978-0077861063 Chapter 13 Lecture Note

Type

Quiz

Book Title

A Preface to Marketing Management 14th Edition

ISBN 13

978-0077861063

April 8, 2019

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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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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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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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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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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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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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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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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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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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.

ADDITIONAL RESOURCES

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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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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