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Chapter 15 The Global Marketplace
DECIDING HOW TO ENTER THE MARKET
Use Critical Thinking Exercise 15-9 here.
Use Key Term Exporting here.
Use Figure 15.2 here.
Use Chapter Objective 2 here.
Exporting
Exporting is the simplest way to enter a foreign market.
Indirect exporting is working through independent international marketing intermediaries.
Indirect exporting involves less investment and less risk.
Direct exporting is where the company handles its own exports.
The investment and risk are somewhat greater in this strategy, but so is the potential return.
Joint Venturing
Joint venturing is joining with foreign companies to produce or market products or services.
There are four types of joint ventures.
1. Licensing
2. Contract manufacturing
3. Management contracting
4. Joint ownership
1. Licensing
Licensing is a simple way for a manufacturer to enter international marketing.
The company enters into an agreement with a licensee in the foreign market.
For a fee or royalty, the licensee buys the right to use the company’s manufacturing process,
trademark, patent, trade secret, or other item of value.
Licensing has disadvantages:
The firm has less control over the licensee than it would over its own operations.
If the licensee is very successful, the firm has given up profits.
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Chapter 15 The Global Marketplace
When the contract ends, it may find it has created a competitor.
2. Contract Manufacturing
Contract manufacturing occurs when the company contracts with manufacturers in the
foreign market to produce its product or provide its service.
The drawbacks are:
Decreased control over the manufacturing process.
Loss of potential profits on manufacturing.
The benefits are:
The chance to start faster, with less risk.
The later opportunity either to form a partnership with or to buy out the local
manufacturer.
3. Management Contracting
Management contracting takes place when the domestic firm supplies management
know-how to a foreign company that supplies the capital.
This is a low-risk method of getting into a foreign market, and it yields income from the
beginning.
The arrangement is not sensible if the company can put its management talent to better uses or if
it can make greater profits by undertaking the whole venture.
4. Joint Ownership
Joint ownership ventures consist of one company joining forces with foreign investors to
create a local business in which they share joint ownership and control.
A company may buy an interest in a local firm, or the two parties may form a new business
venture.
Joint ownership may be needed for economic or political reasons.
Joint ownership has drawbacks:
The partners may disagree over policies.
Whereas U.S. firms emphasize the role of marketing, local investors may rely on selling.
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Use Discussion Question 15-5 here.
Use Key Terms Joint Venturing, Licensing, Contract Manufacturing, Management Contracting,
Joint Ownership, and Direct Investment here.
Direct Investment
Direct investment is the development of foreign-based assembly or manufacturing facilities.
Advantages:
Lower costs in the form of cheaper labor or raw materials, foreign government
investment incentives, and freight savings
The firm may improve its image in the host country.
Development of a deeper relationship with government, customers, local suppliers, and
distributors
The firm keeps full control over the investment.
The main disadvantage of direct investment is that the firm faces many risks.
Use Key Terms Standardized Global Marketing and Adapted Global Marketing here.
Use Chapter Objective 3 here.
Use Linking the Concepts here.
DECIDING ON THE GLOBAL MARKETING PROGRAM
Standardized global marketing is using largely the same marketing strategy approaches and
marketing mix worldwide.
Adapted global marketing is adjusting the marketing strategy and mix elements to each
target market, bearing more costs but hoping for a larger market share and return.
Use Marketing at Work 15.2 here.
Some global marketers believe that technology is making the world a smaller place and that
consumer needs around the world are becoming more similar.
This paves the way for “global brands” and standardized global marketing. Global branding
and standardization, in turn, result in greater brand power and reduced costs from economies of
scale.
However, because cultural differences are hard to change, most marketers adapt their products,
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Chapter 15 The Global Marketplace
prices, channels, and promotions to fit consumer desires in each country.
Product
Use Figure 15.3 here.
Five strategies are used for adapting product and marketing communication strategies to a global
market (Figure 15.3).
Straight product extension means marketing a product in a foreign market without any
change.
Product adaptation involves changing the product to meet local conditions or wants.
Product invention consists of creating something new for a specific country market.
Use Key Terms Straight Product Extension, Product Adaptation, and Product Invention here.
Promotion
Companies can either:
1. Adopt the same communication strategy they used in the home market, or
2. Change it for each local market.
Colors are changed sometimes to avoid taboos in other countries.
Communication adaptation is fully adapting advertising messages to local markets.
Use Key Term Communication Adaptation here.
Price
Regardless of how companies go about pricing their products, their foreign prices probably will
be higher than their domestic prices for comparable products.
Why? It is a price escalation problem. It must add the cost of transportation, tariffs, importer
margin, wholesaler margin, and retailer margin to its factory price.
To overcome this problem when selling to less-affluent consumers in developing countries, many
companies make simpler or smaller versions of their products that can be sold at lower prices.
The Internet is making global price differences more obvious.
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Chapter 15 The Global Marketplace
When firms sell their wares over the Internet, customers can see how much products sell for in
different countries. This is forcing companies toward more standardized international pricing.
Distribution Channels
The whole-channel view takes into account the entire global supply chain and marketing
channel. It recognizes that to compete well internationally, the company must effectively design
and manage an entire global value delivery network.
Figure 15.4 shows the two major links between the seller and the final buyer.
Channels between nations move company products from points of production to the borders of
countries within which they are sold.
Channels within nations move products from their market entry points to final consumers.
Use Discussion Question 15-6 here.
Use Key Term Whole-Channel View here.
Use Figure 15.4 here.
DECIDING ON THE GLOBAL MARKETING ORGANIZATION
A firm normally gets into international marketing by simply shipping out its goods. If its
international sales expand, the company organizes an export department.
Many companies get involved in several international markets and ventures. An international
division may be created to handle all international activity.
International divisions are organized in a variety of ways.
Geographical organizations: Country managers are responsible for salespeople, sales
branches, distributors, and licensees in their respective countries.
World product groups: Each unit is responsible for worldwide sales of different product
groups.
International subsidiaries: Each unit is responsible for its sales and profits.
Global organizations are companies that have stopped thinking of themselves as national
marketers who sell abroad and have started thinking of themselves as global marketers.
Use Chapter Objective 4 here.
Use Marketing Ethics here.
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Chapter 15 The Global Marketplace
Video Case: Monster Worldwide
Monster.com is one of the most visited employment sites in the United States and one of the
largest in the world. Now a part of parent company Monster Worldwide, Monster.com pioneered
job recruiting on the Internet. Today, it is the only online recruitment provider that can service
job seekers and job posters on a truly global basis. With a presence in 50 countries around the
world, Monster has unparalleled international reach. Even through tough economic times,
Monster continued to invest heavily in order to maintain and expand its global presence.
Monster’s international expansion included the purchase of ChinaHR.com, giving it a strong
presence in the world’s largest country. Monster already gets about 45 percent of its annual
revenue of $1.3 billion from outside the United States. But it expects to become even more
global in the coming years. To back that geographic expansion, Monster is also investing heavily
in search technologies and Web design in order to appeal to clients everywhere.
After viewing the video featuring Monster Worldwide, answer the following questions:
15-15. Which of the five strategies for adapting products and promotion for global
markets does Monster employ?
15-16. Which factors in the global marketing environment have challenged Monster’s
global marketing activities most? How has Monster met those challenges?
Company Cases
15 7-Eleven/14 Alibaba/16 Adidas
See Appendix 1 for cases appropriate for this chapter.
Case 15, 7-Eleven: Adapting to The World’s Many Cultures. Just a convenience store in the
U.S., 7-Eleven has a strong global presence by adapting its model to fit the unique needs of
consumers worldwide.
Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Alibaba quickly became the
world’s largest e-tailer by selling to the world’s largest consumer market. Now, as the company
sets it sights on growth outside of China, there may be no stopping it.
Case 16, Adidas: Athletic Apparel With Purpose. A strategy of sustainability may just give
Adidas the global edge that it is looking for.
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MyMarketingLab
If assigned by your instructor, complete these writing sections from your Assignments in the
MyLab.
15-17. What is the World Trade Organization? What is its purpose, and what has it
accomplished? (AACSB: Communication)
15-18. Visit www.ikea.com and compare a catalog from one country to that of another.
Note the prices of some of the products. Convert some of the foreign prices to U.S.
dollars and compare them to the prices in the U.S. catalog. Are the prices equivalent? Are
they consistently higher or lower? (AACSB: Written and Oral Communication;
Reflective Thinking)
GREAT IDEAS
Barriers to Effective Learning
1. Many students today have traveled internationally, and perhaps even studied abroad.
However, this chapter will introduce concepts that most likely will not have crossed their
minds before. Free trade agreements may be known in name, but not in what they
actually do. The analytics of deciding whether to go global and if so, which countries to
enter, will certainly not have been encountered before. This chapter will serve as an
excellent introduction to these ideas.
2. The terms involved in the international trade system (tariff, quota, embargo, etc.) are
generally unfamiliar to most students. Go through these carefully and use examples from
recent press. Ask the students to express their feelings about tariffs, quotas, embargoes,
etc. How does government policy affect free trade? Why would these barriers be erected?
How do they feel about NAFTA? Do they think that it will be good for trade? When
would trade barriers be justified?
3. The economic and political-legal environments will also most likely be unfamiliar to
most students. Some students might have done some mission or humanitarian work in
foreign countries with economies and political systems vastly different from our own. If
you are lucky enough to have them in your class, have them relate their experiences.
Economics majors, or those who enjoyed an economics class, may also be able to relate
what they have learned about these issues from a different point of view.
4. On deciding whether to go international, many students will believe that it is simply a
matter of the company deciding to expand. The concept of being forced to go into other
countries because of customers pulling you along, or having to fight a global competitor
on your home turf, will surprise some of them. Challenge them to think about how small
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companies grow, and why they might start selling their goods overseas. Use a local
company that sells unique items. How might foreign customers find them? How would
they decide that there is a market in another country? You can break the class into teams
to work on these types of issues.
Student Projects
1. Read about the WTO (www.wto.org). What are the advantages and disadvantages of the
existence of this organization? Take a stand on its effectiveness and substantiate your
position.
2. Describe the three key approaches to entering international markets. Which do you
believe would be the best for a company just beginning to work internationally?
3. What are “global” brands? Give examples of three brands you believe fall into this
category and why.
4. Research the history of the North American Free Trade Agreement (NAFTA). Write a
position paper stating your beliefs regarding its overall effectiveness.
5. Talk about the “Americanization” of foreign cultures. What is it? How does it happen? Is
it even a real phenomenon?
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the
chapter on L’Oreal. Each group should then answer the following questions:
1. L’Oreal finds the best balance between standardizing its brands for global impact and
adapting them to meet local needs and desires. What does this mean and how do they
accomplish this?
2. One of the strengths of L’Oreal is its corps of highly multicultural managers. Why would
this be a strength to the company?
3. Discuss how L’Oréal digs deep to understand what beauty means to consumers in
different parts of the world.
4. What potential challenges to you see facing L’Oreal?
Each group should share its findings with the class.
Individual Assignment
Read Thomas Friedman’s great book The Lexus and the Olive Tree. Write a 5 page summary of
the major points he makes.
Think-Pair-Share
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Chapter 15 The Global Marketplace
Consider the following questions, formulate answers, pair with the student on your right, share
your thoughts with one another, and respond to questions from the instructor.
1. What is the fundamental difference between a tariff and a quota?
2. What is countertrade and how does it work?
3. What is the purpose of the World Trade Organization (WTO)? Do you believe it is doing
a good job?
4. Discuss NAFTA and the EU. In the long run, which do you believe has the greatest
probability of success?
5. What is meant by the term “whole-channel view?” What do you believe to be the greatest
advantage of such an outlook?
Classroom Exercise/Homework Assignment
Review the history of Disneyland Paris. Why was it initially such a failure? How did Disney turn
it around (or have they really)? What lessons can we take away from their experiences in France?
Classroom Management Strategies
This chapter contains a lot of information that will be new to all students. Each section should be
reviewed carefully.
1. The introduction and first section can be covered in 10 minutes. They provide a basis for
the remaining content, and the Coca-Cola example in the opening vignette is excellent.
2. The next section has key information in it that the students must understand. Take 10
minutes with this section, paying particular attention to the international trade system and
the economic environment. These two subsections cover very important material and new
terminology that the students should understand before moving on.
3. Deciding whether to go global and into which markets to move can be covered together
in 10 minutes. Table 15.1 should figure prominently in this discussion.
4. The global marketing program introduces for the first time the marketing mix element
decisions that must be made. This should also be discussed for at least 10 minutes, and
again, examples are very important here.
5. The various ways to organize the company for global marketing can be covered in 5 to 10
minutes. Again, examples of various firms and how they are organized will be very
helpful here.
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Chapter 15 The Global Marketplace
PROFESSORS ON THE GO
The Global Marketplace
Key Concepts
The international trade system
Economic, political-legal, and cultural environments
Explain how the addition of the World Trade Organization as a functioning body has
changed the nature of international commerce.
The United States has a trade restriction on Cuba. Is this restriction a tariff, quota, or
embargo? To what extent does this trade restriction allow U.S. businesses to export
their products to Cuba?
Find five examples of international products that you regularly buy. Have these
products been customized for sale here in the U.S.? Is the producing company
following standardization or adaptation in each case?
Define the following terms: tariff, quota, embargo, exchange controls, and nontariff
trade barriers. Explain the role played by these terms in international trade.
Key Concepts
Deciding whether to go international
Deciding which markets to enter and how to enter them
Assume your boss has asked you for your opinion on how your company should enter
the Japanese, South Korean, and Vietnamese markets with a new line of women’s
athletic shoes. Would you recommend entering with a standardized marketing mix or
an adapted marketing mix? Explain.
Assess the joint-venture opportunities a software manufacturer would have available
if it were looking to market to the European Union?
Discuss the three market entry strategies shown in Figure 15.2. Which of these
strategies is the riskiest? Why?
Key Concepts
The 4 Ps internationally
Global marketing organization
Write a brief position paper on why you would like to “be in” or “work for” an
international firm. What would you see as advantages and disadvantages to working
for an international firm? You are free to pick any firm you wish (such as BMW,
Sony, Honda, BP Oil, etc.) to use as an illustration for your comments.
List and briefly discuss each of the five international product and promotion strategies
shown in Figure 15.3.
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Chapter 15 The Global Marketplace
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