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5-4: GLOBAL MARKETING BY THE INDIVIDUAL FIRM

A company should consider entering the global marketplace only after its management has

a solid grasp of the global environment.

Companies decide to “go global” for a number of reasons. Perhaps the most important is to

earn additional profits. Managers may feel that international sales will result in higher

profit margins or more added-on profits. A second stimulus is that a firm may have a

unique product or technological advantage not available to other international competitors.

Such advantages should result in major business successes abroad. In other situations,

management may have exclusive market information about foreign customers,

marketplaces, or market situations not known to others. While exclusivity can provide an

initial motivation for international marketing, managers must realize that competitors can

be expected to catch up with the firm’s information advantage. Finally, saturated domestic

markets, excess capacity, and potential for economies of scale can also be motivators to “go

global.” Economies of scale mean that average per-unit production costs fall as output is

increased.

Many firms form multinational partnerships—called strategic alliances—to assist them in

penetrating global markets; strategic alliances are examined in Chapter 7. Five other

methods of entering the global marketplace are, in order of risk, exporting, licensing and

franchising, contract manufacturing, joint venture, and direct investment (see Exhibit 5.3).

Exhibit 5.3: RISK LEVELS FOR FIVE METHODS OF ENTERING THE GLOBAL MARKETPLACE

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5-4a: Exporting

When a company decides to enter the global market, exporting is usually the least

complicated and least risky alternative. Exporting is selling domestically produced products

to buyers in other countries. A company can sell directly to foreign importers or buyers. The

United States is the world’s largest exporter.

exporting

selling domestically produced products to buyers in other countries

Instead of selling directly to foreign buyers, a company may decide to sell to intermediaries

located in its domestic market. The most common intermediary is the export merchant, also

known as a buyer for export, which is usually treated like a domestic customer by the

domestic manufacturer. The buyer for export assumes all risks and sells internationally for

its own account. The domestic firm is involved only to the extent that its products are

bought in foreign markets.

buyer for export

an intermediary in the global market who assumes all ownership risks and sells

globally for its own account

A second type of intermediary is the export broker, who plays the traditional broker’s role

by bringing buyer and seller together. The manufacturer still retains title and assumes all

the risks. Export brokers operate primarily in agricultural products and raw materials.

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export broker

an intermediary who plays the traditional broker’s role by bringing buyer and seller

together

Export agents, a third type of intermediary, are foreign sales agents/distributors who live in

the foreign country and perform the same functions as domestic manufacturers’ agents,

helping with international financing, shipping, and so on. The U.S. Department of

Commerce has an agent/distributor service that helps

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about 5,000 U.S. companies each year find an agent or distributor in virtually any country of

the world. A second category of agents resides in the manufacturer’s country but represents

foreign buyers. This type of agent acts as a hired purchasing agent for foreign customers

operating in the exporter’s home market.

export agent

an intermediary who acts like a manufacturer’s agent for the exporter; the export

agent lives in the foreign market

5-4b: Licensing and Franchising

Another effective way for a firm to move into the global arena with relatively little risk is to

sell a license to manufacture its product to someone in a foreign country. Licensing is the

legal process whereby a licensor allows another firm to use its manufacturing process,

trademarks, patents, trade secrets, or other proprietary knowledge. The licensee, in turn,

pays the licensor a royalty or fee agreed on by both parties.

licensing

the legal process whereby a licensor allows another firm to use its manufacturing

process, trademarks, patents, trade secrets, or other proprietary knowledge

For example, the owners of the rights to Broadway plays, such as Disney’s The Lion King,

have seen increasing revenue from foreign markets through licensing. The rights to

produce the plays internationally have different price points, but foreign presenters begin

by paying $200,000 in advance to stage a U.S. production. Replica shows, using licensed sets

and costumes, cost the most; nonreplica shows, which pay for the rights to the play but not

sets or costuming, cost less. Foreign revenue for licensing nonreplica shows grew more than

10 percent between 2008 and 2010.

A licensor must make sure it can exercise sufficient control over the licensee’s activities to

ensure proper quality, pricing, distribution, and so on. Licensing may also create a new

competitor in the long run, if the licensee decides to void the license agreement.

International law is often ineffective in stopping such actions. Two common ways of

maintaining effective control over licensees are shipping one or more critical components

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from the United States or locally registering patents and trademarks to the U.S. firm, not to

the licensee. Garment companies maintain control by delivering only so many labels per

day; they also supply their own fabric, collect the scraps, and do accurate unit counts.

Franchising is a form of licensing that has grown rapidly in recent years. More than 400 U.S.

franchisors operate more than 40,000 outlets in foreign countries, bringing in sales of over

$9 billion. Over half of the international franchises are for fast-food restaurants and

business services.

CONTRACT MANUFACTURING

Firms that do not want to become involved in licensing or to become heavily involved in

global marketing may engage in contract manufacturing, which is private label

manufacturing by

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a foreign company. The foreign company produces a certain volume of products to

specification, with the domestic firm’s brand name on the goods. The domestic company

usually handles the marketing. Thus, the domestic firm can broaden its global marketing

base without investing in overseas plants and equipment. After establishing a solid base, the

domestic firm may switch to a joint venture or direct investment.

contract manufacturing

private label manufacturing by a foreign company

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Singer and model Daniela Katzenberger attends the premiere of the musical Grease at Admiralspalast in Berlin, Germany.

5-4c: Joint Venture

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Joint ventures are somewhat similar to licensing agreements. In an international joint

venture, the domestic firm buys part of a foreign company or joins with a foreign company

to create a new entity. A joint venture is a quick and relatively inexpensive way to go global

and to gain needed expertise. Chronicle Books joined the existing Abrams marketing and

sales team in the United Kingdom in a joint venture called Abrams & Chronicle Books to

expand its presence in the UK market.

joint venture

when a domestic firm buys part of a foreign company or joins with a foreign company

to create a new entity

Joint ventures can be very risky, however. Many fail; others fall victim to a takeover in

which one partner buys out the other. Sometimes joint venture partners simply can’t agree

on management strategies and policies.

5-4d: Direct Investment

Active ownership of a foreign company or of overseas manufacturing or marketing facilities

is called direct foreign investment. Direct foreign investment by U.S. firms is currently

about $2.1 trillion. Direct investors have either a controlling interest or a large minority

interest in the firm. Thus, they have the greatest potential reward and the greatest potential

risk. Because of problems with contract manufacturing and joint ventures in China,

multinationals are going it alone. Today, nearly five times as much foreign direct investment

comes into China in the form of stand-alone efforts as comes in for joint ventures.

direct foreign investment

active ownership of a foreign company or of overseas manufacturing or marketing

facilities

A firm may make a direct foreign investment by acquiring an interest in an existing

company or by building new facilities. It might do so because it has trouble transferring

some resource to a foreign operation or getting that resource locally. One important

resource is personnel, especially managers. If the local labor market is tight, the firm may

buy an entire foreign firm and retain all its employees instead of paying higher salaries

than competitors.

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The United States is a popular place for direct investment by foreign companies. In 2008, the

value of foreign-owned businesses in the United States was more than $650 billion. For

example, in 2007, Taiwan-based Acer bought U.S. computer maker Gateway.

5-5: THE GLOBAL MARKETING MIX

To succeed, firms seeking to enter into foreign trade must still adhere to the principles of the

marketing mix. Information gathered on foreign markets through research is the basis for

the four Ps of global marketing strategy: product, place (distribution), promotion, and price.

Marketing managers who understand the advantages and disadvantages of different ways

of entering the global market and the effect of the external environment on the firm’s

marketing mix have a better chance of reaching their goals.

The first step in creating a marketing mix is developing a thorough understanding of the

global target market. Often this knowledge can be obtained through the same types of

marketing research used in the domestic market (see Chapter 9). However, global marketing

research is conducted in vastly different environments. Conducting a survey can be difficult

in developing countries, where telephone ownership is growing but is not always common

and mail delivery is slow or sporadic. Drawing samples based on known population

parameters is often difficult because of the lack of data. In some cities in Africa, Asia,

Mexico, and South America, street maps are unavailable, streets are unidentified, and

houses are unnumbered. Moreover, the questions a marketer can ask may differ in other

cultures. In some cultures, people tend to be more private than in the United States and will

not respond to personal questions on surveys. For instance, in France, questions about one’s

age and income are considered especially rude.

5-5a: Product Decisions

With the proper information, a good marketing mix can be developed. One important

decision is whether to alter

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the product or the promotion for the global marketplace. Other options are to radically

change the product or to adjust either the promotional message or the product to suit local

conditions.

Offering a free sample of a product with another purchase, can be useful all over the world, such as Tide’s promotions in China.

ONE PRODUCT, ONE MESSAGE

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The strategy of global marketing standardization, which was discussed earlier, means

developing a single product for all markets and promoting it the same way all over the

world. For instance, Procter & Gamble uses the same product and promotional themes for

Head & Shoulders in China as it does in the United States. The advertising draws attention to

a person’s dandruff problem, which stands out in a nation of black-haired people. Head &

Shoulders is now the best-selling shampoo in China despite costing over 300 percent more

than local brands. Buoyed by its success with Head & Shoulders, P&G is using the same

product and same promotion strategy with Tide detergent in China. It also used another

common promotion tactic that has been successful in the United States. The company spent

half a million dollars to reach agreements with local washing machine manufacturers,

which now include a free box of Tide with every new washer.

Global media—especially satellite and cable television networks such as CNN International,

MTV Networks, and British Sky Broadcasting—make it possible to beam advertising to

audiences unreachable a few years ago. Eighteen-year-olds in Paris often have more in

common with eighteen-year-olds in New York than with their own parents. Almost all of

MTV’s advertisers run unified, English-language campaigns in the twenty-eight nations the

firm reaches. The audiences buy the same products, go to the same movies, listen to the

same music, and sip the same colas. Global advertising merely works on that premise.

Although teens throughout the world prefer movies above all other forms of television

programming, they are closely followed by music videos, stand-up comedy, and then sports.

Global marketing standardization can sometimes backfire. Unchanged products may fail

simply because of cultural factors. Any type of war game tends to do very poorly in

Germany, even though Germany is by far the world’s biggest game-playing nation. A

successful game in Germany is highly detailed and has a thick rulebook.

Sometimes the desire for absolute standardization must give way to practical considerations

and local market dynamics. For example, because of the feminine connotations of the word

diet, the European version of Diet Coke is Coca-Cola Light. Even if the brand name differs by

market—as with Lay’s potato chips, which are called Sabritas in Mexico—a strong visual

relationship may be created by uniform application of the brandmark and graphic elements

on packaging.

PRODUCT INVENTION

In the context of global marketing, product invention can be taken to mean either creating a

new product for a market or drastically changing an existing product. For example, Dunkin’

Donuts offers American-style donuts in Korea, but the firm created a number of new items

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for Korean tastes. The company offers sweet potato donuts, glutinous rice donuts, and

several varieties of tofu donuts.

McDonald’s was once vilified for pushing its American-created fast food on the world. Now

it is taking a different approach and selling more than ever in the global marketplace.

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GLOBAL MEDIA MAKE IT POSSIBLE TO BEAM ADVERTISING TO AUDIENCES

UNREACHABLE A FEW YEARS AGO.

PRODUCT ADAPTATION

Another alternative for global marketers is to slightly alter a basic product to meet local

conditions. Unilever’s Rexona brand deodorant sticks sell for sixteen cents and up. They are

big hits in Bolivia, India, Peru, and the Philippines—where Unilever has grabbed 60 percent

of the deodorant market. In many cases, the company makes smaller packages, often single-

use packages, to accommodate lower-income areas.

Fast-food restaurants often adapt products to fit the needs of their foreign customers. In

India, Domino’s sells a pizza called the Peppy Paneer, which features the popular Indian

cheese paneer and spicy red peppers. McDonald’s, known for its foreign adaptations, sells

Chicken Maharaja Macs instead of Big Macs, out of respect for the cow’s sacred status for

Hindus.

5-5b: Promotion Adaptation

Another global marketing strategy is to maintain the same basic product but alter the

promotional strategy. Bicycles are mainly pleasure vehicles in the United States. In many

parts of the world, however, they are a family’s main mode of transportation. Thus,

promotion in these countries should stress durability and efficiency. In contrast, U.S.

advertising may emphasize escaping and having fun.

Language barriers, translation problems, and cultural differences have generated

numerous headaches for international marketing managers. For example, a toothpaste

claiming to give users white teeth was especially inappropriate in many areas of Southeast

Asia, where the well-to-do chew betel nuts and black teeth are a sign of higher social status.

5-5c: Place (Distribution)

Solving promotional and product problems does not guarantee global marketing success.

The product still has to get adequate distribution. For example, Europeans don’t play sports

as much as Americans do, so they don’t visit sporting-goods stores as often. Realizing this,

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Reebok for global started selling its shoes in about 800 traditional shoe stores in France. In

one year, the company doubled its French sales.

To combat distribution problems, companies are using creative strategies. A small company

in India is setting up a unique distribution system that will allow large and small companies

to distribute their goods to very small retailers in villages of 5,000 people or less. The

company, Universal Village, uses a large sales staff, often from the villages they work with,

to take orders from the small retailers. The staff then send the orders through a mobile

application to a warehouse. The warehouse packs the order into small boxes, and those

boxes are delivered to each retailer. Not only does the system help distribute a wider range

of products, but it also allows these small retailers to operate more efficiently because they

don’t have to leave their shops to travel large distances to restock their stores.

In many developing nations, channels of distribution and the physical infrastructure are

inadequate. In Africa, the continent’s GDP is growing rapidly, and African businesses want

to expand. Unfortunately, they face high tariffs, weak infrastructure, and severely

impoverished populations. To expand into neighboring countries, Notore Chemical

Industries Ltd., a Nigerian fertilizer company, appealed directly to the governments to

develop a distribution chain across twenty African nations. Some East African countries are

even developing a regional trade zone to encourage growth.

American companies importing goods from overseas facilities to the United States are facing

other problems. Logistics has been a growing challenge for U.S. companies seeking to cut

costs by shifting more production to countries where manufacturing is cheaper. Now,

however, the rising costs for shipping goods are adding to their profit pressures. The surge

in global trade in recent years has added to strains and charges for all forms of transport. As

a result, some manufacturers are developing costly buffer stocks—which can mean setting

up days’ or weeks’ worth of extra components—to avoid shutting down production

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lines and failing to make timely deliveries. Others are shifting to more expensive but more

reliable modes of transport, such as airfreight, which is faster and less prone to delays than

ocean shipping.

5-5d: Pricing

Once marketing managers have determined a global product and promotion strategy, they

can select the remainder of the marketing mix. Pricing presents some unique problems in

the global sphere. Exporters must not only cover their production costs but also consider

transportation costs, insurance, taxes, and tariffs. When deciding on a final price, marketers

must also determine how much customers are willing to spend on a particular product.

Marketers also need to ensure that their foreign buyers will pay the price. Because

developing nations lack mass purchasing power, selling to them often poses special pricing

problems. Sometimes a product can be simplified in order to lower the price. The firm must

not assume low-income countries are willing to accept lower quality, however. L’Oréal was

unsuccessful selling cheap shampoo in India, so the company targets the rising class. It now

sells a $17 Paris face powder and a $25 Vichy sunscreen. Both products are very popular.

EXCHANGE RATES

The exchange rate is the price of one country’s currency in terms of another country’s

currency. If a country’s currency appreciates, less of that country’s currency is needed to

buy another country’s currency. If a country’s currency depreciates, more of that currency

will be needed to buy another country’s currency.

How do appreciation and depreciation affect the prices of a country’s goods? If, say, the U.S.

dollar depreciates relative to the Japanese yen, U.S. residents will have to pay more dollars

to buy Japanese goods. To illustrate, suppose the dollar price of a yen is $0.012 and that a

Toyota is priced at 2 million yen. At this exchange rate, a U.S. resident pays $24,000 for a

Toyota ($0.012 × 2 million yen = $24,000). If the dollar depreciates to $0.018 to 1 yen, then

the U.S. resident will have to pay $36,000 for the same Toyota.

As the dollar depreciates, the prices of Japanese goods rise for U.S. residents, so they buy

fewer Japanese goods—thus, U.S. imports may decline. At the same time, as the dollar

depreciates relative to the yen, the yen appreciates relative to the dollar. This means prices

of U.S. goods fall for the Japanese, so they buy more U.S. goods—and U.S. exports rise.

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Currency markets operate under a system of floating exchange rates. Prices of different

currencies “float” up and down based on the demand for and the supply of each currency.

Global currency traders create the supply of and demand for a particular country’s

currency based on that country’s investment, trade potential, and economic strength.

floating exchange rates

a system in which prices of different currencies move up and down based on the

demand for and the supply of each currency

DUMPING

Dumping is the sale of an exported product at a price lower than that charged for the same

or a like product in the “home” market of the exporter. This practice is regarded as a form

of price discrimination that can potentially harm the importing nation’s competing

industries. Dumping may occur as a result of exporter business strategies that include (1)

trying to increase an overseas market share, (2) temporarily distributing products in

overseas markets to offset slack demand in the home market, (3) lowering unit costs by

exploiting large-scale production, and (4) attempting to maintain stable prices during

periods of exchange rate fluctuations.

dumping

the sale of an exported product at a price lower than that charged for the same or a

like product in the “home” market of the exporter

Historically, the dumping of goods has presented serious problems in international trade. As

a result, dumping has led to significant disagreements among countries and diverse views

about its harmfulness. Some trade economists view dumping as harmful only when it

involves the use of “predatory” practices that intentionally try to eliminate competition and

gain monopoly

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power in a market. They believe that predatory dumping rarely occurs and that

antidumping rules are a protectionist tool whose cost to consumers and import-using

industries exceeds the benefits to the industries receiving protection.

IF A COUNTRY’S CURRENCY DEPRECIATES, MORE OF THAT CURRENCY WILL BE NEEDED TO BUY ANOTHER COUNTRY’S CURRENCY.

COUNTERTRADE

Global trade does not always involve cash. Countertrade is a fast-growing way to conduct

global business. In countertrade, all or part of the payment for goods or services is in the

form of other goods or services. Countertrade is thus a form of barter (swapping goods for

goods), an age-old practice whose origins have been traced back to cave dwellers. The U.S.

Department of Commerce says that roughly 30 percent of all global trade is countertrade. In

fact, both India and China have made billion-dollar government purchasing lists, with most

of the goods to be paid for by countertrade.

countertrade

a form of trade in which all or part of the payment for goods or services is in the form

of other goods or services

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One common type of countertrade is straight barter. For example, PepsiCo sends Pepsi

syrup to Russian bottling plants and in payment gets Stolichnaya vodka, which is then

marketed in the West. Another form of countertrade is the compensation agreement.

Typically, a company provides technology and equipment for a plant in a developing nation

and agrees to take full or partial payment in goods produced by that plant. For example,

General Tire Company supplied equipment and know-how for a Romanian truck tire plant.

In turn, General Tire sold the tires it received from the plant in the United States under the

Victoria brand name. Both sides benefit even though they don’t use cash.

5-6: THE IMPACT OF THE INTERNET

In many respects, “going global” is easier than it has ever been before. Opening an e-

commerce site on the Internet immediately puts a company in the international

marketplace. Sophisticated language translation software can make any site accessible to

people around the world. Global shippers such as UPS, FedEx, and DHL help solve

international e-commerce distribution complexities. E4X Inc. offers software to ease

currency conversions by allowing customers to pay in the currency of their choice. E4X

collects the payment from the customer and then pays the site in U.S. dollars. Nevertheless,

the promise of “borderless commerce” and the global “Internet economy” are still being

restrained by the old brick-and-mortar rules, in regulations, and habits. For example, Lands’

End is not allowed to mention its unconditional refund policy on its e-commerce site in

Germany because German retailers, which normally do not allow returns after fourteen

days, sued and won a court ruling blocking mention of it.

5-6a: Social Media in Global Marketing

Because Facebook, YouTube, and other social media are popular around the world, firms

both large and small have embraced social media marketing. Tim Hortons, a Canadian fast-

casual restaurant chain known for its coffee

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and donuts, has over 3,000 stores. To engage its Facebook fans, the company will

occasionally post a picture of one of its restaurants on Facebook, and its 1.4 million fans

guess the location. Every time a fan makes a guess, Facebook posts a Tim Hortons branded

message to that fan’s and his friends’ news feeds. The Sacred Ride is a bicycle shop in the

small town of Nelson, British Columbia. The firm created a Facebook page, purchased

Facebook ads, and targeted the ads to mountain bike enthusiasts. Within a short time, The

Sacred Ride had over $40,000 in incremental sales from outside its regular market.

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Accor, a French company operating over 4,400 hotels worldwide, uses a company called

TrustYou to monitor online reviews, tweets (comments posted on Twitter), and blog posts. A

blog is a publicly accessible Web page that functions as an interactive journal, where

readers can post comments on the author’s entries. TrustYou continuously gathers

information in fifteen different languages from travel review and social media sites,

including Facebook, Foursquare, Google Places, TripAdvisor, HolidayCheck, Twitter, Qype,

Yelp, and blogs, for user-generated content pertaining to a particular hotel or restaurant.

TrustYou takes opinions from all online reviews, tweets, and posts and creates a

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comprehensive Trust Score that reflects the global sentiment for a specific hotel or

restaurant. By monitoring social media via TrustYou, Accor hotels can see where they stand

against competitors and identify strength and weaknesses.

blog

a publicly accessible Web page that functions as an interactive journal, where readers

can post comments on the author’s entries

Global marketers use social media not only for understanding consumers but also to build

their brands as they expand internationally. Uniqlo is a Japanese retailer of low-cost, quality

casual wear targeted to young adults that competes directly with Zara and H&M. In 2006,

the company began to shift its promotional focus to the Internet and away from traditional

media such as newspapers and television. The creative campaigns emphasize dance, music,

and color rather than the spoken word. This enables Uniqlo to overcome language barriers

as it expands globally.

One of the company’s first online campaigns was called “Uniqlock,” which was designed to

build brand awareness internationally. It featured a clock with spliced clips of well-

choreographed dancing and catchy lounge music. It ran all year round, 24/7. In summer the

girls dancing wore polo shirts; in winter, cashmere; and at midnight they slept.

The Uniqlock contained a blog widget so the clock could be embedded into blog sites. After a

year, over 27,000 bloggers from seventy-six countries had picked up the Uniqlock. Between

the blogs and the Web site that accompanied the campaign, the Uniqlock had been viewed

68 million times in 209 countries. Sales increased worldwide by 49 percent. By 2020, the

firm hopes to have 4,000 stores worldwide and be the world’s leading clothing retailer.

STUDY TOOLS 5

LOCATED AT BACK OF THE TEXTBOOK

Rip out Chapter Review Card

LOCATED AT WWW.CENGAGE.COM/LOGIN

Review Key Terms Flashcards (print or online)

Download audio and visual summaries to review on the go

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37

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11/28/2017 Kaplan: ACP MKTG

https://kaplan.vitalsource.com/#/books/9781305370128/cfi/6/16!/4/22/6/10/2@0:100 22/22

Complete both Practice Quizzes to prepare for tests

Play “Beat the Clock” and “Quizbowl” to master concepts

Complete “Crossword Puzzle” to review key terms

Watch Video on “The Nederlander Organization” for a real company example