Chapter 15 The Global Marketplace
CHAPTER 15
THE GLOBAL MARKETPLACE
PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES
1. Discuss how the international trade system and the economic, political-legal, and cultural
environments affect a company’s international marketing decisions.
2. Describe three key approaches to entering international markets.
3. Explain how companies adapt their marketing strategies and mixes for international markets.
4. Identify the three major forms of international marketing organization.
JUST THE BASICS
CHAPTER OVERVIEW
This chapter examines the fundamentals of global marketing.
Advances in communication, transportation, and other technologies have made the world a much
smaller place.
Today, almost every firm, large or small, faces international marketing issues.
There are several factors that draw a company into the international arena.
Global competitors might offer better products or lower prices.
The company might discover foreign markets that present higher profit opportunities than
the domestic market does.
Most companies start with exporting, using either indirect or direct exporting, or they go into a
joint venture, through such means as licensing, contract manufacturing, management contracting,
or joint ownership.
Finally, the company could make a direct investment by developing assembly or manufacturing
facilities.
Each form of entry carries its own risks and rewards; the company must weigh these carefully
before making final decisions.
Companies that operate in one or more foreign markets must decide how much, if at all, to adapt
their marketing mixes to local conditions.
At one extreme are global companies that use a standardized marketing mix, selling largely the
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same products and using the same marketing approaches worldwide.
At the other extreme is an adapted marketing mix. In this case, the producer adjusts the
marketing mix elements to each target market, bearing more costs but hoping for a larger market
share and return.
However, global standardization is not an all-or-nothing proposition. Rather, it is a matter of
degree.
Companies can manage their international marketing activities in at least three different ways.
1. They can organize an export department.
2. They can create an international division.
3. They can become a global organization.
ANNOTATED CHAPTER NOTES/OUTLINE
FIRST STOP
L’Oreal: The United Nations of Beauty
L’Oréal is as global as a company gets. With offices spread across 130 nations and more than
half of its sales coming from markets outside Europe and North America, the company no longer
has a clearly defined home market.
L’Oréal’s global mastery starts with a corps of highly multicultural managers. The company is
famous for building global brand teams around managers who have deep backgrounds in several
cultures.
L’Oréal digs deep to understand what beauty means to consumers in different parts of the world.
It outspends all major competitors on R&D.
L’Oréal doesn’t just adapt its product formulations globally. It also adapts brand positioning and
marketing to international needs and expectations.
The company’s huge international success comes from achieving a global–local balance that
adapts and differentiates brands in local markets while optimizing their impact across global
markets.
GLOBAL MARKETING TODAY
Since 1990, the number of multinational corporations in the world has grown from 30,000 to
more than 65,000.
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Foreign firms are expanding aggressively into new international markets, and home markets are
no longer as rich in opportunity.
Few industries are now safe from foreign competition.
A global firm is one that, by operating in more than one country, gains marketing, production,
R&D, and financial advantages that are not available to purely domestic competitors.
Use Discussion Question 15-1 here.
The global company sees the world as one market.
It minimizes the importance of national boundaries and develops global brands.
The rapid move toward globalization means that all companies will have to answer basic
questions.
What market position should we try to establish in our country, in our economic region,
and globally?
Who will our global competitors be and what are their strategies and resources?
Where should we produce or source our products?
What strategic alliances should we form with other firms around the world?
A company faces six major decisions in international marketing. (Figure 15.1)
Use Key Term Global Firm here.
Use Figure 15.1 here.
Use Critical Thinking Exercise 15-7 here.
LOOKING AT THE GLOBAL MARKETING ENVIRONMENT
Use Chapter Objective 1 here.
The International Trade System
Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic
firms.
Quotas are limits on the amount of foreign imports that a country will accept in certain product
categories.
The purpose of a quota is to conserve on foreign exchange and to protect local industry and
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employment.
Exchange controls are limits on the amount of foreign exchange and the exchange rate against
other currencies.
Nontariff trade barriers are such things as biases against U.S. company bids, restrictive product
standards, or excessive regulations.
Certain forces help trade between nations.
Use Discussion Question 15-2 here.
The World Trade Organization
The General Agreement on Tariffs and Trade (GATT), established in 1947 and modified in 1994,
was designed to promote world trade by reducing tariffs and other international trade barriers.
It established the World Trade Organization (WTO), which replaced GATT in 1995 and now
oversees the original GATT provisions.
WTO and GATT member nations (currently numbering 161) have met in eight rounds of
negotiations to reassess trade barriers and set new rules for international trade.
The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured
goods from 45 percent to just 5 percent.
The benefits of the Uruguay Round (1994) include reducing the world’s remaining merchandise
tariffs by 30 percent.
A new round of GATT negotiations, the Doha Round, began in Doha, Qatar, in late 2001 and was
set to conclude in 2005, but the discussions continue.
Regional Free Trade Zones
Free trade zones or economic communities are groups of nations organized to work toward
common goals in the regulation of international trade.
Use Key Term Economic Community here.
One such community is the European Union (EU).
The European Union represents one of the world’s single largest markets. Currently, it has 28
member countries containing more than half a billion consumers and accounts for more almost
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Chapter 15 The Global Marketplace
16 percent of the world’s exports.
Widespread adoption of the euro will decrease much of the currency risk associated with doing
business in Europe, making member countries with previously weak currencies more attractive
markets.
However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000
years of tradition and become the “United States of Europe.”
In 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone
among the United States, Mexico, and Canada.
The agreement created a single market of 474 million people who produce and consume over
$20.5 trillion worth of goods and services annually.
NAFTA has eliminated trade barriers and investment restrictions among the three countries.
Trade among the NAFTA nations nearly tripled from from $288 billion in 1993 to more than
$1.1 trillion a year.
The Central American Free Trade Agreement (CAFTA- DR) established a free trade zone
between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala,
Honduras, and Nicaragua.
In late 2004, the Union of South American Nations (UNASUR) was formed and formalized by
constitutional treaty in 2008.
Economic Environment
Two economic factors reflect the country’s attractiveness as a market.
1. Industrial structure
2. Income distribution
1. The country’s industrial structure shapes its product and service needs, income
levels, and employment levels.
The four types of industrial structures are as follows:
Subsistence economies: The vast majority of people engage in simple agriculture. They consume
most of their output and barter the rest for simple goods and services. They offer few market
opportunities.
Raw material exporting economies: These economies are rich in one or more natural resources
but poor in other ways. These countries are good markets for large equipment, tools and supplies,
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and trucks.
Emerging economies (industrializing economies): Fast growth in manufacturing results in rapid
overall economic growth. The country needs more imports of raw textile materials, steel, and
heavy machinery, and fewer imports of finished textiles, paper products, and automobiles.
Industrial economies: These are major exporters of manufactured goods, services, and
investment funds. They trade goods among themselves and also export them to other types of
economies for raw materials and semi-finished goods.
2. Income distribution is the second factor.
Industrialized nations may have low-, medium-, and high-income households.
Countries with subsistence economies may consist mostly of households with very
low family incomes.
Still other countries may have households with only either very low or very high
incomes.
Even poor or developing economies may be attractive markets for all kinds of goods.
Use Discussion Question 15-3 here.
Use Marketing at Work 15.1 here.
Use Online, Mobile, and Social Media Marketing here.
Use Marketing by the Numbers here.
Political-Legal Environment
Some nations are very receptive to foreign firms; others are less accommodating.
Companies must consider a country’s monetary regulations.
Most international trade involves cash transactions. Yet many nations have too little hard
currency to pay for their purchases.
They may want to pay with other items instead of cash e.g., barter.
Cultural Environment
The Impact of Culture on Marketing Strategy
The seller must understand the ways that consumers in different countries think about and use
certain products before planning a marketing program.
Business norms and behavior vary from country to country.
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The Impact of Marketing Strategy on Cultures
Social critics contend that large American multinationals such as McDonald’s, Coca-Cola,
Starbucks, Nike, Microsoft, Disney, and Facebook are “Americanizing” the world’s cultures.
Critics worry that, under such “McDomination,” countries around the globe are losing their
individual cultural identities.
Such concerns have sometimes led to a backlash against American globalization.
In the most recent survey of global brands, 19 of the top 25 brands were American-owned.
Use Critical Thinking Exercise 15-8 here.
Use Discussion Question 15-4 here.
DECIDING WHETHER TO GO GLOBAL
Not all companies need to venture into international markets to survive.
Any of several factors might draw a company into the international arena.
Global competitors might attack the company’s home market by offering better products
or lower prices.
The company might want to counterattack these competitors in their home markets.
The company’s customers might be expanding abroad and require international servicing.
International markets may present better opportunities for growth.
Before going abroad, the company must weigh several risks and answer many questions about its
ability to operate globally.
Can it learn to understand the preferences and buyer behavior of consumers in other
countries?
Can it offer competitively attractive products?
Will it be able to adapt to other countries’ business cultures and deal effectively with
foreign nationals?
Do the company’s managers have the necessary international experience?
Has management considered the impact of regulations and the political environments of
other countries?
DECIDING WHICH MARKETS TO ENTER
Before going abroad, the company should:
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Define its international marketing objectives and policies.
Decide what volume of foreign sales it wants.
Decide how many countries it wants to market.
Decide on the types of countries to enter.
Evaluate each selected country.
Possible global markets should be ranked on several factors, including:
Market size
Market growth
Cost of doing business
Competitive advantage
Risk level
Use Table 15.1 here.
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