Chapter 19
THE GLOBAL MARKETPLACE
MARKETING STARTER: CHAPTER 19
IKEA: Just the Right Balance between Global Standardization and Local
Adaptation
Synopsis
IKEA has achieved something big. It has become the world’s biggest furniture retailer by selling the same furniture
to the people of 51 different countries, representing vastly different cultures with vastly different needs. IKEA
doesn’t seem to be slowing down as it lays out plans to build stores in more and more countries. But adhering to a
standardized template for global commerce is only part of the story. IKEA takes great care to adapt its stores and
offerings so that they appeal to the tastes of each market. Many aspects of the company’s strategy are standard
worldwide, such as its products’ contemporary yet classic design. Low prices are another constant. Stores share a
standardized design. IKEA learned, through experience, that sometimes products must be adapted by market. But
sometimes, the marketing is what changes. IKEA adapts its merchandise and its marketing as needed to meet the
needs of customers in specific markets.
Discussion Objective
Typical college students are perfect potential customers for IKEA. For those who are IKEA customers as well as for
those who are not, organize a discussion around what students look for in buying anything for their dorm room,
apartment, or house. Keep a running list. As this list becomes complete, make comparisons to what IKEA offers.
While many students are looking for “free” or “cheap” and aren’t too worried about having the most fashionable
merchandise for now, some may be surprised to find that they can buy certain items at IKEA (especially during its
twice-a-year clearance sale) for less than they can buy them at a garage sale or a thrift store.
Starting the Discussion
Start the discussion by going to IKEA’s website (http://www.ikea.com/us/en/# for the company’s U.S. website;
http://www.ikea.com also gives the choice of choosing another country). On the country page, scroll to the bottom of
the page to find information about the company’s concept, philosophy, and its supply chain. From the home page,
review the other countries in which IKEA products are sold. Choose some other country pages to review. Compare
the images found on these sites with those found in the U.S. Ask students to describe how they differ. (The
international pages are in the language of the country, so comparing the written messages will be difficult. However,
some of the pages offer an English option.) Probe further and ask students how the messages demonstrate that IKEA
understands its various international customers. Use the following questions as a guide.
Discussion Questions
1. Why does IKEA market its products in such a wide variety of countries, from the United States to
Egypt, Thailand, and Malaysia? (Review the countries in which IKEA works. Point out the populations
and population growth rate of some of the countries. Many of the countries have a strong middle class
while others have a newly-emerging middle class. Review the income levels and economic growth in
many of the countries. Households earning an income level where families begin to spend at least half
their income on non-food items is a significant factor in choosing countries to enter.)
2. What are some of the key challenges IKEA faces entering some of the countries it has chosen? Russia,
for example? (Russia has an uneven history in economic growth and working with non-Russian
companies.) (Students should understand that marketing in Russia is a very different proposition from
marketing in more developed regions. There is a great deal of negotiation, and the income level is
unsteady. The government still exerts a tremendous amount of influence on all aspects of life,
including businesses.) Choose another country to examine regarding challenges. What challenges are
different from those in the U.S. or in Russia?
3. How does this chapter-opening IKEA story relate to the basic concepts in Chapter 19 on global
marketing? (IKEA’s expansion into 51 countries illustrates the prospects and perils of international
marketing. Use it as you examine issues related to the global marketing environment, deciding which
markets to enter, and designing global marketing strategies and programs. The IKEA story and the later
Real Marketing highlight on 7-Eleven in Japan vividly demonstrate the potential rewards and pitfalls
of going global.)
CHAPTER OVERVIEW
Use Power Point Slide 19-1 here
In previous chapters, we learned the fundamentals of how companies develop competitive marketing strategies to
create customer value and build lasting customer relationships. In this chapter, we extend these fundamentals to
global marketing.
Here, we’ll focus on special considerations that companies face when they market their brands globally. 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. In this chapter, we will also examine six major
decisions marketers make in going global.
CHAPTER OBJECTIVES
Use PowerPoint Slide 19-2 here
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.
CHAPTER OUTLINE
p. 542 INTRODUCTION
IKEA is no longer only a Scandinavian furniture retailer. It
has huge stores in 51 countries, counted 771 million
shoppers last year, and generated revenues over $637
billion. That’s an average of $100 million per store,
annually, more than double Walmart’s average sales.
Like many companies, IKEA’s greatest growth
opportunities lie in international markets. IKEA began in
Sweden in the 1940s, and began expanding in Europe in the
1960s. It entered the U.S. in 1985, Russia in 2000, and
p. 543
Photo: IKEA
Japan in 2006.
While most of the products are standard around the world,
some adaptations are made to meet the needs of customers
in various countries. These adaptations may be required due
to cultural, economic, or even environmental needs.
There’s little doubt that IKEA’s commitment to international
expansion, and to adapting to the needs of the customers in
a given country, will be key to the company achieving its
global goals.
Opening Vignette Questions
1. Why do international markets appear to be so
promising to companies like IKEA?
2. What are some of the pitfalls that IKEA could
encounter marketing its products in some of the
countries into which it has expanded?
3. What is the seemingly universal appeal of the
IKEA style?
p. 544
PPT 19-3
PPT 19-4
Discuss how the international trade system and the
economic, political-legal, and cultural environments
affect a company’s international marketing decisions.
GLOBAL MARKETING TODAY
Since 1990, the number of multinational corporations in the
world has grown from 30,000 to more than 65,000.
Of the largest 150 economies in the world, only 88 are
countries. The remaining 62 are multinational corporations.
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.
The global company sees the world as one market.
It minimizes the importance of national boundaries and
develops global brands.
Learning Objective
1
p. 545
Key Term: Global
firm
p. 545
Photo: Apple
p. 546
PPT 19-5
p.
545-546
PPT 19-6
p. 546
PPT 19-7
PPT 19-8
PPT 19-9
A company faces six major decisions in international
marketing. (Figure 19.1)
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?
ELEMENTS OF THE GLOBAL MARKETING
ENVIRONMENT
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 employment.
Exchange controls are limits on the amount of foreign
exchange and the exchange rate against other currencies.
Nontariff trade barriers include biases against foreign
company bids, restrictive product standards, or excessive
host-country regulations.
Certain forces help trade between nations.
The World Trade Organization
The General Agreement on Tariffs and Trade (GATT) is a
70-year-old treaty designed to promote world trade by
reducing tariffs and other international trade barriers.
Since the treaty’s beginning in 1947, member nations
(currently numbering 162) have met in eight rounds of
negotiations to reassess trade barriers and set new rules for
p. 546
Figure 19.1: Major
International
Marketing
Decisions
p. 546
Photo: Nontariff
Trade Barriers
p. 547
Photo: WTO
p. 547
PPT 19-10
PPT 19-11
p. 548
international trade.
The first seven rounds of negotiations reduced the average
worldwide tariffs on manufactured goods from 45 percent to
just 5 percent.
The Uruguay Round (1994) reduced the world’s remaining
merchandise tariffs by 30 percent and set up the World
Trade Organization (WTO) to enforce GATT rules.
The WTO acts as an umbrella organization, overseeing
GATT, mediating global disputes, and imposing trade
sanctions.
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.
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 almost 16 percent of the world’s exports.
As a result of increased unification, European companies
have grown bigger and more competitive.
Widespread adoption of the euro has decreased 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.” But with a
combined annual GDP nearing $20 trillion, the EU has
become a potent economic force.
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 478 million
p. 547
Key Term:
Economic
community
p. 547
Photo: EU
people who produce and consume over $20.75 trillion worth
of goods and services annually.
NAFTA has eliminated trade barriers and investment
restrictions among the three countries.
Total trade among the three countries has nearly tripled
from $288 billion in 1993 to more than $1.1 trillion a year.
The Central American Free Trade Agreement (CAFTA)
established a free trade zone between the United States and
Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Honduras, and Nicaragua.
Other free trade areas have formed in Latin America and
South America. For example, the Union of South American
Nations (UNASUR), modeled after the EU, was formed in
2004 and formalized in 2008.
With 12 countries, UNASUR makes up the largest trading
bloc after NAFTA and the EU, with a population of 418
million and a combined economy of more than $4.1 trillion.
Assignments, Resources
Use Additional Project 1 here
Use Think-Pair-Share 1, 2, 3, and 4 here
Troubleshooting Tip
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?
p. 548
PPT 19-12
Economic Environment
Two economic factors reflect the country’s attractiveness as
a market:
1. Industrial structure
2. Income distribution
The country’s industrial structure shapes its product and
service needs, income levels, and employment levels.
PPT 19-13
p.
548-549
PPT 19-14
p. 549
PPT 19-15
p. 551
The four types of industrial structures are as follows:
1. 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.
2. Emerging economies: In an emerging economy, fast
growth in industrialization results in rapid overall
economic growth. Industrialization creates a new
rich class and a growing middle class, both
demanding new types of goods and services.
3. Industrial economies: Major importers and exporters
of manufactured goods and services. Their varied
manufacturing activities and large middle classes
make them rich markets for all sorts of goods.
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.
Political-Legal Environment
In considering whether to do business in a given country, a
company should consider factors such as the country’s
attitudes toward international buying, government
bureaucracy, political stability and monetary regulations.
Some nations are very receptive to foreign firms; others are
less accommodating. Political instability can increase the
risk of doing business in a country.
Companies must consider a country’s monetary regulations.
Sellers want to take their profits in a currency of value to
them.
p. 549
Photo: Coca-Cola
p. 550
Photo: Godrej
Ideally, the buyer can pay in the seller’s currency or in other
world currencies. In addition to currency limits, a changing
exchange rate also creates high risks for the seller.
Assignments, Resources
Use Discussion Question 19-1 here
Use Critical Thinking Exercise 19-6 here
Use Marketing by the Numbers here
Use Think-Pair-Share 5 and 6 here
Troubleshooting Tip
Currency and exchange rates are usually confusing
to undergraduate students, so these concepts and
terms need to be described very carefully. The
examples in the book are quite useful, and you can
generally find additional examples in the business
press.
p. 551
PPT 19-16
p. 552
Cultural Environment
The Impact of Culture on Marketing Strategy
Sellers 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.
Understanding the differences can help companies not only
avoid embarrassing mistakes but also take advantage of
cross-cultural opportunities.
The Impact of Marketing Strategy on Cultures
Social critics contend that large American multinationals
such as McDonald’s, Coca-Cola, Starbucks, Nike, Google,
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 Millward Brown BrandZ brand value
survey, 19 of the top 25 brands were American-owned.
p. 552
Photo: Mark &
Spencer
p. 553
Photo: KFC
p. 554
However, the cultural exchange goes both ways: America
gets as well as gives cultural influence. Look at House of
Cards, Dancing with the Stars, Harry Potter, and the growth
of soccer in the U.S.
Assignments, Resources
Use Critical Thinking Exercise 19-7 here
Use Individual Assignment 1 here
Use Think-Pair-Share 7 here
Use Outside Example 1 here