolive sell some of their products in more than 160 countries does not
signify that they have adopted a high degree of standardization for all their products
globally. Only three Coca-Cola brands are standardized, and one of them, Sprite, has a
different formulation in Japan.
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McDonald’s has been cited as an example of global marketing standardization, but menus like this one indicate that McDonald’s also relies on variation.
Companies with separate subsidiaries in other countries can be said to operate using a
multidomestic strategy. A multidomestic strategy occurs when multinational firms enable
individual subsidiaries to compete independently in domestic markets. Simply put,
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multidomestic strategy is how multinational firms use strategic business units (see Chapter
2). Colgate-Palmolive uses both strategies: Axion paste dishwashing detergent, for example,
was formulated for developing countries, and La Croix Plus detergent was custom made for
the French market—examples of multidomestic strategies. Colgate toothpaste is marketed
the same way globally, using global marketing standardization.
multidomestic strategy
when multinational firms enable individual subsidiaries to compete independently in
domestic markets
Nevertheless, some multinational corporations are moving toward a degree of global
marketing standardization. Kraft’s popular Tang drink, which has dropped off most
Americans’ radars, is incredibly popular around the world. Kraft markets the beverage in
the same way everywhere, and orange is still the most popular flavor.
5-3: EXTERNAL ENVIRONMENT FACED BY GLOBAL MARKETERS
A global marketer or a firm considering global marketing must consider the external
environment. Many of the same environmental factors that operate in the domestic market
also exist internationally. These factors include culture, economic and technological
development, political structure and actions, demographic makeup, and natural resources.
5-3a: Culture
Central to any society is the common set of values shared by its citizens that determines
what is socially acceptable. Culture underlies the family, the educational system, religion,
and the social class system. The network of social organizations generates overlapping roles
and status positions. These values and roles have a tremendous effect on people’s
preferences and thus on marketers’ options. A company that does not understand a
country’s culture is doomed to failure in that country. Cultural blunders lead to
misunderstandings and often perceptions of rudeness or even incompetence. For example,
when people in India shake hands, they sometimes do so rather limply. This isn’t a sign of
weakness or disinterest; instead, a soft handshake conveys respect. Avoiding eye contact is
also a sign of deference in India.
American culture often fascinates other countries, making reality and news programs as
broadcast in the United States popular. Several companies such as News Corporation (which
operates Fox News) have begun exporting their channels to English-speaking countries such
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as Britain. Most recently, PBS has been exported to Britain as an alternative to other
American programming there. David Lyons, who spearheaded the arrangement, hopes that
PBS will help show a different, more historical side of American culture. American
audiences can receive a similar cultural exchange through Britain’s BBC programming.
Language is another important aspect of culture that can create problems for marketers.
Marketers must take care in translating product names, slogans, instructions, and
promotional messages so as not to convey the wrong meaning. Free translation software,
such as babelfish.com or Google Translate, allows users to input text in one language and
output in another language. But marketers must take care using the software, as it can have
unintended results—the best being unintelligible, the worst being insulting.
Each country has its own customs and traditions that determine business practices and
influence negotiations
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with foreign customers. In many countries, personal relationships are more important than
financial considerations. For instance, skipping social engagements in Mexico may lead to
lost sales. Negotiations in Japan often include long evenings of dining, drinking, and
entertaining, and only after a close personal relationship has been formed do business
negotiations begin.
Making successful sales presentations abroad requires a thorough understanding of the
country’s culture. Germans, for example, don’t like risk and need strong reassurance. A
successful presentation to a German client will emphasize three points: the bottom-line
benefits of the product or service, that there will be strong service support, and that the
product is guaranteed. In southern Europe, it is an insult to show a price list. Without
negotiating, you will not close the sale. The English want plenty of documentation for
product claims and are less likely to simply accept the word of the sales representative.
Scandinavian and Dutch companies are more likely to approach business transactions as
Americans do than are companies in any other country.
5-3b: Economic Factors
A second major factor in the external environment facing the global marketer is the level of
economic development in the countries where it operates. In general, complex and
sophisticated industries are found in developed countries, and more basic industries are
found in less developed nations. Average family incomes are higher in the more developed
countries compared to the less developed countries. Larger incomes mean greater
purchasing power and demand not only for consumer goods and services but also for the
machinery and workers required to produce consumer goods.
According to the World Bank, the average gross national income (GNI) per capita for the
world is $10,341. GNI is a country’s GDP (defined earlier) together with its income received
from other countries (mainly interest and dividends) less similar payments made to other
countries. The United States’ GNI per capita is $46,790, but it is not the world’s highest. That
honor goes to Luxembourg at $52,770. Of course, there are many very poor countries:
Guinea, $970; Malawi, $810; Mozambique, $771; Sierra Leone, $770; Niger, $680; and Eritrea,
$640. GNI per capita is one measure of the ability of a country’s citizens to buy various
goods and services. A marketer with a global vision can use these data to aid in measuring
market potential in countries around the globe.
Not only is per capita income a consideration when going abroad, but so is the cost of doing
business in a country. Although it is not the same as the cost of doing business, we can gain
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insights into expenses by examining the cost of living in various cities. The most expensive
cities in the world are Luanda, Angola; Tokyo, Japan; and N’Djamena, Chad. N’Djamena is
mired in unrest and violence, and appropriately secure accommodations for both
employees and businesses are very hard to come by. Such instability makes N’Djamena a
place where it is very expensive to do business. Conditions are similar in Luanda, where a
two-bedroom apartment rents for $7,000 a month.
5-3c: The Global Economy
A global marketer today must be fully aware of the intertwined nature of the global
economy. In the past, the size of the U.S. economy was so large that global markets tended to
move up or down depending on its health. It was said, “If America sneezes, then the rest of
the world catches a cold.” This is still true today. The U.S. housing market collapse and
speculative financing led to a major global recession in 2008. It was, in fact, America’s
deepest decline in economic activity since the Great Depression. As the world slowly pulled
itself out of the recession, the possibility of Greece defaulting on its national debt nearly
stifled global economic recovery. The Greek crisis was followed by concern about other debt
crises in Spain and Portugal. Moreover, the world now looks to other economies such as
China, India, and Brazil to help jump-start economic growth. The lesson for the global
marketer is clear: forecasting global demand and economic growth requires an
understanding of what is happening economically in countries around the globe.
DOING BUSINESS IN CHINA AND INDIA
The two countries of growing interest to many multinationals are India and China because
of their huge economic potential. They have some of the highest growth rates in the world
and are emerging as megamarkets. China and India also have the world’s two largest
populations, two of the world’s largest geographic areas, greater linguistic and sociocultural
diversity than any other country, and among the highest levels of income disparity in
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the world—some people are extremely poor whereas others are very rich. Given this scale
and variety, there is no “average Chinese customer” or “average Indian customer.”
Both India and China have exploded in spending power, particularly in the upper classes.
By 2020, China will likely be the largest luxury market in the world, with sales exceeding
$100 billion. Driving this growth are Chinese below the age of forty-five, a demographic
that constitutes 73 percent of China’s luxury buyers. One market research firm reported a
staggering 95 percent increase in online sales in China during 2010, marking another
avenue for companies to reach shoppers. Starbucks is hoping to mimic its success in China
(where it plans to triple its stores) in India. Affluent Indians often have experienced
Starbucks outside of India and would welcome the coffee giant. It is a burgeoning market:
coffee consumption increased roughly 90 percent from 1998 to 2008 because the Indian
consumer enjoys the casual café atmosphere. Starbucks hopes to increase the distribution of
its Indian coffee beans and to open premium locations in Tata’s superluxurious Taj hotels.
Relations between the United States and China have not always been smooth, however.
China is committed to protecting its businesses and asserting new global strength, which
has resulted in several legislative stalemates with the United States. China has the power
and draw of a country with steadily increasing consumption and high growth potential,
making it particularly attractive to U.S. firms. China is the fastest-growing importer of U.S.
goods—up 330 percent since 2000. The rest of the world increased imports from the United
States by only 29 percent. If trade fails, China loses significant U.S. imports, and the United
States loses a rapid-growth market.
5-3d: Political Structure and Actions
Political structure is a third important variable facing global marketers. Government
policies run the gamut from no private ownership and minimal individual freedom to little
central government and maximum personal freedom. As rights of private property
increase, government-owned industries and centralized planning tend to decrease. But a
political environment is rarely at one extreme or the other. India, for instance, is a republic
with elements of socialism, monopoly capitalism, and competitive capitalism in its political
ideology.
A recent World Bank study found that the least amount of business regulation fosters the
strongest economies. The least regulated and most efficient economies are concentrated
among countries with well-established common-law traditions, including Australia, Canada,
New Zealand, the United Kingdom, and the United States. On a par with the best performers
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are Singapore and Hong Kong. Not far behind are Denmark, Norway, and Sweden, social
democracies that recently streamlined their business
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