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Global Marketing I. Introduction • Firms invest in foreign countries for the same basic reasons they invest in their own

country. o These reasons vary from firm to firm but fall under the categories of achieving

offensive or defensive goals. • Offensive goals are to:

o Increase long-term growth and profit prospects o Maximize total sales revenue o Take advantage of economies of scale o Improve overall market position

• Multinational firms also invest in other countries to achieve defensive goals. Chief among these goals are the desire to: o Compete with foreign companies on their own turf instead of in the United States o Gain access to technological innovations that are developed in other countries o Take advantage of significant differences in operating costs between countries o Preempt competitors’ global moves o Avoid being locked out of future markets by arriving too late

• In many ways, marketing globally is the same as marketing at home. o Regardless of which part of the world the firm sells in, the marketing program must

still be built around a sound product or service that is properly priced, promoted, and distributed to a carefully analyzed target market.

II. The Competitive Advantage of Nations • Harvard Business School professor Michael Porter introduced what he calls the “diamond”

of national advantage to explain a nation’s competitive advantage and why some companies and industries become global business leaders.

• Figure 13.1 presents Porter’s model. • The diamond presents four factors that determine the competitive advantage or

disadvantage of a nation: o Factor conditions o Demand conditions o Related and supporting industries o Company strategy, structure, and rivalry

• The diamond model is a dynamic model and illustrates how over time, a nation can build up and maintain its competitive advantage in any industry.

III. Organizing for Global Marketing • When compared with the tasks it faces at home, a firm attempting to establish a global

marketing organization faces a much higher degree of risk and uncertainty. • In a foreign market, management is often less familiar with the cultural, political, and

economic situation. • Many of these problems arise as a result of conditions specific to the foreign countries. • Managers are also faced with the decisions concerning how to organize the multinational

company.

A. Problems with Entering Foreign Markets

Cultural Misunderstanding • Most people are familiar with the American culture.

o It consists of the customs, laws, and morals that influence people’s behavior and that most American’s share.

• Other countries have their own cultures, and some aspects may be very different from ours. It is generally agreed that these differences occur in four areas: o Communication o Spatial boundaries o Perception of time o Behavior

Political Uncertainty • Governments are unstable in many countries, and social unrest and even armed

conflict must sometimes be reckoned with. o Other nations are newly emerging and anxious to seek their independence.

• These and similar problems can greatly hinder a firm seeking to establish its position in foreign markets.

Import Restrictions • Tariffs, import quotas, and other types of import restrictions hinder global business.

o These are usually established to promote self-sufficiency and can be a huge roadblock for the multinational firm.

Exchange Controls and Ownership Restrictions

• Some nations establish limits on the amount of earned and invested funds that can be

withdrawn from it. • In addition, many nations have a requirement that the majority ownership of a

company operating there be held by nationals. • These and other types of currency and ownership regulations are important

considerations in the decision to expand into a foreign market. Economic Conditions • Nations’ economies are becoming increasingly intertwined, and business cycles tend

to follow similar patterns. • In determining whether to invest, marketers need to perform in-depth analyses of a

country’s stage of economic development, the buying power of its populace, and the strength of its currency.

B. Organizing the Multinational Company • There are two kinds of global companies:

o The multidomestic company pursues different strategies in each of its foreign markets.

o The global company views the world as one market and pits its resources against the competition in an integrated fashion.

• Since there is no clear-cut way to organize a global company, three alternative structures are normally used: o Worldwide product divisions, each responsible for selling its own products

throughout the world o Divisions responsible for all products sold within a geographic region o A matrix system that combines elements of both these arrangements

• Most companies are realizing the need to take a global approach to managing their business. o The ability to actually implement a global approach to managing international

operations, however, largely depends on factors unique to the company. • Globalization, as a competitive strategy, is inherently more vulnerable to risk than a

multidomestic or domestic strategy, due to the relative permanence of the organizational structure once established.

• Factors constituting the external environment that are conducive to a global strategy are: o Market factors o Economic factors o Environmental factors

o Competitive factors • Several internal factors can either facilitate or impede a company’s efforts to undertake

a global approach to marketing strategies. o These factors and their underlying dimensions are:

 Structure  Management processes  Culture  People

• Overall, whether a company should undertake a multidomestic or global approach to organizing its international operations will largely depend on: o The nature of the company and its products o How different foreign cultures are from the domestic market o The company’s ability to implement a global perspective

• Many large brands have failed in their quest to go global. o The primary reason for this failure is rushing the process.

• In many cases, firms do not undertake either purely multidomestic or global approaches to marketing. o Instead, they develop a hybrid approach whereby these global brands carry with

them the same visual identity, the same strategic positioning, and the same advertising.

IV. Programming for Global Marketing • Marketing managers must organize the same controllable decision variables that exist in

domestic markets. • However, many firms that have been extremely successful in marketing in the United

States have not been able to duplicate their success in foreign markets.

A. Global Marketing Research • Because the risks and uncertainties are so high, marketing research is equally important

in foreign markets and in domestic markets and probably more so. • To be successful, organizations must collect and analyze pertinent information to

support the basic go/no-go decision before getting to the issues addressed by conventional market research.

• Toward this end, in attempting to analyze foreign consumers and markets, at least four organizational issues must be considered—population characteristics, ability to buy, willingness to buy, and differences in research tasks and processes.

Population Characteristics

• Population characteristics are one of the major components of a market, and

significant differences exist between and within foreign countries. • Other demographic variables, such that the number and size of families, education,

occupation, and religion, are also important. Ability to Buy • To assess the ability of consumers in a foreign market to buy, four broad measures

should be examined: o Gross national product or per capita national income o Distribution of income o Rate of growth in buying power o Extent of available financing

Willingness to Buy • The cultural framework of consumer motives and behavior is integral to the

understanding of the foreign consumer. • In some areas tastes and habits seem to be converging, with different cultures

becoming more and more integrated into one homogeneous culture, although still separated by national boundaries.

Differences in Research Tasks and Processes • The processes and tasks associated with carrying out the market research program

may also differ from country to country. • Many market researchers count on census data for in-depth demographic

information. However, in foreign countries the market researcher is likely to encounter a variety of problems in using census data. These include: o Language o Data content o Timeliness o Availability in the United States

B. Global Product Strategy • Global marketing research can help determine whether:

o There is an unsatisfied need for which a new product can be developed to serve a foreign market

o There is an unsatisfied need that could be met with an existing domestic product, either as is or adapted to the foreign market

• Most U.S. firms would not think of entering a domestic market without extensive product planning. However, some marketers have failed to do adequate product planning when entering foreign markets. An example of such a problem occurred when American manufacturers began to export refrigerators to Europe.

• The solution to this problem is not easy. In some cases, changes need not be made at all or, if so, can be accomplished rather inexpensively. In other cases, the sales potential of the particular market may not warrant expensive product changes.

C. Global Distribution Strategy • The role of the distribution network in facilitating the transfer of goods and titles and in

the demand stimulation process is as important in foreign markets as it is at home. • Figure 13.2 illustrates some of the most common channel arrangements in global

marketing. • Global distribution strategy can be extremely challenging because sellers must influence

two sets of channels: one in the home country and one in the foreign country. • Manufacturers can become more directly involved and, hence, have greater control over

distribution, when they select agents and distributors located in foreign markets. • The channel arrangement that enables manufacturers to exercise a great deal of control

is where the manufacturer sells directly to organizational buyers or ultimate consumers. D. Global Pricing Strategy • In domestic markets, pricing is a complex task. The pricing task is often more

complicated in foreign markets because of additional problems associated with tariffs, antidumping laws, taxes, inflation, and currency conversion.

• Import duties are probably the major constraint for global marketers and are encountered in many markets.

• Another pricing problem arises because of the rigidity in price structures found in many foreign markets. Many times this rigidity is encouraged by legislation that prevents retailers from cutting prices substantially at their own discretion.

E. Global Advertising and Sales Promotion Strategy • When expanding their operations into the world marketplace, most firms are aware of

the language barriers that exist and realize the importance of translating their messages into the proper idiom.

• There are many problems in selecting media in foreign markets.

• Another important promotion decision that must be made is the type of agency used to prepare and place the firm’s advertisements.

• Alliances and takeovers have stimulated growth in the formation of global agencies. • The U.S. company can take either of two major approaches to choosing an agency. The

first is to use a purely local agency in each area where the advertisement is to appear. • The other approach is to use either a U.S.-based multinational agency or a multinational

agency with U.S. offices to develop and implement the ad campaign. • The use of sales promotion can also lead to opportunities and problems for marketers in

foreign markets. • Sales promotion can also be used as a strategy for bypassing restrictions on advertising

placed by some foreign governments. V. Entry and Growth Strategies for Global Marketing • A major decision facing companies that desire either to enter a foreign market or pursue

growth within a specific market relates to the choice of entry or growth strategy. • A company can decide to:

o Make minimal investments of funds and resources by limiting its efforts to exporting o Make large initial investments of resources and management effort to try to establish

a long-term share of global markets o Take an incremental approach whereby the company starts with a low-risk mode of

entry that requires the least financial and other resource commitment and gradually increases its commitment over time

• All three approaches can be profitable. • A company can initially enter a global market and, subsequently, pursue growth in the

global marketplace in six ways: o Exporting—occurs when a company produces the product outside the final

destination and then ships it there for sale. Exporting has two distinct advantages.  First, it avoids the cost of establishing manufacturing operations in the host

country; second, it may help a firm achieve experience-curve and location economies.

o Licensing—companies can grant patent rights, trademark rights, and the right to use technological processes to foreign companies. The major advantage to licensing is that the firm does not have to bear the development costs and risks associated with opening up a foreign market. The major disadvantages are:  The firm does not have tight control over manufacturing, marketing, and

strategy that is required for realizing economies of scale  There is the risk that foreign companies may capitalize on the licensed

technology o Franchising—franchising is similar to licensing but tends to involve longer-term

commitments. In a franchising agreement, the franchisor sells limited rights to use its brand name in return for a lump sum and share of the franchisee’s future profits.

o Joint ventures—a company may decide to share management with one or more collaborating foreign firms. Joint ventures are especially popular in industries that call for large investments, such as natural gas exploration and automobile manufacturing.

o Strategic alliances—Although some consider strategic alliances a form of joint venture, they are considered a distinct entity for two reasons:  First, strategic alliances are normally partnerships that two or more firms enter

into to gain a competitive advantage on a worldwide versus local basis.  Second, strategic alliances are usually of a much longer-term nature than are

joint ventures o Direct Ownership—some companies prefer to enter or grow in markets either

through establishment of a wholly owned subsidiary or through acquisition. The advantages to direct ownership are that the firm has:  Complete control over its technology and operations  Immediate access to foreign markets  Instant credibility and gains in the foreign country when acquisitions are the

mode of entry or growth  The ability to install its own management team

• Depending on the area of the world under consideration and the particular product mix, different degrees of standardization/adaptation of the marketing mix elements may take place.

• As a guideline, standardization of one or more parts of the marketing mix is a function of many factors that individually and collectively affect companies’ decision making. It is more likely to succeed under the following conditions: o When markets are economically similar o When worldwide customers, not countries, are the basis for segmenting markets o When customer behavior and lifestyles are similar o When the product is culturally compatible across the host country o When a firm’s competitive position is similar in different markets o When competing against the same competitors, with similar market shares, in

different countries, rather than competing against purely local companies o When the product is an organizational and high-technology product rather than a

consumer product o When there are similarities in the physical, political, and legal environments of home

and host countries o When the marketing infrastructure in home and host countries is similar

• The decision to adapt or standardize marketing should be made only after a thorough analysis of the product-market mix has been undertaken.

• The company’s end goal is to develop, manufacture, and market the products best suited to the actual and potential needs of the local (wherever that may be) customer and to the social and economic conditions of the marketplace.