Marketing Channels & Going Global

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Copyright Managerial Marke�ng

James Finch University of Wisconsin, La Crosse

Bridgepoint Educa�on, Inc.

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Acknowledgments The Editorial team would like to thank the following reviewers for their feedback and guidance:

Christopher P. Blocker, Baylor University

Victoria L. Cri�enden, Boston College

Jacqueline Gilliard, Ashford University

Sharif Muhammad, Ashford University

M. Joseph Sirgy, Virginia Tech

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Chapter 14

Managing Marketing in the Global Economy

iStockphoto/Thinkstock

Learning Outcomes

By the end of this chapter, you should:

Be able to iden�fy the factors that mo�vate domes�c companies to pursue interna�onal marke�ng opportuni�es. Understand how economic and cultural criteria are used to evaluate prospec�ve target market countries. Be able to iden�fy the five classes of alterna�ve market entry strategies and know the advantages and disadvantages associated with each. Know the basis for deciding whether a company should adapt its products and marke�ng program to local markets or promote a standardized marke�ng plan. Understand how country of origin effects impact prospec�ve buyers' percep�ons of product quality.

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Ch. 14 Introduc�on Willie Su�on robbed more than 100 banks in the United States from the late 1920s to the early 1950s. When apprehended for the final �me, he was asked by reporters why he robbed so many banks. Willie is alleged to have replied: "Because that's where the money is."

The ra�onale for placing special emphasis on global markets at the close of this book is essen�ally the same. Without regard to where your company was founded, there are probably more poten�al customers outside your na�onal boundaries than within. That's where the money is. Global marke�ng needs to be a primary concern for both B2B and B2C compe�tors because foreign markets represent opportuni�es for growth. Of equal importance, the poten�al for foreign compe�tors to enter home markets represents a constant threat within an integrated global economy. As technology con�nues to make interna�onal trade increasingly easy and efficient for companies of all sizes, both the threats and opportuni�es posed by interna�onal marke�ng will con�nue to grow.

This chapter focuses primarily on how marke�ng managers can iden�fy and capitalize on interna�onal marke�ng opportuni�es. The beginning sec�ons introduce the compe��ve dynamics associated with global compe��on as well as the risks and rewards associated with the pursuit of foreign markets. This is followed by an examina�on of the economic and cultural considera�ons that should shape decisions about which geographic markets to enter. A cri�cal assessment of alterna�ve market entry strategies examines the pros and cons of different routes to penetra�ng foreign product markets. The concluding sec�ons of the chapter focus on two pivotal topics. The first examines the ques�on of whether products for export should be sold as the same standardized version available in the domes�c market or whether the features and image of the brand should be adapted to suit local tastes and preferences. The final topic of the chapter, country of origin effects, is an assessment of how consumers' percep�ons of a brand are influenced by their understanding of where the product originates.

***

The history of interna�onal marke�ng is riddled with colossal mistakes and blunders made by otherwise well-managed companies trying to find export markets for some of America's most familiar brands. The following list chronicles several of the more notorious gaffes made when a�emp�ng to translate English adver�sing themes into foreign languages.

When Parker Pen launched a new ballpoint pen adver�sement in Mexico, its ads were supposed to read, "It won't leak in your pocket and embarrass you." Instead, the company thought that the verb "embarazar" (to impregnate) meant to embarrass, so the resul�ng ad copy read: "It won't leak in your pocket and make you pregnant."

When Coors Brewing Company tried to translate its slogan "Turn it loose" for Spanish-speaking markets, it was read as "Suffer from diarrhea."

When Braniff Interna�onal Airways (no longer in business) a�empted to translate the slogan "Fly in leather" (a reference to the upholstery of its seats), it came out in Spanish as "Fly naked."

When Pepsi introduced its brand to China, it translated its U.S. slogan "Pepsi Brings You Back to Life" too literally. The slogan as translated into Chinese meant, "Pepsi Brings Your Ancestors Back from the Grave. "

Chicken tycoon Frank Perdue's line, "It takes a tough man to make a tender chicken," was poorly translated into Spanish, where it meant: "It takes a sexually s�mulated man to make a chicken affec�onate" (Henderson, 2012).

Sadly, there are dozens of these types of examples to choose from. They are rou�nely and widely cited by everyone from mo�va�onal speakers to serious marke�ng scholars. In fact, there is a plethora of websites devoted to these marke�ng missteps. If you are interested in reading more, you can find several of these sites listed in the references sec�ons at the end of the chapter.

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How do you think a marke�ng manager prepared placement for this billboard adver�sement for Jeep SUV in China?

AFP/Ge�y Images

14.1 Global Marke�ng and Interna�onal Compe��on Global marke�ng refers to a "marke�ng strategy that consciously addresses global customers, markets, and compe��on in formula�ng a business strategy" (American Marke�ng Associa�on, 2012). In most contexts, it can be used interchangeably with the term interna�onal marke�ng to describe the coordinated and integrated execu�on of marke�ng management processes, tac�cs, and strategies in more than one country. It has alterna�vely been described as "the applica�on of marke�ng orienta�on and marke�ng capabili�es to interna�onal business" (Muhlbacher, Helmuth, and Dahringer, 2006). Underlying both terms and defini�ons is the understanding that global markets represent an opportunity for growth and market development that requires companies to extend and leverage their marke�ng skills, product-based competencies, and brand-specific advantages to adapt to consumer preferences in different parts of the world.

Among the marke�ng manager's strategic contribu�ons to suppor�ng interna�onal business opera�ons is the iden�fica�on of a�rac�ve geographic markets and the determina�on of which market entry strategy will be most advantageous. The development of marke�ng programs for specific products and regions is con�ngent on these decisions. Op�ons include introducing standardized products and exis�ng brands to new markets and adap�ng elements of the company's product por�olio to suit the unique needs and expecta�ons of local customers in each new country.

Incen�ves and Rewards of Foreign Sales

Human nature and tradi�onal marke�ng strategy make both people and companies feel most secure when opera�ng in familiar surroundings. The ins�nc�ve and natural tendency for most businesses is to restrict their opera�ons to markets that they more fully understand. In fact, this bias is consistent with the logic of the marke�ng concept. In all likelihood, firms will be best able to sa�sfy the needs of customers by focusing their efforts on markets that they understand best, and those markets are inevitably the ones closest to them. Most companies are be�er equipped to compete in domes�c markets simply because they have a clearer understanding of customers who are most like themselves.

The pursuit of sales outside an organiza�on's na�onal boundaries is inherently more expensive and more risky in many ways. Marke�ng managers need to cope with unfamiliar laws and languages, foreign currency exchange rates, poli�cal uncertainty, and unfamiliar customs. From a marketer's perspec�ve, the lack of familiarity with customer needs, product preferences, and expecta�ons should pose the greatest concern. Products and brands may need to be realigned or redesigned to compete effec�vely against a different array of compe�ng brands. The cost of failure in new markets is o�en substan�al and may be par�cularly high if it damages the integrity of the brand or company for future ventures.

Based on all of these considera�ons, it may seem safer for most companies to remain within their na�onal borders. For some firms, it is. However, there are risks that are uniquely associated with failing to pursue interna�onal opportuni�es. First and foremost must be the recogni�on that opportuni�es for improved profitability and sales growth inevitably require firms to consider the poten�al that lies outside their own na�onal boundaries. And it is equally important to note that the pursuit of such opportuni�es is a selec�ve pursuit. That is, the role of marke�ng managers is to provide their firms with the best possible chance for success by selec�vely iden�fying the regions, countries, and locali�es that represent the best possible new markets for their firm's products.

In addi�on to these obvious considera�ons, there are strategic advantages to the developent of foreign market opportuni�es that may be more situa�on-specific and less readily apparent. In some instances, the addi�onal sales volume created through foreign sales enables firms to realize lower unit costs due to economies of scale in manufacturing and improved marke�ng-related costs. This is essen�al for firms pursuing a global cost leadership strategy as discussed in Chapter 1. In addi�on to building interna�onal sales volume, the reduced labor costs associated with the outsourcing of produc�on to either a single or mul�ple sites worldwide can also effec�vely drive down unit costs.

Other strategic considera�ons that support the pursuit of interna�onal markets relate to the natural dynamics of compe��ve markets. Every firm in a global economy is fundamentally at risk of losing substan�al por�ons of its total sales to foreign compe�tors. By pursuing a more globally diversified sales por�olio, companies can reduce their dependence on home markets. Similarly, the growing interna�onaliza�on of customers' opera�ons, par�cularly in B2B markets, requires firms to follow. In many instances, this means extending the firm's global market presence to foregn countries where primary customers will need the same goods and services required in domes�c markets. This rela�onship of mutual dependence is evident in many service-related sectors.

The ACE Insurance Group was formed in 1985 to serve domes�c business customers by providing excess liability and officers coverage. "Since then, ACE has evolved from a monoline excess insurer owned by its policyholders to a global publicly traded insurance company and one of the world's leading providers of commercial property and casualty insurance" (About ACE, 2012). Through acquisi�ons and internal development, the organiza�on grew to keep pace with the needs and geographic dispersion of its customer base. The rapid growth in interna�onal trade at the close of the twen�eth century fueled the rapid development of the organiza�on. By 2010, the ACE Group had grown into a global leader in business insurance and reinsurance with offices in more than 50 countries. The company's business model has been fairly simple. It goes where its customers lead it.

Think About It

Every so o�en you might hear a mo�va�onal speaker or sales trainer s�ll talk about the Wizard of Oz principle of marke�ng. The ques�on posed from the front of the room would be: "Where did Dorothy find true happiness?" The answer, of course, is right in her own backyard. Many tradi�onal perspec�ves on

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Shoppers at a Gap clothing store in China find styles and sizes selected to match their preferences and expecta�ons.

Imaginechina/Associated Press

marke�ng strategy emphasize the priority of serving your local and regional markets first. A�er all, if you can't be the best in your own backyard, what hope do you have of being a successful interna�onal compe�tor? But is this old sales bromide s�ll valid in a global marketplace?

Why shouldn't your first priority always be local?

Buying from foreign suppliers may offer domes�c firms many advantages as well. Companies may be able to purchase goods from interna�onal sources at lower prices than are available in domes�c markets. This, in turn, enables them sell to their home market at compe��ve prices while realizing higher per-unit margins. Alterna�vely, foreign markets may offer goods and services that are unavailable in domes�c markets. This is par�cularly a�rac�ve to resellers as it allows them to obtain more products for their shelves. For manufacturers, foreign purchases may be the most efficient means to acquire scarce materials such as rare earth metals and technologically advanced components for fabrica�ng electronic goods.

Buying products from foreign markets poses few poten�al threats rela�ve to the risks that companies must typically incur to sell in foreign markets. The risks encountered in selling products abroad are in some ways to analogous to those associated with the commercializa�on of new products in domes�c markets. However, the marke�ng manager's unfamiliarity with the culture and business climate of foreign markets makes the challenge of selling abroad substan�ally greater. As a consequence, the resource commitment required to succeed in a foreign sales venture is o�en greater than an�cipated, and the nega�ve consequences of failure may be greater than they appear at the outset.

Risks Related to Foreign Sales

Although the incen�ves that mo�vate companies to develop markets outside of their home na�on are substan�al, the decision to pursue these opportuni�es exposes companies to great risks as well. Failed foreign ventures can result in both financial losses and damage to the image and pres�ge of the company and its brands. Perhaps surprisingly, the reasons for most interna�onal failures are very similar to the root causes for many domes�c marke�ng failures.

Entering a new interna�onal market poses many of the same challenges that confront marke�ng managers entering a new geographic market within the borders of their home country. At the heart of the issue is that buyers' tastes and preferences differ from one locale to the next. Whether it's a new restaurant or a women's clothing store, what customers want is substan�ally different in Boston and Santa Fe. Any firm that fails to understand its customers' preferences will ul�mately fail, and that principle applies interna�onally as well.

Think About It

Consider the culture and demographics of Boston, Massachuse�s, and Santa Fe, New Mexico. If you were trying to transplant a successful professional women's clothing store from the East Coast to the Southwest, what are the most relevant differences?

How would these impact the range of styles and sizes stocked for each market?

How would the differences in climate affect merchandising and opera�ons?

Now think about tranferring your store's concept to Singapore. How substan�al are the adjustments required to make this jump?

What addi�onal types of factors would you have to consider?

Moving across interna�onal borders to establish business opera�ons in a new country can certainly pose obstacles that relate to understanding unfamiliar customers and cultures. However, there is a wide array of other risk factors that are also related to entering new markets. Country risk is a term used to refer to the poten�al financial loss associated with inves�ng resources in a foreign country. It is a broadly defined concept that relates to the rela�ve stability and poten�al vola�lity of the na�on's business climate as a func�on of economic and poli�cal forces.

One of the most widely watched country risk indicators is the biannual Euromoney Country Risk Ra�ngs survey. The methodology used to calculate these ra�ngs creates a weighted country risk score for each of 185 countries based on poli�cal, economic, and structural factors. Economic variables include GDP, unemployment, currency stability, government debt, and monetary and fiscal policy. Measures related to poli�cal risk include corrup�on, poli�cal stability, transparency, and the regulatory and policy environment. Assessments of risks related to structural elements of the economy include consumer demographics, industrial rela�ons, and technological infrastructure. To determine risk ra�ngs, each of these three broad categories of factors is equally weighted for each country.

In addi�on to these considera�ons, differences in the legal environment from one na�on to the next may also pose a threat to the company's global development goals. Local, regional, and na�onal laws and regula�ons governing business opera�ons are specific to the geographic market and some�mes to each industry.

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The impact of business regula�ons and legal restric�ons within each market necessarily increases the cost of doing business. New ventures in unfamiliar markets can be unsuccessful if marke�ng managers fail to understand and operate within these constraints. However, the failure to fully appreciate the true costs associated with these foreign requirements and restric�ons can also result in the financial failure of the enterprise. Consequently, it is cri�cal that marke�ng managers with responsibili�es in interna�onal markets comply with all relevant commercial laws and do their best to an�cipate future changes.

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14.2 Market Selec�on Once a company has recognized the incen�ves for pursuing interna�onal markets, the next step is to iden�fy which target market country or countries represent the best fit rela�ve to the products and organiza�onal strengths of the firm. In one sense the task should be simple. Marke�ng managers need to iden�fy places where there are a substan�al number of prospec�ve buyers. On the other hand, the world is a big place, and all of the conven�onal traits and variables used to segment markets and qualify prospects in domes�c markets will not apply in all countries. Integra�ng culture-specific factors and na�onal economic considera�ons to analyze foreign market opportuni�es poses unique challenges. For these reasons, many companies start slowly and cau�ously when contempla�ng their ini�al interna�onal venture.

Marke�ng managers o�en begin by considering each country as a discrete and independent market. In light of the growing influence of free-trade zones, trading blocs, and the impact of globaliza�on in general, this is not always a produc�ve assump�on. However, the sovereignty of na�ons, unique cultural iden��es, and the availability of secondary data on a na�on-by-na�on basis supports this view for the purpose of making an ini�al assessment of market poten�al. The sec�ons that follow examine two general classes of criteria used to make decisions on which markets to enter: economic and cultural criteria.

Economic Criteria

To iden�fy a�rac�ve poten�al country markets, managers require informa�on that will enable them to evaluate the respec�ve costs, benefits, and risks of each op�on. A first step is o�en to evaluate the rela�ve economic strength of alterna�ve target market countries. Chapter 4 introduced the Market Poten�al Index for assessing the general level of economic growth in emerging global markets. Based on eight macroenvironmental dimensions of market poten�al, this mul�factor approach can provide a valuable star�ng point for inves�ga�ng the overall economic health and buying power of a given country. It is important to note, however, that the value of some economic criteria to the selec�on of target market countries is specifically a func�on of the product being sold. For example, macro-level data indica�ng that a na�on has very low gross domes�c product per capita may be a posi�ve indicator when evalua�ng the poten�al sales of low-priced, low- quality goods.

In most situa�ons, the determina�on of the sales poten�al for a specific brand requires economic informa�on more closely related to product-specific market demand than can be gleaned from indicators such as GDP and per capita income. To accurately assess a brand's sales poten�al in a given country, metrics related to exis�ng levels of demand within specific product markets are essen�al. The selec�on of the most appropriate measures relies heavily on the judgment and experience of the marke�ng manager. Managers o�en include factors such as current sales volume within the product market, growth trends, and the size of the intended target market. Informa�on on the number of compe�tors, their size, and the industry concentra�on ra�o is also commonly gathered.

The range of variables of poten�al interest is extensive and principally dependent on the nature of the product and market under considera�on. Fortunately, the task of assembling the economic informa�on required to make decisions on alterna�ve markets has grown progressively easier in recent years. Globaliza�on and the development of efficient informa�on processing technologies have spurred the crea�on of several commercially available databases that provide current product-specific informa�on for marke�ng planners. Among the largest of these providers are Euromonitor Interna�onal and MarketLine.

Euromonitor Interna�onal produces a powerful and expansive source for interna�onal market informa�on called the Global Market Informa�on Database (GMID). GMID contains over a million demographic, economic, and marke�ng sta�s�cs for 205 countries worldwide. The database also contains 6-year historic market size data for more than 330 consumer products in 52 countries, plus 5-year forecasts. This includes specific informa�on on market size, market forecasts, consumer lifestyles, companies, and brands. For the United Kingdom, Germany, United States, and France, it provides full-text market research reports for specific products and industries as well.

MarketLine produces a comparable database that provides informa�on and data on companies, products, and countries worldwide. It also includes informa�on, research, and news analysis services that are unique to MarketLine. Addi�onally, it can provide clients with custom-designed sta�s�cal models and forecasts on a product-by-country basis. These analy�cal reports can be supplemented with an analysis of available market- specific intelligence gleaned from both publicly available and private sources.

Databases such as Euromonitor's and MarketLine's o�en provide sufficient informa�on to make a preliminary assessment of the market poten�al and compe��ve intensity of target market countries. However, the value of these databases extends beyond the collec�on and repor�ng of economic measures. They also provide valuable insights into the social and cultural influences on the rela�ve a�rac�veness of alterna�ve markets.

Cultural Criteria

The term "culture" has many meanings in many contexts. Within the context of interna�onal business, it refers to the "con�nuously evolving totality of learned and shared meanings, rituals, norms, and tradi�ons among the members of a society" (Lascu, 2008). When evalua�ng poten�al target market na�ons, there are many dimensions of culture that may impact their a�rac�veness. These factors include language, religion, and social values. The impact of cultural differences o�en depends on the product being sold. The significance of colors, accepted protocols for gi�-giving, business e�que�e, food-related tradi�ons, and gender roles, for example, can all influence prospec�ve buyers' a�tudes toward the brand being marketed.

Global Business: A�tudes and Values

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A�tudes and values play a vital role in cross-cultural business transac�ons. These cultural elements of interna�onal business are among the most difficult to learn. What steps must a businessperson take in order to ensure a posi�ve and successful transac�on?

Manufacturers of microwave ovens ini�ally found it very difficult to adapt their product technology to the culinary tradi�ons of India.

Exo�ca/SuperStock

Cultural influences are important considera�ons when assessing market opportuni�es in foreign countries. Just as with economic indicators, however, these types of considera�ons can work in different ways. In some instances, companies wish to iden�fy countries with cultures very similar to their own in order to minimize the impact of cultural differences. Although seeking out na�ons with similar cultural backgrounds may be a wise strategy for companies just ge�ng started with interna�onal marke�ng, it limits the range of choices. In many circumstances, marketers recognize that the greatest market poten�al exists in countries with very dissimilar cultures.

Consider the interna�onal market for microwave ovens. In countries where these kitchen appliances have already gained acceptance, the upside market poten�al for new entrants is limited by the market power of entrenched compe�tors. Greater poten�al may exist in countries where the technology has not been readily adopted. India, the second most populous country in the world, has been slow to adopt microwave ovens due to the nature of Indian cuisine. Many tradi�onal Indian dishes such as dosas and paranthas must be slow cooked from the bo�om up, and most Indian diners prefer these dishes to be browned. Consequently, Whirlpool's technical innova�ons and adapta�ons in the late 1990s to make its microwaves compa�ble with Indian preferences created an enormous market opportunity.

Significant cultural differences between na�ons can stem from a vast array of poten�al sources and affect strategy in many ways. Where the marketer's exclusive focus is on expor�ng to a foreign market, the most significant differences will be those that relate to target customers. When a company is considering building a factory or opening a retail store, the primary concern will be how cultural differences impact the firm's rela�onship with employees.

Basic informa�on on the cultural composi�on of na�ons around the globe can be obtained easily from many published sources. One surprising source of excellent informa�on is the U.S. Central Intelligence Agency. The CIA's World Factbook provides reliable informa�on on the ethnic roots, languages, religions, age distribu�on, birth/death rates, and educa�onal a�ainment of the residents of 267 world en��es. It also provides comprehensive overviews of each en�ty's history, government, geography, communica�ons, and transporta�on infrastructure.

Although there are numerous sources of public informa�on available to assist marke�ng managers in improving their understanding of local and na�onal cultures, in many instances it is both desirable and necessary to visit the foreign loca�ons being considered before making any final decisions.

Think About It

If you were responsible for deciding whether your company should invest in opening a small chain of retail stores in Hanoi, Vietnam, could you make the final decision without ever visi�ng the country?

Would your answer be the same if you were evalua�ng Toronto, Canada, as a market instead? Portland, Oregon? Why?

The Hofstede Cultural Dimensions Framework

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Richard Cummins/Corbis

People from different cultures can behave quite differently in similar situa�ons. Many of these differences can be traced to the cultural values and a�tudes that differen�ate the groups. These differences, in turn, are o�en reflected in the behavior of consumers from different countries. Geert Hofstede's pioneering study of more than 110,000 people in 40 na�ons (the Hofstede Cultural Dimensions Framework) iden�fied four specific cultural dimensions that can differen�ate between country-based cultural groups (Hofstede, 1983).

Power distance refers to the extent to which the less powerful members of a culture accept that social and economic power is distributed unequally. In countries with high scores on this dimension, this condi�on is implicitly endorsed both by followers and leaders. In the United States, power distance index values are typically low (40). Americans tend to be fairly egalitarian and democra�c in their views toward the distribu�on of power and rou�nely regard our superiors at work as colleagues as much as supervisors. It isn't uncommon to address those with higher ranks or �tles by their first name. This is in sharp contrast to many Middle Eastern countries, for example, where the power distance is much higher (80).

Individualism versus collec�vism refers to the degree to which people in a country prefer to act independent of others rather than as members of a larger group. Socie�es that score high on individualism exhibit a greater sense of self-sufficiency and expect to look a�er themselves and their immediate family. In collec�vist socie�es, the self-worth of an individual is rooted more in the social system than in individual achievement, and the well-being of society at large is of greater importance. Those from collec�vist socie�es also tend be more fully integrated into �ghtly knit groups and large extended families. Loyalty to one's groups is a highly valued virtue in these countries. La�n American, Asian, and Middle Eastern countries tend to score higher on the collec�vist dimension than the United States and many European countries.

Masculinity versus femininity refers to whether a na�onal culture tends to value asser�veness or nurturing more highly. Masculine socie�es also place greater value on ambi�on, material success, and power. Feminine socie�es place a greater value on charity, caring for the unfortunate, and preserving the natural environment. Countries with notably high scores favoring the masculine traits include Germany, Australia, Canada, Great Britain, and the United States.

Uncertainty avoidance is a reflec�on of the society's tolerance for risk and ambiguity. Cultures with high scores on this dimension value security and invest heavily in cultural systems that will promote order and stability within the society. People from cultures with high uncertainty avoidance might be expected to have difficulty dealing with unfamiliar problems and unstructured situa�ons. The distribu�on of scores on this dimension does not conform to an easily discerned pa�ern. Singapore and Jamaica place a very low priority on avoiding uncertainty. Greece and Portugal anchor the opposite extreme of this scale.

Table 14.1 provides the index values for each of these four dimensions for 66 countries. Provide several examples of how marke�ng managers for familiar brands might use this informa�on when evalua�ng the best market opportuni�es for interna�onal expansion.

Table 14.1: Hofstede's cultural dimensions index values

Country Power Distance Individuality Masculinity Uncertainty

Argen�na 49 46 56 86

Australia 36 90 61 51

Austria 11 55 79 70

Belgium 65 75 54 94

Brazil 69 38 49 76

Chile 63 23 28 86

China 80 20 66 40

Colombia 67 13 64 80

Costa Rica 35 15 21 86

Czech Republic 57 58 57 74

Denmark 18 74 16 23

Ecuador 78 8 63 67

Egypt 80 38 52 68

El Salvador 66 19 40 94

Ethiopia 64 27 41 52

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Finland 33 63 26 59

France 68 71 43 86

Germany 35 67 66 65

Ghana 77 20 46 54

Greece 60 35 57 112

Guatemala 95 6 37 101

Hong Kong 68 25 57 29

Hungary 46 55 88 82

India 77 48 56 40

Indonesia 78 14 46 48

Iran 58 41 43 59

Iraq 80 38 52 68

Ireland 28 70 68 35

Israel 13 54 47 81

Italy 50 76 70 75

Jamaica 45 39 68 13

Japan 54 46 95 92

Kenya 64 27 41 52

Kuwait 80 38 52 68

Lebanon 80 38 52 68

Libya 80 38 52 68

Malaysia 104 26 50 36

Mexico 81 30 69 82

Netherlands 38 80 14 53

New Zealand 22 79 58 49

Nigeria 77 20 46 54

Norway 31 69 8 50

Pakistan 55 14 50 70

Panama 95 11 44 86

Peru 64 16 42 87

Philippines 94 32 64 44

Poland 68 60 64 93

Portugal 63 27 31 104

Saudi Arabia 80 38 52 68

Sierra Leone 77 20 46 54

Singapore 74 20 48 8

South Africa 49 65 63 49

South Korea 60 18 39 85

Spain 57 51 42 86

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Sweden 31 71 5 29

Switzerland 34 68 70 58

Taiwan 58 17 45 69

Tanzania 64 27 41 52

Thailand 64 20 34 64

Turkey 66 37 45 85

United Arab Emirates 80 38 52 68

United Kingdom 35 89 66 35

United States 40 91 62 46

Uruguay 61 36 38 100

Venezuela 81 12 73 76

Zambia 64 27 41 52

Adapted from h�p://www.clearlycultural.com/geert-hofstede-cultural-dimensions/ (h�p://www.clearlycultural.com/geert-hofstede-cultural-dimensions/) Hofstede, G. (1983, Fall). The cultural rela�vity of organiza�onal prac�ces and theories. Journal of Interna�onal Business Studies, 75–89.

The process of analyzing countries as poten�al markets must be custom-tailored to the specific needs and expecta�ons of the company seeking these opportuni�es. Although the considera�on of economic and cultural criteria will inevitably be a part of the process, acquiring all of the data required to make reliable judgments may necessitate gathering primary data in foreign se�ngs as well. The final decision on market entry will require the evalua�on of costs and benefits within the context of risks that can o�en be difficult to accurately gauge. As with domes�c ventures, companies are seeking to capitalize on a�rac�ve market opportuni�es that pose li�le risk while enabling the firm to leverage its dis�nct compe��ve advantages.

Once the preferred country or region is iden�fied, the next task for marke�ng managers is to determine the best way in which to enter this unfamiliar market. The following sec�on examines five alterna�ve strategies for market entry. Each form represents trade-offs between direct managerial control, net profit poten�al, risk of financial loss, and the level of financial commitment required.

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14.3 Market Entry Strategies Once a company has iden�fied the foreign markets it wants to enter, it needs to determine the best strategy for doing so. These strategies include indirect expor�ng, direct expor�ng, licensing, joint ventures, and direct investment. The best op�on depends on the unique circumstances posed by each situa�on. An overview of some of these op�ons is available in Table 14.2.

Table 14.2: Market entry strategies

Direct and Indirect Expor�ng

Advantages Disadvantages

Minimizes risk and investment Higher transport costs than manufacturing abroad

Maximizes flexibility Vulnerable to trade barriers

Good way to learn about global marke�ng Limited learning about country characteris�cs

Creates produc�on scale economies at home Loss of produc�on economies

Higher unit cost to consumer

Licensing and Franchising

Advantages Disadvantages

Rela�vely easy access to global markets Limited direct par�cipa�on in markets

Profitability with li�le investment Lack of control over marke�ng programs

Circumvent tariffs and import quotas Sacrifices long term returns

May create future compe�tors

Joint Ventures

Advantages Disadvantages

Benefits from partner's knowledge of home markets Significant investment required

Reduces direct exposure to poli�cal uncertainty High costs of coordina�on and control

An opportunity to learn about new markets Requires sharing of financial rewards

Some�mes the only way to gain entry to a country May turn partner into future compe�tor

Foreign Direct Investment

Advantages Disadvantages

Can improve domes�c sales in new markets Inves�ng in foreign countries is more expensive than expor�ng

Allows foreign firms to avoid paying import tariffs Risky due to poli�cal vola�lity in host country

Many governments offer tax incen�ves to a�ract Poli�cal shi�s could lead to seizure of a direct investment firm's property and assets

Reduces risks from vola�le currency exchange rates Cultural differences within consumer markets may be insurmountable

Markets may prefer locally produced products Cultural differences within business environment may be insurmountable

Developing local exper�se enables firms to be�er understand tastes and preferences of new markets

Company or brand iden�ty may be blurred by direct associa�on with a foreign country

In general, the preference for one strategic op�on over others is determined by the profit poten�al of the new market, level of financial investment required, and an appraisal of risk. Ventures that pose rela�vely high levels of uncertainty typically discourage companies from making large resource commitments un�l a successful future has been secured. It is typical for companies to be financially conserva�ve when they first begin selling into foreign markets. Among the least risky op�ons for any firm's first interna�onal project is indirect expor�ng.

Indirect Expor�ng

Indirect expor�ng is simply a descrip�on of "sales to export intermediaries who in turn sell to overseas customers. The indirect exporter has no direct contact with overseas customers" (American Marke�ng Associa�on, 2012). This approach to entering foreign markets relies on the use of independent export agents and trading

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What are the advantages of indirect expor�ng?

Steve Vidler/SuperStock

companies within one's home country to iden�fy poten�al customers and nego�ate sales. These intermediaries are typically compensated for successful sales transac�ons on a straight-commission basis. Rela�vely few intermediaries actually buy the manufacturer's products and then resell them abroad.

The ini�al reliance on independent export agents and trading companies to gain a foothold in foreign markets offers several advantages to domes�c producers. The primary advantage is that indirect expor�ng requires li�le financial commitment. Rather than inves�ng company resources into the development of an internal opera�ons group for export sales, the company can rely on the experience, exper�se, and efficiency of firms that specialize in foreign sales. Financial risk is also reduced substan�ally since the payment to these agents is usually con�ngent on the sale of products. Interna�onal marke�ng intermediaries with proven track records offer the seller an established presence in foreign markets, important contacts with prospec�ve buyers, and exper�se in the unique requirements of opera�ng in foreign markets. Consequently, they also reduce the risks associated with making mistakes that will adversely impact the future poten�al of the product or brands in emerging markets.

Direct Expor�ng

Direct expor�ng refers to "the type of expor�ng in which firms enter foreign markets directly and do their own export marke�ng. The firm itself undertakes the complete export marke�ng task, which is

extensive" (American Marke�ng Associa�on, 2012). These export marke�ng tasks include the iden�fica�on of a�rac�ve foreign markets, managing the elements of marke�ng mix, and arranging for interna�onal shipping. Companies will some�mes decide to use foreign agents or distributors to represent them within those markets, par�cularly in the early stages of a product's introduc�on.

In many instances, direct expor�ng is a next step for companies that have enjoyed ini�al interna�onal success through indirect expor�ng. As confidence in both markets and internal company capabili�es grows, many firms transi�on into this role of handling their own product exports. The investment of �me, talent, and financial resources required to make this conversion is substan�al. However, these higher levels of risk also provide the firm with greater poten�al returns. Just as we saw with channel disintermedia�on in the previous chapter, assuming the func�ons previously performed by marke�ng intermediaries provides the seller with a larger share of the total profit from sales.

Direct expor�ng can be implemented using several different approaches. Some companies invest in the crea�on of an in-house export department. This unit gathers together all the exper�se and services required to facilitate foreign sales for all divisions of the company. An alterna�ve approach is to create the pool of requisite talent in foreign sales branches within each target market country. O�en�mes enjoying substan�al autonomy, these sales branches may be authorized to manage mul�ple marke�ng func�ons such as in-country distribu�on, warehousing, customer service, and promo�on, as well as the sales process.

The nature of the product being sold, the poten�al value of a new sales region, and the complexity of markets being served necessarily determine the extent of the company's investment in developing an in-country market presence. Simpler and less expensive forms of direct expor�ng are o�en sufficient. Assigning and dispatching traveling sales representa�ves dedicated to export sales may be adequate to serve the company's and prospec�ve buyers' needs in foreign markets. Depending on the circumstances, simply sending home-based representa�ves to foreign venues occasionally to create customers and build sales can also be effec�ve.

Think About It

Imagine that you are applying to be a sales representa�ve for a manufacturer of high-end imaging equipment for the health care industry. The posi�on will require you to be the company's sole representa�ve in a region comprising seven na�ons in Southeast Asia. This firm has no sales offices or branches in any of these countries.

What would this lead you to believe about the company's commitment to serving the region? Are you sure?

Does it suggest that the primary product you may be asked to sell is at a par�cular point in the Product Life Cycle? Is this product likely to be a significant part of the company's product por�olio? What factors contribute to your conclusion?

What skills, knowledge, and personal traits would be essen�al for succeeding in this type of situa�on?

Licensing

Companies that wish to take the next step beyond indirect expor�ng, but are not yet prepared to undertake the expense and risk associated with direct expor�ng, may consider licensing as an alterna�ve. Licensing is "a rela�vely low risk linkage that allows a manufacturer to enter new markets. It is an arrangement in which a licensee in a new market is given the right to use a process, trademark, patent, or other proprietary item for a fee or royalty" (American Marke�ng Associa�on, 2012). O�en recognized as an efficient tool for par�cipa�ng in foreign markets without large capital investments, this type of arrangement also offers addi�onal advantages.

In many cases, the licensor is paid both an upfront fee and a royalty or commission on each product sold. This limits the downside financial risk to the owner of the intellectual property being leased. It also enables companies to bypass import restric�ons and barriers erected by some na�ons against foreign market entrants

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This Pizza Hut franchise in India features 100 percent vegetarian products.

Associated Press

since the actual producer is within the country's borders.

The same features that limit the risk associated with this strategy, however, also limit the upside financial poten�al. This is par�cularly true if local laws prohibit foreign ownership. This enables the licensee to charge an addi�onal premium based on its favored status within a na�on and its exclusive access to markets. However, even greater concerns may exist with respect to the protec�on of intellectual property.

Once the legal right to use a protected process, trademark, patent, or other proprietary item is extended to a foreign firm, the poten�al for abuse exists. Trade secrets may be used inappropriately, disclosed, or sold to compe�tors. Brand equity can be damaged if brand names, images, or trademarks are a�ached to poor quality goods. Even in instances where the product quality is adequate, the promo�on and sale of branded goods at ar�ficially low prices can adversely impact brand iden�ty in global markets.

Although licensing agreements are very specific with respect to the permissible uses of intellectual property in foreign markets, abuses can occur due to the owner's lack of direct control over how the property is u�lized. This can be a par�cular problem when opera�ng in countries where the protec�on of intellectual property rights is either not explicitly recognized or remains a low priority. The problem can be compounded by a licensing agreement if the licensor discovers at the end of the contract period that the company has created a direct compe�tor through this process.

One par�cular problem that is closely associated with the failure of licensing agreements to adequately protect the intellectual property of licensors is the development of gray markets. Gray markets are composed of branded products that have been diverted from authorized channels of distribu�on. Whether confined to foreign markets or smuggled into the home country of the licensor, these goods provide direct compe��on for the goods distributed through the authorized channels at significantly higher prices. This, in turn, damages rela�onships with legi�mate distributors, dilutes brand equity, and steals profits from investors.

Gray markets for electronic goods pose a par�cularly challenging problem in the new economy. When Apple rolled out its latest iPhone in 2008, retail stores throughout China and Thailand took customers' orders for the product even though it was not scheduled to be sold in those markets. Gray market copies of the device were soon available, and access codes were unlocked so that buyers could use the phone with local mobile service providers. The An�-Gray Market Alliance es�mates the global gray market for informa�on technology products alone to be over $40 billion annually (Zinzaro, 2012).

Franchising is a specific form of licesning. It is a "contractual system of distribu�ng goods and services whereby one party (the franchisor) grants to another party (the franchisee) the right to distribute or sell certain goods or services; the franchisee agrees to operate the business according to a marke�ng plan substan�ally prescribed by the franchisor; and the franchisee operates the business substan�ally under a trademark or trade name owned by the franchisor" (American Marke�ng Associa�on, 2012). Franchising is, in some ways, a more complete form of licensing insofar as the franchisor provides an established brand concept and opera�ng systems. Fast-food restaurants have employed this model successfully in both domes�c and interna�onal markets.

Joint Venture

An alterna�ve market entry strategy that requires significant commitment and par�cipa�on from both a domes�c and foreign partner in an interna�onal enterprise is joint venturing. Specifically, a joint venture is simply any "form of par�cipa�on in foreign markets by means of alliance with a local partner" (American Marke�ng Associa�on, 2012). The objec�ve is to link two companies with complementary strengths rela�ve to the needs of the market they plan to serve. The various legal forms of joint ventures range from informal working agreements to formal equity-sharing arrangements.

Working rela�onships and partnerships between foreign investors and local investors in a joint venture enable each to contribute unique strengths. In many instances a joint venture may be necessary for economic or poli�cal reasons. Although a prospec�ve investor in a foreign market may recognize an opportunity, it may lack the essen�al knowledge of the local culture, customs, connec�ons, and legal restric�ons. In some cases, the foreign government might require joint ownership as a condi�on for entry. The foreign firm, in turn, may lack the financial or marke�ng resources required to capitalize on the venture independently.

Joint ventures can have substan�al disadvantages. Problems most frequently tend to occur when partners cannot reach agreement on marke�ng or financial policies. These disagreements can be par�cularly conten�ous when the two par�es have compe�ng concepts about the marke�ng mix in rela�onship to local markets. The partner with superior product knowledge is most o�en the one who lacks direct experience with the local culture and its preferences. This can quickly become evident in conflicts over adver�sing concepts, product pricing, and distribu�on decisions.

Foreign Direct Investment

Foreign direct investment (FDI) is a term used to describe a market entry strategy where a domes�c firm expands its opera�ons to a foreign na�on either by construc�ng new opera�onal facili�es from the ground up or through the acquisi�on of exis�ng businesses and opera�ons in the country of interest. In many ways, this approach represents the greatest risk to domes�c companies exploring foreign markets, since it typically requires the greatest commitment of both financial and marke�ng resources. Consistent with these risks, however, this approach also holds the greatest poten�al rewards, since the profitability from successful opera�ons does not need to be shared with as many intermediaries as are involved with alterna�ve entry strategies.

If local poli�cal and economic considera�ons are favorable, FDI offers companies several dis�nct advantages. In many markets, direct investment in manufacturing facili�es in foreign countries provides access to cheaper labor and raw materials. Over �me, it also tends to improve rela�ons with the governments of the target

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market country insofar as it creates employment opportuni�es. Successful involvement in the local economy is also likely to improve rela�onships with customers, suppliers, and channel intermediaries. In contrast to producing goods elsewhere, this strategy can also work to reduce the costs associated with shipping goods into the country. This was a primary considera�on in both Honda's and Toyota's decisions to build auto assembly plants in the United States and Canada.

Ul�mately, however, all of these advantages associated with direct foreign investment as a market entry strategy are rooted in enabling the company to retain full control of its manufacturing and marke�ng policies. The primary disadvantage of FDI is that the cost of maintaining this control is full exposure to the risks associated with the investment. Substan�al losses from direct investment in foreign markets can stem from a variety of sources including shi�s in the poli�cal climate, economic instability, currency devalua�on, and market-specific declines.

The market entry op�ons described in this sec�on reflect the organiza�on's response to the profit poten�al associated with new market opportuni�es, the financial investment required, and an assessment of risk. Once the best alterna�ve has been selected, marke�ng managers need to determine how the brand is going to compete in this new market. An essen�al element of this decision is whether to adapt the product and its marke�ng mix to uniquely fit the prevailing condi�ons and preferences in the new market or promote an exis�ng, standardized product and marke�ng mix.

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Coca-Cola has successfully penetrated the market all over the world. How has its adap�on to specific target markets helped or hindered their product?

Frans Lan�ng/Corbis

14.4 Adapta�on Versus Standardiza�on Adapta�on is a term used to describe the process of modifying a firm's exis�ng marke�ng mix and strategy to suit the unique preferences and condi�ons encountered when entering a new foreign market. Most o�en it is used in reference to adjus�ng the marke�ng program to improve its fit with elements of the country's culture that directly impact the acceptance of the brand or product. By contrast, the concept of standardiza�on refers to "the process of extending and effec�vely applying domes�c target-market-dictated product standards—tangible and/or intangible a�ributes—to markets in foreign environments" (Medina and Duffy, 1998).

The ques�on of whether the most appropriate marke�ng strategy for entering a foreign country is to adapt the marke�ng mix to suit local cultural preferences or simply promote a standardized marke�ng mix is somewhat misleading. It suggests that there are simply two alterna�ves when the reality is that these op�ons represent endpoints on a con�nuum. As illustrated in Figure 14.1, the ques�on is truly more about the appropriate degree of adapta�on to suit the preferences of geographically defined target markets. It is, essen�ally, about market segmenta�on. Should interna�onal marke�ng plans for a given brand treat the globe as one mass market or recognize that each cultural group and na�on are poten�ally separate segments of the product market? As discussed in Chapter 6, there are truly no mass markets and there are no discernible contexts outside of e-commerce in which some degree of adapta�on to a foreign market will be not required. Most marke�ng mixes and products require some degree of adapta�on to fine-tune their fit to new markets. If nothing else, the language on labels, adver�sing messages, and the channels of distribu�on will need to be adapted to reach local markets.

Figure 14.1: Con�nuum of adapta�on versus standardiza�on

In most instances, the ques�on of adapta�on versus standardiza�on is applied to the product- and promo�ons-related elements of the marke�ng mix. Although globaliza�on has fostered the interna�onal sharing and convergence of some cultural phenomena, consumers in different countries s�ll differ from each other in very significant ways. This is evident from the data presented in Table 14.1 on Hofstede's four cultural dimensions. However, there are also many less profound differences between cultures that may drive the need to posi�on brands differently in different markets. Consider one of the world's most iconic brands, Coca-Cola. Despite its well-publicized commitment to a secret formula, the levels of sweetness and carbona�on differ from one country the next to suit the specific tastes of those consumers. Despite having global reach and tremendous brand equity, the product s�ll needs to be tailored to meet the preferences of the market.

Unfortunately, there are few universal principles to guide managers in making choices on product adapta�on versus standardiza�on. However, newer brands being introduced to emerging markets are likely to be more readily adaptable to their new environments. Part of this stems from the absence of long product histories that set brand impressions and posi�oning strategies in conceptual cement. Addi�onally, many recently created brands are developed from the outset with the expecta�on that they will be global brands. This is par�cularly evident in the crea�on of online enterprises such as Amazon, Facebook, Google, and eBay.

In some circumstances, older established brands can leverage exis�ng percep�ons of product quality or pres�ge as a means to enter new markets. High-end products in par�cular appeal to audiences with greater than average global awareness. Consequently, the introduc�on of an exis�ng brand to these buyers' home countries can be facilitated by the lack of adapta�on. Though far less costly than a Rolex watch or Car�er necklace, Starbucks has shown through its global development strategy how premium pricing and the development of brand awareness among travelers can facilitate the development of a rela�vely standardized global brand.

In addi�on to considering revisions to the product's tangible features, marke�ng managers also need to evaluate varia�ons in branding, packaging, pricing, and promo�onal strategy. Communica�on adapta�on is the term some�mes used to refer to the process of transforming marke�ng communica�ons to fit alterna�ve interna�onal markets. As illustrated in the opening vigne�e, adap�ng exis�ng promo�onal themes and slogans to suit new markets can be problema�c. The general challenge given to marke�ng managers is some�mes stated as a mandate to think globally but act locally. The adver�sements shown here illustrate how the same core message was translated into mul�ple cultural contexts by Nike.

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Nike adapts its adver�sing to suit its target market. What similari�es do you see in these English, Chinese and German ads? What differences do you see?

Associated Press (le�)/Imaginechina,Corbis (center)/Associated Press (right)

Think About It

Select a product and brand with which you are very familiar. Now consider the informa�on that was presented earlier on Hofstede's four primary dimensions of na�onal culture. Given the data, iden�fy three na�ons that would probably require few adapta�ons of that brand prior to market entry. Now iden�fy three other countries that seem very different on these measures of culture. Specify the types of product-related changes you would need to make to adapt the product to suit these consumers.

What addi�onal informa�on would you want to collect about consumers in these na�ons prior to revising your marke�ng mix?

It may seem from the preceeding discussion that marke�ng managers should have a predisposed bias in favor of adapta�on over standardiza�on. A�er all, it clearly seems to be more consistent with the fundamental tenets of marke�ng and the marke�ng concept. However, global standardized brands permit standardized marke�ng strategies that generate significant scale economies and cost savings in all phases of the marke�ng mix. The strategic value and the range of alterna�ve strategies supported by these types of scale economies were discussed in Chapter 1. This, however, is not the sole argument in favor of standardiza�on.

Standardized brands can also provide greater added value for consumers throughout the world to the extent that the promo�on of a dis�nct and widely recognized global iden�ty ensures a consistent and sa�sfying experience for buyers across markets. Research has demonstrated that the acceptance of global brands does not necessarily invalidate or diminish the impact of cultural differences in shaping buyer behavior. Instead, consumers tend to reinterpret global brands according to their own cultural backgrounds. In this way, the experience of mul�na�onal brands becomes specific to the local culture even to the extent that buyers' percep�ons may differ substan�ally from those communicated by the company (Ghantous, 2008). In this way, a consumer in Bolivia and another in Slovakia might each recognize the same Pepsi brand but have unique interpreta�ons of its meaning consistent with their own cultural background and norms.

As suggested, the image conveyed by a brand name to new markets can be shaped by forces beyond the direct control of the marke�ng manager. In many instances, buyers' impressions of a product are colored by their a�tudes toward the country where the product is made. This phenomenon, known as country of origin effects, can work to the advantage or disadvantage of companies introducing new products to foreign markets.

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The dis�nc�vely German-sounding Löwenbräu brand name iden�fies the product's country of origin for consumers.

Steve Vidler/SuperStock

14.5 Country of Origin Effects Country of origin effects is a term used to refer to the way that buyers' opinions of a product's quality are impacted by their percep�ons of the country where the product was produced. These percep�ons are usually based on mental images, associa�ons, and a�tudes that buyers have learned over �me. A posi�ve effect is o�en observed in how consumers respond to their own country's products, although the effect may be reversed in some developing na�ons where product quality is held in low regard by its own ci�zens.

The rela�ve magnitude of the impact of country of origin effects tends to be posi�vely related to price and consumers' general level of involvement with the type of product. Prospec�ve buyers are more likely to have a keen interest in where compe�ng brands of laptop computers, jeans, and cars are produced, but much less concern for the point of origin for household cleaners, energy drinks, and office supplies.

Marke�ng managers need to be aware of the posi�ve and nega�ve contribu�ons that country of origin effects can make to the image and posi�oning strategy for their brands. When propsec�ve buyers in target market na�ons hold a highly favorable view of the brand's home country, there are several ways to promote the connec�on. Simply including prominent labels and tags to indicate where the product was made is an obvious, but effec�ve strategy. Iden�fying the country of origin, however, can also be accomplished through branding. Toyota sounds Japanese. Ferrari sounds Italian. Campofrio sounds Spanish. Löwenbräu sounds German. Husqvarna sounds Swedish. In some instances, the country of origin can be iden�fied very directly through brand names such as Bri�sh Airways, Royal Dutch Shell, and Canada Dry Ginger Ale.

There are also numerous examples of how product-specific characteris�cs can be linked to the country of origin. These impressions may extend to all brands within a category such as the great taste of Colombian coffee or the contemporary high-fashion styles associated with Italian clothing. In other situa�ons, country of origin percep�ons can envelope an en�re country's products. German- made goods are perceived as well-engineered and produced with high precision. Japanese products are known for their excellence in the applica�on of electronic technology.

In general, country of origin effects tend to remain stable over �me, and the cri�cal factor to their impact is more o�en the country of manufacture rather than the loca�on of the firm's headquarters (Johansson, 2009). When the country of origin image is a posi�ve one, elements of the marke�ng mix should be used to accentuate customers' awareness of this linkage. When the na�onal iden�ty of the home country has a nega�ve connota�on, brands should be selected to mask the country of origin or even suggest a more favorable alterna�ve source. For example, Häagen-Dazs ice cream, like many French-sounding perfumes and German- sounding beers, was actually created in the United States.

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Ch. 14 Conclusion In the final analysis, the principles governing effec�ve and efficient marke�ng management remain fully applicable to the development of interna�onal markets. All of the fundamental principles and applica�ons developed in the preceding chapters of the text are both appropriate and essen�al to compe�ng successfully in a global marketplace. If anything, the need to put the customer at the center of marke�ng planning and strategy is magnified when confron�ng unfamiliar cultures and customs. Although the failures and blunders cited in the opening vigne�e are extreme examples of a breakdown in communica�ons, the lesson to be learned is a vital one. Understanding and effec�vely communica�ng with your target market remains the most cri�cal aspect of marke�ng, whether the consumers are in your backyard or halfway around the world.

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Ch. 14 Learning Resources

Key Ideas

Cri�cal Thinking Ques�ons

1. What does it mean to be a truly interna�onal company? What characteris�cs dis�nguish an interna�onal company from a mul�na�onal corpora�on? Can the size of a firm limit its poten�al to compete interna�onally? How?

2. Lists of the world's most popular and powerful brands are published by various sources. Before you look up the lists online, iden�fy the brands you would expect to see near the top. Why did you select those names? What percentage of the brands on these lists is likely to be from American corpora�ons?

3. Will the future growth of free-trade zones, trading blocs, and economic unions between sovereign na�ons make the tasks of compe�ng globally simpler or more complex?

4. Tradi�onally, governments have been able to exert direct influence on the importa�on of foreign products by managing tax rates, tariffs, and other poten�al barriers to entry. As the impacts of globaliza�on grow, will sovereign na�onal governments con�nue to play this role? What can compe�tors do to prevent a firm from entering a par�cular market?

5. The chapter refers to various indices and ra�ngs systems to evaluate the a�rac�veness of alterna�ve target market countries. If you were to create a new index specifically for ra�ng the a�rac�veness of alterna�ve na�onal markets for light-duty truck sales, what economic and cultural variables would you include? What if the product were office furniture? Energy drinks?

6. The chapter discusses five alterna�ve market entry strategies. What factors would you consider for selec�ng the best way to sell light-duty trucks in the Sub- Saharan African country of Nigeria? Office furniture? Energy drinks?

7. Consider the choices related to adapta�on versus standardiza�on. Speculate on the types of changes that would be required to enter the Nigerian market. Which elements of the marke�ng mix could remain rela�vely standardized? For which of the three products would the required level of adapta�on be the greatest?

8. How do the distribu�on channels for global brands differ from strictly domes�c channels? What types of problems might you encounter in a global system that do not exist within the boundaries of your home market?

9. The Hofstede Cultural Dimensions Framework provides an interes�ng way to analyze the cultural differences between countries. Using the data provided in the chapter, develop a brief analysis illustra�ng how three na�ons of your choice differ from the United States. What are the marke�ng-related implica�ons of these differences for both B2B and B2C markets?

10. Country of origin effects can work for and against the successful introduc�on of a new product. If you were helping to launch the interna�onal introduc�on of an American brand of power tools, where would country of origin effects be likely to work in your favor? Against you? Consider the same ques�on using other countries of origin. What does this tell you about the role of this phenomenon in global branding? Would it ma�er more or less if the tools were for use by professional builders or do-it-yourself homeowners in these foreign markets? Why?

11. Domes�c firms can organize their interna�onal marke�ng efforts in several different ways. Smaller firms tend to rely on individual brand managers to take responsibility for ini�al efforts to pursue foreign sales. Over �me, export departments or divisions take over these responsibili�es when the level of ac�vity and sales warrant the commitment to hiring specialists. What unique skills or insights are companies likely to lose as they make this transi�on? How can this loss be avoided?

12. Rapidly developing economies a�ract lots of interest from prospec�ve market entrants. Beyond the poten�al to sell into these opportuni�es, these dynamic markets also have a substan�al impact on the global economy. Explain why.

13. Each of the market entry strategies discussed represents trade-offs between financial commitment, control, risk, profit poten�al, and market complexity. In general, compare industrialized markets like the United States to fast-growing emerging economies like the United Arab Emirates, Chile, and Malaysia. How do they differ with respect to the types of trade-offs required? Which types of entry strategies might be best suited to each for a manufacturer of solar panels?

14. Select three popular and familiar brands. Go to their websites and examine all of the references to interna�onal ac�vi�es. What differences do you observe in the orienta�on or philosophy between the companies? Does the nature of the product being sold seem to impact the rela�ve importance a�ached to foreign sales?

Key Terms

Click on each key term to see the defini�on.

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adapta�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of modifying a firm's marke�ng programs and products to suit the preferences of new markets.

communica�on adapta�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of changing the promo�ons and communica�ons mix to fit new interna�onal markets.

country of origin effects (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The impact that buyers' opinions of a product's home country have on their percep�on of the product's quality.

country risk (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The poten�al for financial loss from inves�ng in a foreign country, par�cularly when losses are due to unan�cipated poli�cal instability or economic vola�lity.

direct expor�ng (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of expor�ng products to foreign markets characterized by companies selling directly and doing their own export marke�ng.

Euromoney Country Risk Ra�ngs (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A systema�c, biannual assessment of country risk factors for 185 countries. Ra�ngs reflect a composite appraisal or scoring of economic, poli�cal, and social structural measures.

foreign direct investment (FDI) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A market entry and development strategy that involves a domes�c firm expanding its opera�ons to a foreign na�on either by building or acquiring new facili�es in the country of interest.

franchising (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A contractual system similar to licensing whereby the franchisor grants the franchisee the right to distribute or sell certain goods or services.

global marke�ng (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A coordinated and integrated marke�ng strategy that inten�onally seeks to reach customers in foreign markets. Can be used interchangeably with the term interna�onal marke�ng to describe the marke�ng management processes required to sell products in more than one country.

gray markets (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Marke�ng schemes designed to circumvent authorized channels of distribu�on to sell branded goods at prices lower than those intended by the manufacturer.

Hofstede Cultural Dimensions Framework (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A systema�c approach to understanding differences between na�onal cultures based on four dimensions of cultural values: power, collec�vism, masculinity, and uncertainty avoidance.

indirect expor�ng (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of selling products to exporters, who in turn sell to foreign customers. Indirect exporters have no direct contact with foreign customers.

individualism versus collec�vism (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Alterna�ve ends of the scale that measures the extent to which people in a culture tend to act independent of others versus ac�ng in concert with a larger group.

joint venture (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

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A foreign market entry strategy that requires either working agreements or formal equity-sharing arrangements between a local partner and a company seeking market access.

licensing (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An arrangement in which the legal permission to use a process, trademark, patent, or other proprietary item is granted to a foreign producer in exchange for a fee or royalty payment.

masculinity versus femininity (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Opposite ends of the spectrum that describes a range of values from highly asser�ve to highly nurturing. Those socie�es closer to the masculine end of the scale place greater value on ambi�on, material success, and power. Feminine socie�es place a greater value on charity, caring for the unfortunate, and preserving the natural environment.

power distance (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The extent to which the less powerful members within a culture acknowledge and accept the unequal alloca�on of social and economic power.

standardiza�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of extending an established, standard marke�ng mix to foreign markets rather than adap�ng elements of the program to suit the local culture.

uncertainty avoidance (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A reflec�on of how a culture responds to risk and ambiguity. Socie�es with high uncertainty avoidance would have greater difficulty coping with unfamiliar and unstructured problems.

Web Resources

This website provides an extensive set of examples of cross-cultural marke�ng blunders. In addi�on to mistakes related to adver�sing, it includes many examples of how the failure to understand the tradi�ons and customs of other cultures has created problems for businesspeople working in foreign markets. h�p://www.kwintessen�al.co.uk/cultural-services/ar�cles/crosscultural-marke�ng.html (h�p://www.kwintessen�al.co.uk/cultural-services/ar�cles/crosscultural- marke�ng.html)

This website provides access to the ar�cle "Lost in Transla�on," by Randall Frost. It discusses the challenges involved in transla�ng clever English language slogans and adver�sing themes into foreign languages. h�p://www.brandchannel.com/features_effect.asp?pf_id=340 (h�p://www.brandchannel.com/features_effect.asp?pf_id=340)

This website is an entertaining list of Peter Wise's Top 20 mistakes in interna�onal marke�ng and adver�sing transla�on. h�p://ezinear�cles.com/?Interna�onal-Marke�ng-and-Adver�sing-Transla�on—-The-Top-20-Blunders,-Mistakes-and-Failures&id=3999831 (h�p://ezinear�cles.com/? Interna�onal-Marke�ng-and-Adver�sing-Transla�on—-The-Top-20-Blunders,-Mistakes-and-Failures&id=3999831)

This website is a list of 10 unusual examples from interna�onal marke�ng that illustrate how promo�onal messages in one language can be badly misinterpreted in another language when the transla�on is poorly executed. h�p://marke�nghackz.com/10-product-and-campaign-blunders-to-learn-from/ (h�p://marke�nghackz.com/10-product-and-campaign-blunders-to-learn-from/)

This website provides access to business consultant Deborah Swallow's list of cross-cultural marke�ng mistakes. However, her site also includes a wide array of useful informa�on on several serious topics related to intercultural communica�on within a business context. h�p://www.deborahswallow.com/2009/08/20/cross-cultural-marke�ng-blunders/ (h�p://www.deborahswallow.com/2009/08/20/cross-cultural-marke�ng-blunders/)

This website is a good source of informa�on about global capital markets. It includes news, commentary, and ar�cles on all facets of interna�onal finance arranged by topic and region. h�p://www.euromoney.com (h�p://www.euromoney.com)

This website is a premier site for access to interna�onal market research. It provides current databases and research reports organized by industry, company, and consumer across more than 200 countries. h�p://www.euromonitor.com (h�p://www.euromonitor.com)

This website provides a comprehensive collec�on of company, financial, product, and consumer informa�on extending across every major country, market, and industry. It also publishes news items and summaries from business publica�ons around the world. h�p://www.marketlineinfo.com (h�p://www.marketlineinfo.com)

This website includes informa�on on the history, people, government, economy, geography, communica�ons, transporta�on, military, and transna�onal issues for 267 global en��es. The site also provides geographic maps of the major world regions and a poli�cal map of the world.

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h�ps://www.cia.gov/library/publica�ons/the-world-factbook/index.html (h�ps://www.cia.gov/library/publica�ons/the-world-factbook/index.html)