Chapter 13 - Global Marketing
Chapter 13
Global Marketing
High-Level Chapter Outline
I. Introduction
II. The Competitive Advantage of Nations
III. Organizing for Global Marketing
A. Problems with Entering Foreign Marketing
Cultural Misunderstanding
Political Uncertainty
Import Restrictions
Exchange Controls and Ownership Restrictions
Economic Conditions
B. Organizing the Multinational Company
IV. Programming for Global Marketing
A. Global Marketing Research
Population Characteristics
Ability to Buy
Willingness to Buy
Differences in Research Tasks and Processes
B. Global Product Strategy
C. Global Distribution Strategy
D. Global Pricing Strategy
E. Global Advertising and Sales Promotion Strategy
V. Entry and Growth Strategies for Global Marketing
Detailed Chapter Outline
I. Introduction
Firms invest in foreign countries for the same basic reasons they invest in their own country.
oThese reasons vary from firm to firm but fall under the categories of achieving offensive or
defensive goals.
Offensive goals are to:
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Chapter 13 - Global Marketing
oIncrease long-term growth and profit prospects
oMaximize total sales revenue
oTake advantage of economies of scale
oImprove overall market position
Multinational firms also invest in other countries to achieve defensive goals. Chief among these
goals are the desire to:
oCompete with foreign companies on their own turf instead of in the United States
oGain access to technological innovations that are developed in other countries
oTake advantage of significant differences in operating costs between countries
oPreempt competitors’ global moves
oAvoid being locked out of future markets by arriving too late
In many ways, marketing globally is the same as marketing at home.
oRegardless 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:
oFactor conditions
oDemand conditions
oRelated and supporting industries
oCompany 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
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Chapter 13 - Global Marketing
company.
A. Problems with Entering Foreign Markets
Cultural Misunderstanding
Most of us are familiar with our American culture.
oIt consists of the customs, laws, and morals that influence our behavior and that
most of us 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:
oCommunication
oSpatial boundaries
oPerception of time
oBehavior
Political Uncertainty
Governments are unstable in many countries, and social unrest and even armed conflict
must sometimes be reckoned with.
oOther 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.
oThese 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.
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.
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Chapter 13 - Global Marketing
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 analysis 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:
oThe multidomestic company—pursues different strategies in each of its foreign markets.
oThe 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 recognize a global company, three alternative structures are
normally used:
oWorldwide product divisions, each responsible for selling its own product throughout
the world
oDivisions responsible for all products sold within a geographical region
oA matrix system that combines elements of both these arrangements
Most companies are realizing the need to take a global approach to managing their business.
oThe 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:
oMarket factors
oEconomic factors
oEnvironmental factors
oCompetitive factors
Several internal factors can either facilitate or impede a company’s efforts to undertake a
global approach to marketing strategies.
oThese factors and their underlying dimensions are:
Structure
Management processes
Culture
People
Overall, whether a company should undertake a multidomestic or global approach to
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Chapter 13 - Global Marketing
organizing its international operations will largely depend on:
oThe nature of the company and its products
oHow different foreign cultures are from the domestic market
oThe company’s ability to implement a global perspective
Many large brands have failed in their quest to go global.
oThe primary reason for this failure is rushing the process.
In many cases, firms do not undertake either purely multidomestic or global approaches to
marketing.
oInstead, 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 decisions before getting to the issue 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 the market, and significant
differences exist between and within foreign countries.
Other demographic variables, such as 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
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Chapter 13 - Global Marketing
be examined:
oGross national product or per capita national income
oDistribution of income
oRate of growth in buying power
oExtent 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.
While several market researchers count on census data for in-depth demographic
information, in foreign countries market researchers are likely to encounter a variety of problems in
using census data. These include:
oLanguage
oData content
oTimeliness
oAvailability in the United States
B. Global Product Strategy
Global marketing research can help determine whether:
othere is an unsatisfied need for which a new product can be developed to serve a foreign
market, or
othere 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
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Chapter 13 - Global Marketing
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 worldwide 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
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Chapter 13 - Global Marketing
foreign markets.
Sales promotion can 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:
omake minimal investments of funds and resources by limiting its efforts to exporting
omake large initial investments of resources and management effort to try to establish a
long-term share of global markets, or
otake 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:
oExporting—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, and second, it may help a firm
achieve experience-curve and location economies.
oLicensing—companies can grant patent rights, trademark rights, and the rights to use
technological processes to foreign companies. 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
oFranchising—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 a share of the franchisee’s future profit.
oJoint 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.
oStrategic alliances—they are considered distinct 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
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Chapter 13 - Global Marketing
oDirect 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
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:
oWhen markets are economically similar.
oWhen worldwide customers, not countries, are the basis for segmenting markets.
oWhen customer behavior and lifestyles are similar.
oWhen the product is culturally compatible across the host country.
oWhen a firm’s competitive position is similar in different markets.
oWhen competing against the same competitors, with similar market shares, in different
countries, rather than competing against purely local companies.
oWhen the product is an organizational and high-technology product rather than a consumer
product.
oWhen there are similarities in the physical, political, and legal environments of home and
host countries.
oWhen 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.
KEY TERMS
Diamond of national advantage: Developed by Michael Porter, an explanation of a nation’s
competitive advantage and why some companies and industries become global business leaders.
Direct ownership: An organization’s strategy for entering and growing in global markets either through
the establishment of a wholly owned subsidiary or through acquisition where it owns 100 percent of the
stock.
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Chapter 13 - Global Marketing
Exporting: A strategy for entering global markets where a firm produces the product outside the final
destination and then ships it there for sale. It is the easiest and most common approach to entering a
foreign market.
Franchising: A market entry strategy that is similar to licensing but usually involves longer-term
commitments. The franchisor sells limited rights to use its brand name in return for a lump sum and
share of the franchisee’s future profits. It is more commonly employed by service organizations than
manufacturers.
Global company: A company that views the world as one market and employs its resources against the
competition in an integrated fashion. It emphasizes cultural similarities across countries and universal
consumer needs and wants rather than differences. It standardizes marketing activities where there are
cultural similarities and adapts them when the cultures are different.
Joint venture: An organization’s entry into a foreign market by sharing management with one or more
collaborating foreign firms. Decision making may be shared equally or controlled by one party.
Licensing: Organization’s granting of patent rights, trademark rights, and the right to use technological
processes to foreign markets. By licensing, an organization does not have to bear the costs and risks
associated with actually locating in a foreign market.
Multidomestic company: A company that pursues different strategies in each of its foreign markets. It
could have as many different product variations, brand names, and advertising campaigns as countries in
which it operates.
Strategic alliance: Partnerships where two or more firms invest in each other to gain competitive
advantages on a worldwide versus local level. They are usually of a much longer-term nature than a joint
venture.
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Bahl, Raghaw. Super Power? The Amazing Race between China’s Hare and India’s Tortoise. New York:
Portfolio/Penguin, 2010.
Dietz, Bob, and Dan O’Neill. Enough Is Enough: Building a Sustainable Economy in a World of
Finite Resources. San Francisco: Barrett-Koehler Publishers, 2013.
Friedman, Thomas L. The World Is Flat. New York: Farrar, Straus, and Giroux, 2005.
McEwen, William, Xiaoguang Fang, Zhang Chuanping, and Richard Bunkholder. “Inside the Mind of
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consent of McGraw-Hill Education.
Chapter 13 - Global Marketing
the Chinese Consumer.” Harvard Business Review, March 2006, pp. 66–67.
Milanovic, Branko. The Haves and the Have Nots. New York: Basic Books, 2011.
Pettis, Michael. The Great Rebalancing. Princeton, NJ: Princeton University Press, 2013.
Steenkamp, Jan-Benedict E.M., and Inge Geyskens. “How Country Characteristics Affect the
Perceived Value of Web Sites.” Journal of Marketing, July 2006, pp. 136–150.
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