LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What factors should a company review before deciding to go abroad?
2. How can companies evaluate and select specific international markets to enter?
3. What are the differences between marketing in a developing and a developed market?
4. What are the major ways of entering a foreign market?
5. To what extent must the company adapt its products and marketing program to each
foreign country?
6. How do marketers influence country-of-origin effects?
SUMMARY
1. Despite shifting borders, unstable governments, foreign-exchange problems,
corruption, and technological pirating, companies selling in global industries need to
internationalize their operations.
2. Upon deciding to go abroad, a company needs to define its international marketing
objectives and policies. It must determine whether to market in a few or many
countries and rate candidate countries on three criteria: market attractiveness, risk,
and competitive advantage.
3. Developing countries offer a unique set of opportunities and risks. The “BRICS”
countries—Brazil, Russia, India, China, and South Africa—plus other significant
markets such as Indonesia are a top priority for many firms.
4. Modes of entry are indirect exporting, direct exporting, licensing, joint ventures, and
direct investment. Each succeeding strategy entails more commitment, risk, control,
and profit potential.
5. In deciding how much to adapt their marketing programs at the product level, firms
can pursue a strategy of straight extension, product adaptation, or product invention.
At the communication level, they may choose communication adaptation or dual
adaptation. At the price level, firms may encounter price escalation, dumping, gray
markets, and discounted counterfeit products. At the distribution level, firms need to
take a whole-channel view of distributing products to the final users. Firms must
always consider the cultural, social, political, technological, environmental, and legal
limitations they face in other countries.
6. Country-of-origin perceptions can affect consumers and businesses alike. Managing
those perceptions to best advantage is a marketing priority.
C H A P T E
R 8TAPPING INTO
GLOBAL MARKETS
OPENING THOUGHT
In today’s multicultural world, students will have been exposed to products marketed
across geographic or national boundaries, so the student’s ability to grasp this concept
should be straightforward. What could present a challenge is the extent of marketing
planning and detail needed by the firm in making their marketing decisions nationally
and internationally.
The instructor is encouraged to open up the class discussions to students from other
nations present in the class, and to ask these students to describe the shopping
experiences in their homeland. Students with international business or international
marketing experiences should be especially encouraged to present to the class
descriptions of what marketing is like outside of the United States.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. If the project is to be exported to another country, then student’s submissions
regarding how the product is to be distributed should be included here, otherwise this
begins the presentation phase of the project, and student groups should begin their
presentations to the class.
2. The instructor is encouraged to challenge the students by assigning students to find
their favorite product’s corporate office. Examples may include Nestle, Nike, Suzuki,
Nokia, Ben & Jerry’s and others. Beyond just discovering examples of global or
international firms, students should uncover via financial information, the origin of
sales by country. Such an exercise will provoke interesting classroom discussions as
the student’s begin to realize the global nature of business in today’s international
marketplace.
3. Sonic PDA Marketing Plan: Global marketing offers a way for companies to grow by
expanding the customer base beyond the domestic market. However, the complexities
of global marketing demand careful planning and implementation. As Jane Melody’s
assistant, you are researching markets outside the United States for Sonic’s first PDA
product. Review the recommendations you have made for Sonic’s marketing plan.
Then answer these questions about how Sonic can approach global marketing:
Should Sonic use licensing, joint ventures, direct investment, or exporting to enter
the Canadian market? To enter other markets?
If Sonic wants to start marketing a PDA in other countries, which of the five
international product strategies (straight extension, communication adaptation,
product adaptation, dual adaptation, product/forward invention), is most
appropriate and why?
Identify one international market that seems most promising for Sonic. Why did
you select this international market as most promising?
Summarize your answers in a written marketing plan or enter the answers in the SWOT,
Issue Analysis, Marketing Strategy, and Marketing Research sections of Marketing Plan
Pro.
DETAILED CHAPTER OUTLINE
Opening vignette: Some marketers, like Hyundai, are finding international success in an
increasingly smaller, and more multicultural world. There are significant opportunities
and risks associated with internationalizing operations.
I. Competing on a Global Basis
A. Global competition is intensifying in many product categories
i. Competition from developing-market firms is growing
ii. Firms should continuously improve products and expand into foreign
markets
iii. Global firms operate in more than one country and capture R&D,
production, logistical, marketing and financial advantages not
available to domestic competitors
iv. Global firms plan, operate and coordinate activities worldwide
v. To sell overseas, successful global U.S. brands have tapped into
universal consumer values and needs
B. Companies must make a series of decisions when deciding whether to go
abroad
i. Domestic markets, if large enough, are easier and safer
ii. Advantages of international markets
1. Better profit opportunities
2. Larger customer base to achieve economies of scale
3. Reduced dependence on one market
4. Counterattack global competitors in home markets
5. Customers abroad require international service
6. Ideas, products and services can be transferred from one
market into another market
iii. Risks associated with going abroad
1. Risk of not understanding foreign preferences; failure to offer a
competitively attractive product
2. Lack of business culture understanding
3. Underestimating foreign regulations; incurring unexpected
costs
4. Lack of managers with international experience
5. Commercial laws can change, currency can be devalued, a
political revolution could occur
iv. Internationalization process has four stages
1. No regular export activities
2. Export via independent representatives (agents)
3. Establishment of one or more sales subsidiaries
4. Establishment of production facilities abroad
II. Deciding Which Markets to Enter
A. How Many Markets to Enter
i. Waterfall: gradually entering countries in sequence
1. allows firms to carefully plan expansion
2. less strain on human and financial resources
ii. Sprinkler: entering many countries simultaneously
1. Good approach when first-mover advantage is crucial or high
degree of competitive intensity prevails
2. Main risk is substantial resources and difficulty planning entry
strategies for diverse markets
iii. Born global: technology-intensive firms or online ventures market to
the world from the outset
iv. Country selections may be based on product and geography, income,
population, political climate, competition, and market growth.
B. Evaluating Potential Markets
i. A market’s demographic, economic, sociocultural, natural,
technological, and political-legal environments affect its attractiveness
and readiness for a product
ii. Neighboring countries are popular because entry costs are lower and
control and understanding are higher
iii. Psychic proximity, or more familiar language, laws and culture, can
determine choices but may cause companies to overlook better
markets and fail to realize real differences.
iv. High market attractiveness, low market risk and a competitive
advantage are important
C. Succeeding in Developing Markets
i. Emerging markets, such as Brazil, Russia, India, China, and South
Africa, or BRICS, and Indonesia, are different from developed
markets.
ii. These markets offer many opportunities but also many challenges.
iii. Unmet needs mean huge potential markets for food, clothing, shelter,
consumer electronics, appliances, etc.
iv. Much less purchasing power and many live in conditions ranging from
mild deprivation to severe deficiency
v. Brazil is the biggest economy in Latin America and the sixth largest in
the world.
1. Expected to be economically larger than Germany, Japan, and
the United Kingdom in 2050.
2. Domestic concerns include education and infrastructure.
3. Fifth-largest country globally in terms of digital users, with
about 91 million people online, making digital strategies
attractive. Social media are especially popular. Firms are
increasingly using mobile marketing, with a strong local flavor
in their marketing communications.
4. Common themes that resonate well with Brazilians: family life,
happiness, optimism, and pride at being from Brazil.
Optimistic/upbeat
5. Large and well-developed agricultural, mining, manufacturing,
and service sectors
6. High transportation costs, strict and costly labor laws, crime
and corruption are problems
vi. Russia is the largest exporter of natural gas, the second-largest
exporter of oil, and the third-largest exporter of steel and primary
aluminum.
1. Reliance on commodities makes them sensitive to recessions
2. Heavy user of social media
3. Dwindling workforce and poor infrastructure
4. Economic reforms have stagnated; Russia is one of the most
corrupt countries in the world
5. Logistical problems with roads and infrastructure
vii. India lowered trade barriers and liberalized capital markets in the
1990s, bringing booming investment and consumption.
1. One-quarter of the entire world’s under-25 population lives in
India.
2. Progress in literacy and access to financial services and modern
technology.
3. Mobile phone density is approximately 75 percent of the
population, of whom around 15 percent use their mobile
devices to go online.
4. Its 28 separate states each have their own policies and tax rules,
23 official languages, 1,500 dialects, and a multitude of faiths
5. Areas around Mumbai and Bangalore are richer and more
highly literate, while poorer, less educated states lie in the east
6. Cool winters in the north create dry skin conditions, in stark
contrast to the humid climates of Mumbai and Chennai.
7. Poor infrastructure and public services—education, health, and
water supply—and restrictive labor laws.
8. Corruption remains a huge problem at virtually all levels of
government.
9. A complicated retail network has been slow to modernize,
leading to distribution problems.
viii. China has 1.34 billion people that marketers want to reach, which has
resulted in greater competition in pricing, products, and channels since
its entry into WTO
1. Some industries remain fiercely protected or off-limits to
foreigners altogether
2. Subsidized competition, restricted access, conflicting
regulations, opaque and seemingly arbitrary bureaucracy, and
lack of protection for intellectual property
3. Chinese government encourages partnerships with foreign
companies, in part so that its firms can learn enough to become
global powerhouses themselves.
4. Selling in China means going beyond the big cities to the
second- and third-tier cities, as well as to the 700 million
potential consumers in small communities in the rural interior.
5. Rural consumers have lower incomes, are less sophisticated,
and often cling to local habits.
6. China is also ethnically diverse—the banknote features eight
languages, including Arabic, Mongolian, and Tibetan.
7. Chinese consumers spend a fraction of what U.S. consumers
do.
8. China is now the world’s top consumer of luxury consumer
goods, with many Chinese consumers viewing these as trophies
of success.
9. Western companies benefit from their reputation of quality,
safety, and dependability with Chinese consumers, who have
seen numerous scandals from their domestic companies.
ix. South Africa is a developed market, but has an important role as an
access point to the African region/launch pad for African expansion.
1. Political turmoil in Egypt, Tunisia, and Libya during the “Arab
Spring” is a reminder of the instability that has plagued the
continent
2. Logistical and infrastructure problems prevail
3. Improvements have been made in health, education, and social
services and economic forecasts are good.
4. African consumers seek high-quality products and are brand
conscious
5. Agriculture is the largest economic sector, telecommunications,
energy, consumer products, and health care are experiencing
the fastest growth.
6. Mobile phones are used not just for talking but also as a
platform to support daily living, playing a crucial role in health
care and banking, for example, where extensive infrastructure
does not exist.
x. Indonesia’s reputation as a country historically struggling with natural
disasters, terrorism, and economic uncertainty is quickly being
replaced by a profile of political stability and economic growth.
1. The fourth-largest country in the world and the largest Muslim
country
2. Third-fastest-growing economy in the region—behind India
and China—largely on the basis of its 240 million consumers.
3. By 2030, forecasts expect the number of middle-class
Indonesians—those making between $2 and $20 per day—to
increase from 131 million to 244 million and those in the
“consumer class”—who make more than $3,600 per year—to
increase from 45 million to 135 million.
4. Very brand conscious, an important preference given their
rising incomes
5. Efficient distribution is critical
D. Marketing Strategies for Developing Markets
i. Economic and cultural differences abound, a marketing infrastructure
may barely exist, and local competition can be a challenge
ii. Typically much easier to tap into the middle class in developing
markets than to reach the 4 billion people at the “bottom of the
pyramid” because marketing practices are similar to developed
markets
iii. Although they may collectively be worth $3 trillion, each individual
low-income consumer may have very little to spend
iv. Satisfying the bottom of the pyramid also requires careful planning
and execution; a “low price, low margin, high volume” business model
is supposed to be the key to successfully appealing to lower-income
markets in developing markets, but it does not always work
v. Cost reductions are difficult to realize because of the firm’s established
supply chain and when production methods and distribution strategy
and price premiums are hard to command because of consumer price
sensitivity
vi. Smaller packaging and lower prices are critical when income and
space are limited
vii. Vast majority of consumers in emerging markets buy their products
from tiny bodegas, stalls, kiosks, and mom-and-pop stores not much
bigger than a closet, or “high-frequency stores”
viii. Digital strategies will be crucial in developing markets given the rapid
penetration of smart phones as more than a means of communication.
E. Developing and Developed Markets
i. Developing markets have yielded some strong multinationals selling in
many countries. They identify neglected niches in larger markets
ii. Another strategy for going global is to acquire one or more firms in
developed markets.
iii. Firms from developed markets are using lessons gleaned from
developing markets to better compete in their home or existing
markets
iv. Economic integration (trade agreements) has intensified in recent
years, which means companies are more likely to enter entire regions
at the same time.
III. Deciding How to Enter the Market
A. Indirect and Direct Exporting
i. Indirect exporters work through independent intermediaries
1. Domestic-based export merchants buy the manufacturer’s
products and then sell them abroad
2. Domestic-based export agents, including trading companies,
seek and negotiate foreign purchases for a commission
3. Cooperative organizations conduct exporting activities for
several producers—often of primary products such as fruits or
nuts—and are partly under their administrative control
4. Export-management companies agree to manage a company’s
export activities for a fee
ii. Indirect export has two advantages
1. Less investment
2. Less risk
iii. Direct exporting has relatively higher risk and return, and happens in
several ways
1. Domestic-based export department or division, where a service
function may evolve into an export department
2. Overseas sales branch or subsidiary might handle sales,
distribution, warehousing, promotion, displays and customer
service
3. Traveling export sales representatives travel to find businesses
4. Foreign-based distributors or agents can hold limited or
exclusive rights to represent the company
iv. Successful companies adapt their Web sites to provide country-specific
content and services to their highest-potential international markets in
the local language
B. Licensing is a simple way to engage in international marketing
i. A foreign company gets a license to use a manufacturing process,
trademark, patent, trade secret, or other item of value for a fee or
royalty
ii. Licensor gets market entry at little risk; licensee gets production
expertise or well-known product or brand name
iii. Licensor has less control than if it had its own production and sales
facilities, gives up profits, and may create a competitor when the
contract ends
iv. Best strategy is to lead in innovation so licensee will continue to
depend on the licensor
v. Licensing arrangements include management contracts, contract
manufacturing, and franchising
C. Joint ventures involve foreign investors and local investors
i. May be necessary or desirable for economic or political reasons
ii. Foreign firm might lack the financial, physical, or managerial
resources to undertake the venture alone, or the foreign government
might require joint ownership as a condition for entry.
iii. Partners might disagree over investment, marketing, investments
iv. Good partners share “brand values” that help maintain brand
consistency across markets.
D. Direct Investment is direct ownership and has advantages
i. Cost economies through cheaper labor or raw materials, government
incentives, and freight savings
ii. Stronger image in the host country because it creates jobs
iii. Deeper relationship with the government, customers, local suppliers,
and distributors, enabling it to better adapt its products to the local
environment
iv. Full control over investment and can develop manufacturing and
marketing policies that serve its long-term international objectives
v. Access to the market in case the host country insists that locally
purchased goods must have domestic content
vi. A disadvantage is the firm exposes a large investment to risks like
blocked or devalued currencies, worsening markets, or expropriation
E. Acquisition of local brands is another way of entering an international market
IV. Deciding on the Marketing Program
A. Standardized Marketing Program (lowest costs)
i. Advantages: economies of scale in production and distribution, lower
marketing costs, power and scope, consistency in brand image, ability
to leverage good ideas quickly and efficiently, uniformity of marketing
practices
ii. Disadvantages: ignores differences in consumer needs, wants, usage
patterns, response to marketing programs and activities, brand and
product development, competitive environment, legal environment,
marketing institutions, administrative procedures
B. Adapted marketing program (believes consumer needs vary and tailors
marketing to each target group)
C. Global Similarities and Differences
i. Technology led convergence of lifestyles
ii. Shared needs and wants have created global markets for more
standardized products
iii. Hofstede identifies four cultural dimensions that differentiate countries
1. Individualism versus collectivism
2. High versus low power distance
3. Masculine versus feminine
4. Weak versus strong uncertainty avoidance
iv. Consumer behavior differences as well as historical market factors
have led marketers to position brands differently in different markets
v. Marketers adapt if elements add more revenue than cost (features,
labels, colors, materials, promotions, prices, media, brand name,
packaging, ad themes/execution)
vi. Best global brands are consistent in theme but reflect significant
differences in consumer behavior, brand development, competitive
forces, and the legal or political environment
vii. Companies must make sure their brands are relevant to consumers in
every market they enter.
D. Global Product Strategies
i. Product Standardization
1. High-end products benefit from standardization because quality
and prestige often can be marketed similarly across countries
2. Culture and wealth factors influence how quickly a new
product takes off in a country, though adoption and diffusion
rates are becoming more alike across countries over time
3. Food and beverage marketers find it more challenging to
standardize
ii. Product Adaptation Strategies
1. Straight extension introduces the product in the foreign market
without any change
2. Product adaptation alters the product to meet local conditions
or preferences
3. Regional, country, city, and retailer versions can also be used
4. Product invention can be backward or forward
5. Brand element adaptation can include brand names
E. Global Communication Strategies
i. Communication adaptation can be at the product and communication
level (dual adaptation)
ii. Adapted communications must be culturally acceptable, appropriate,
and recognize laws
iii. Personal selling might change, too
F. Global Pricing Strategies
i. Price escalation adds transportation costs, tariffs, importer margins,
wholesaler margins, retailer margins
ii. Three choices for setting prices
1. Set uniform price everywhere
2. Set market-based price in each country
3. Set cost-based price in each country
iii. Countries with overcapacity, cheap currencies, and the need to export
aggressively have pushed their prices down and devalued their
currencies
iv. A high transfer price could result in higher tariff duties but lower
income taxes, but a low one could be charged with dumping to enter
or win a market (arms-length price may be forced)
v. Gray markets divert branded products from authorized distribution
channels either in-country or across international borders
1. Create a free-rider problem, making legitimate distributors’
investments in supporting a manufacturer’s product less
productive and selective distribution systems more intensive to
reduce the number of gray market possibilities
2. Harm distributor relationships, tarnish the manufacturer’s
brand equity, and undermine the integrity of the distribution
channel.
3. Pose risks to consumers if the product is damaged, relabeled,
obsolete, without warranty or support, or just counterfeit.
4. Multinationals try to prevent gray markets by policing
distributors, raising their prices to lower-cost distributors, or
altering product characteristics or service warranties for
different countries
vi. As companies develop global supply chain networks and move
production farther from home, the chance for corruption, fraud, and
quality-control problems rises – as well as a huge market for
counterfeit goods (which can be deadly)
G. Global Distribution Strategies
i. Channel entry decisions include types of intermediaries, type of
transportation, financing and risk management
ii. Channels within foreign nations get products from their entry point to
final buyers and sellers
iii. There are channel differences across countries
V. Country-of-Origin Effects
A. Mental associations and beliefs triggered by a country
B. Governments now recognize that the images of their cities and countries affect
more than tourism and have important value in commerce
i. Foreign business can boost the local economy, provide jobs, and
improve infrastructure
ii. Country image can also help sell products
C. Global marketers know that buyers hold distinct attitudes and beliefs about
brands or products from different countries
D. The impact of country of origin varies with the type of product.