CHAPTER 8
REACHING GLOBAL MARKETS
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 1
Lecture Outline
IRM, p. 2
Discussion Starters
IRM, p. 14
Class Exercises
IRM, p. 15
Chapter Quiz
IRM, p. 18
Answers to Issues for Discussion and Review
IRM, p. 19
Answers to Developing Your Marketing Plan
IRM, p. 22
Comments on Video Case 8
IRM, p. 23
PowerPoint Slides
Instructor’s website
Note: Additional resources may be found on the accompanying student and instructor websites at
www.cengagebrain.com.
PURPOSE AND PERSPECTIVE
This chapter examines the nature and increasing importance of global marketing strategy. The chapter
then discusses the environmental forces that affect international marketing strategy, such as how target
market selection in foreign countries is structured by the environment. Several important regional and
global trade agreements, alliances, and markets are considered. The modes of entry and organizational
structures U.S. firms use to engage in international marketing are examined. Finally, the chapter looks at
how organizations may alter their marketing mixes when engaging in international marketing efforts.
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LECTURE OUTLINE
I. The Nature of Global Marketing Strategy
A. International marketing involves developing and performing marketing activities across national
boundaries.
B. Firms are finding that international markets provide tremendous opportunities for growth.
1. To encourage international growth, many countries offer significant practical assistance and
valuable benchmarking research to help their domestic firms become more globally
competitive.
C. Beginning in the 1990s, some firms were founded with the knowledge and resources to expedite
their commitment and investment in the global marketplace.
2. The “born globals”—typically small technology-based firms earning as much as 70 percent
of their sales outside the domestic home market—export their products almost immediately
after being established in market niches in which they compete with larger, more established
firms.
II. Environmental Forces in Global Markets
A. Firms that enter international markets often find that they must make significant adjustments in
their marketing strategies.
1. A successful international marketing strategy requires a careful environmental analysis.
a. Conducting research to understand the needs and desires of international customers is
crucial to global marketing success.
b. Differences in sociocultural; economic; political, legal, and regulatory; social and
ethical; competitive; and technological forces in other countries can profoundly affect
marketing strategies.
B. Sociocultural Forces
1. Cultural and social differences among nations can have significant effects on marketing
activities.
a. By identifying major sociocultural deviations among countries, marketers lay
groundwork for an effective adaptation of marketing strategy.
2. Local preferences, tastes, and idioms can all prove complicated for international marketers.
3. It can be difficult to transfer marketing symbols, trademarks, logos, and even products to
international markets, especially if these are associated with objects that have profound
religious or cultural significance in a particular culture.
4. Cultural differences may also affect marketing negotiations and decision-making behavior.
5. Buyers’ perceptions of other countries can influence product adoption and use.
a. When people are unfamiliar with products from another country, their perceptions of
the country as a whole may affect their attitude toward the product and influence
whether they will buy it.
6. When products are introduced from one nation into another, acceptance is far more likely if
similarities exist between the two cultures.
7. For international marketers, cultural differences have implications for product development,
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advertising, packaging, and pricing.
B. Economic Forces
1. Global marketers need to understand the international trade system, particularly the
economic stability of individual nations as well as trade barriers that may stifle marketing
efforts.
2. Economic differences among nations—differences in standards of living, credit, buying
power, income distribution, national resources, exchange rates, and the like—dictate many of
the adjustments firms must make in marketing internationally.
3. Instability is one of the guaranteed constants in the global business environment.
4. The constantly fluctuating conditions in different economies require global marketers to
carefully monitor the global environment and make changes quickly.
5. An important economic factor in the global business environment is currency valuation.
a. Many countries have adopted floating exchange rates, which allow the currencies of
those countries to fluctuate, or float, according to the foreign exchange market.
b. China has been criticized for undervaluing its currency, or valuing its currency below
the market value.
(1) Undervaluing its currency gives China an advantage in selling exports, since the
Chinese yuan has a lower value than other nations’ currencies. However, its
central bank has begun to allow the value of the yuan to be driven more by the
market.
c. The value of the U.S. dollar is also important to the global economy.
(1) Because many countries float their exchange rates around the dollar, too much
or too little U.S. currency in the economy could create inflationary effects or
harm exports.
3. Gross domestic product (GDP) is an overall measure of a nation’s economic standing; it is
the market value of a nation’s total output of goods and services for a given period.
a. However, it does not take into account the concept of GDP in relation to population
(GDP per capita).
b. Table 8.2 provides a comparative economic analysis of 15 countries, including the
United States.
c. Knowledge about per capita income, credit, and the distribution of income provides
general insights into market potential.
4. Opportunities for international trade are not limited to countries with the highest incomes.
a. The countries of Brazil, Russia, India, China, and South Africa (BRICS) have
attracted attention as their economies appear to be rapidly advancing.
b. Relationship marketing has proven to be an effective tool in reaching these emerging
markets. This is because businesses in these countries value long-term and close
interactions with marketers they can trust.
c. In addition to infrastructure issues, another issue marketers encounter is how to price
products high enough to earn a profit and yet make them affordable for lower-income
consumers.
C. Political, Legal, and Regulatory Forces
1. The political, legal and regulatory forces of the environment are closely intertwined in the
United States; to a large degree, the same is true in many countries internationally.
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2. A country’s legal and regulatory infrastructure is a direct reflection of the political climate in
the country.
a. In some countries, this political climate is determined by the people via elections,
whereas in other countries leaders are appointed or have assumed leadership based on
certain powers.
3. Although laws and regulations have direct effects on a firm’s operations in a country,
political forces are indirect and often not clearly known in all countries.
4. State-backed firms accounted for one-third of the emerging world’s foreign direct investment
in the last decade.
a. However, state-backed companies do not have as many competitors as private ones
because the government is supporting them. Unless these firms work hard to be
competitive, costs for these companies will likely increase.
5. A nation’s political system, laws, regulatory bodies, special-interest groups, and courts all
have a great impact on international marketing.
a. Some countries have established import barriers, such as tariffs.
(1) An import tariff is any duty levied by a nation on goods purchased outside its
borders and brought into the country.
b. Nontariff trade restrictions include quotas and embargoes.
(1) A quota is a limit on the amount of goods an importing country will accept for
certain product categories in a specific period of time.
(2) An embargo is a government’s suspension of trade in a particular product or
with a given country.
(a) An embargo may be used to suspend the purchase of a commodity like oil
from a country that is involved in questionable conduct, such as human
rights violations or terrorism.
(3) Exchange controls, government restrictions on the amount of a particular
currency that can be bought or sold, may also limit international trade.
(a) They can force businesspeople to buy and sell foreign products through a
central agency, such as a central bank.
(4) Countries may limit imports to maintain a favorable balance of trade.
(a) The balance of trade is the difference in value between a nation’s
exports and its imports.
c. Many nontariff barriers, such as quotas and minimum price levels set on imports, port-
of-entry taxes, and stringent health and safety requirements, still make it difficult for
U.S. companies to export their products.
d. A government’s attitude toward importers has a direct impact on the economic
feasibility of exporting to that country.
B. Ethical and Social Responsibility Forces
1. Differences in national standards are illustrated by what the Mexicans call la mordida—“the
bite.”
a. The use of payoffs and bribes is deeply entrenched in many governments.
(1) The ultimate decision about whether to give small tips or gifts where they are
customary must be based on a company’s code of ethics.
(2) However, under the Foreign Corrupt Practices Act of 1977, it is illegal for U.S.
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firms to attempt to make large payments or bribes to influence policy decisions
of foreign governments.
(3) The U.K. Bribery Act has redefined what many companies consider to be
bribery versus gift-giving, causing multinational firms to update their codes of
ethics. Companies in the United Kingdom could still face penalties for bribery,
even if the bribery occurred outside of the country and managers were not aware
of the misconduct.
b. Differences in ethical standards can affect marketing efforts.
(1) In China and Vietnam, for example, standards regarding intellectual property
differ dramatically from those in the United States, creating potential conflicts
for marketers of computer software, music, and books.
c. When marketers do business abroad, they often perceive that other business cultures
have different modes of operation.
(1) This uneasiness is especially pronounced for marketers who have not traveled
extensively or interacted much with foreigners in business or social settings.
(2) In business, the idea that “we” differ from “them” is called the self-reference
criterion (SRC).
(a) The SRC is the unconscious reference to one’s own cultural values,
experiences, and knowledge.
(b) Our reactions are based on meanings, values, and symbols that relate to
our culture but may not have the same relevance to people of other
cultures.
d. Many companies try to conduct global business based on culture.
(1) These businesspeople adapt to the cultural practices of the country they are in
and use the host country’s cultural practices as the rationalization for sometimes
straying from their own ethical values when doing business internationally.
(a) For instance, by defending the payment of bribes or “greasing the wheels
of business” and other questionable practices, some businesspeople are
resorting to cultural relativism—the concept that morality varies from
one culture to another and that business practices are therefore
differentially defined as right or wrong by particular cultures.
(b) Because of differences in cultural and ethical standards, many companies
work both individually and collectively to establish ethics programs and
standards for international business conduct.
e. Many well-known businesses are part of a globally based resource system called
Business for Social Responsibility, which tracks emerging issues and trends, provides
information on corporate leadership and best practices, conducts educational
workshops and training, and assists organizations in developing practical business
tools.
C. Competitive Forces
1. Competition is often viewed as a staple of the global marketplace.
a. Customers thrive on the choices offered by competition, and firms constantly seek
opportunities to outmaneuver their competition to gain customers’ loyalty.
2. Beyond the types of competition (i.e., brand, product, generic, and total budget competition)
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and types of competitive structures (i.e., monopoly, oligopoly, monopolistic competition, and
pure competition), firms that operate internationally must do the following:
a. Be aware of competitive forces in the countries they target.
b. Identify the interdependence of countries and the global competitors in those markets.
c. Be mindful of a new breed of customer—the global customer.
3. Each country has unique competitive aspects—often founded in the other environmental
forces (i.e., sociocultural, technological, political, legal, regulatory, and economic forces)—
that are often independent of the competitors in that market.
a. Although competitors drive competition, nations establish the infrastructure and the
rules for the types of competition that can take place.
4. A new breed of customer—the global customer—has changed the landscape of international
competition drastically.
a. Not only do global customers who travel the globe expect to be able to buy the same
product in most of the world’s more than 200 countries, but they also expect that the
product they buy in their local store will have the same features as similar products
sold in an international market.
b. If either the quality of the product or the product’s features are more advanced in an
international market, global customers will soon demand that their local markets offer
the same product at the same or lower prices.
B. Technological Forces
1. Advances in technology have made international marketing much easier.
2. Interactive Web systems, instant messaging, and podcast downloads (along with the
traditional vehicles of voice mail, e-mail, and cell phones) make international marketing
activities more affordable and convenient.
3. In many developing countries which lack technological infrastructure found in the United
States and Japan, marketers are beginning to capitalize on opportunities to leapfrog existing
technology.
4. Despite the enormous benefits of digital technology, however, the digital economy may
actually be increasing the divide between skilled wealthy workers and the rest of the labor
force.
III. Regional Trade Alliances, Markets, and Agreements
A. Although more firms are beginning to view the world as one huge marketplace, various regional
trade alliances and specific markets affect companies engaging in international marketing; some
create opportunities, others impose constraints.
1. Today, there are nearly 200 trade agreements around the world compared with only a select
handful in the early 1960s.
B. The North American Free Trade Agreement (NAFTA)
1. The North American Free Trade Agreement (NAFTA), implemented in 1994, effectively
merged Canada, Mexico, and the United States into one market of 450 million consumers.
2. NAFTA virtually eliminated all tariffs on goods produced and traded among Canada,
Mexico, and the United States to create a free trade area.
a. The estimated annual output for this trade alliance is more than $17 trillion.
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b. The long-term goals are to eliminate all trade barriers within the EU, improve the
economic efficiency of the EU nations, and stimulate economic growth, thus making
the union’s economy competitive globally, particularly against Japan and other Pacific
Rim nations and North America.
3. As the EU nations attempt to function as one large market, consumers in the EU may
become more homogeneous in their needs and wants.
a. However, marketers should be aware that cultural differences among the nations may
require modifications in the marketing mix for customers in each nation.
4. While the United States and the EU do not always agree, partnerships between the two have
been profitable and the two entities generally have a strong positive relationship.
a. Much of this success can be attributed to the shared values of the United States and the
EU.
5. The latest worldwide recession has slowed Europe’s economic growth and created a debt
crisis.
a. Ireland, Greece, and Portugal required significant bailouts from the European Union,
followed by bailout requests from Spain and Cyprus. Standard & Poor’s downgraded
the debt ratings of nine member countries.
6. Due to the massive industry collaboration between the United States and the EU, there have
been discussions about the possibility of a trade agreement between the two entities.
a. In many respects, the United States, the EU, and Asia have become largely
interdependent in trade and investment.
D. The Southern Common Market (MERCOSUR)
1. The Southern Common Market (MERCOSUR) was established in 1991 under the Treaty
of Asunción to unite Argentina, Brazil, Paraguay, and Uruguay as a free trade alliance.
a. Venezuela joined in 2006; currently Bolivia, Chile, Colombia, Ecuador, and Peru are
associate members.
b. Like NAFTA, MERCOSUR promotes “the free circulation of goods, services, and
production factors among the countries” and establishes a common external tariff and
commercial policy.
2. South America and Latin America are catching the attention of many international
businesses.
a. The region is advancing economically with an estimated growth rate of under 3
percent.
b. Another trend is that several of the countries, including some of the MERCOSUR
alliance, are starting to experience more stable democracies.
E. The Asia-Pacific Economic Cooperation (APEC)
1. The Asia-Pacific Economic Cooperation (APEC), established in 1989, promotes open
trade and economic and technical cooperation among member nations, which initially
included Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New
Zealand, the Philippines, Singapore, Thailand, and the United States.
a. Since then, the alliance has grown to include China, Hong Kong, Taiwan, Mexico,
Papua New Guinea, Chile, Peru, Russia, and Vietnam.
b. The 21-member alliance represents approximately 40 percent of the world’s
population, 58 percent of world GDP, and nearly 44 percent of global trade.
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c. APEC differs from other international trade alliances in its commitment to facilitating
business and its practice of allowing the business/private sector to participate in a wide
range of APEC activities.
2. Companies of the APEC have become increasingly competitive and sophisticated in global
business in the last few decades.
a. The markets of the APEC offer tremendous opportunities to marketers who understand
them.
3. The most important emerging economic power is China, which has become one of the most
productive manufacturing nations.
a. China, which is now the United States’ second largest trading partner, has initiated
economic reforms to stimulate its economy by privatizing many industries,
restructuring its banking system, and increasing public spending on infrastructure.
4. Pacific Rim regions, such as South Korea, Thailand, Singapore, Taiwan, and Hong Kong, are
also major manufacturing and financial centers.
a. Vietnam is one of Asia’s fastest-growing markets for U.S. businesses, but Taiwan,
given its stability and high educational attainment, has the most promising future of all
the Pacific Rim nations as a strong local economy and low import barriers draw
increasing imports.
F. Association of Southeast Asian Nations (ASEAN)
1. The Association of Southeast Asian Nations (ASEAN), established in 1967, promotes
trade and economic integration among member nations in Southeast Asia.
a. The trade pact includes Malaysia, the Philippines, Singapore, Thailand, Brunei
Darussalam, Vietnam, Laos, Myanmar, Indonesia, and Cambodia.
2. The region is home to 600 million people and has a 5 percent growth rate in GDP.
a. Yet, despite these positive growth rates, ASEAN is facing many obstacles in
becoming a unified trade bloc.
3. While many choose to compare ASEAN with the European Union, ASEAN members are
careful to point out their differences.
a. Although members hope to increase economic integration by 2015, they expressed
that there will be no common currency or fully free labor flows between members.
G. The World Trade Organization (WTO)
1. The World Trade Organization (WTO) is a global trade association that promotes free
trade among 157 member nations.
a. The WTO is the successor to the General Agreement on Tariffs and Trade
(GATT), which was originally signed by 23 nations in 1947 to provide a forum for
tariff negotiations and a place where international trade problems could be discussed
and resolved.
b. Rounds of GATT negotiations reduced trade barriers for most products and
established rules to guide international commerce, such as rules to prevent dumping,
the selling of products at unfairly low prices.
1. The WTO came into being in 1995 as a result of the Uruguay Round (1988–1994) of GATT
negotiations.
a. Broadly, WTO is the main worldwide organization that deals with the rules of trade
between nations; its main function is to ensure that trade flows as smoothly,
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predictably, and freely as possible between nations.
2. Fulfilling the purpose of the WTO requires eliminating trade barriers; educating individuals,
companies, and governments about trade rules; and reassuring global markets that no sudden
changes of policy will occur.
a. At the heart of the WTO are agreements that provide legal ground rules for
international commerce and trade policy.
IV. Modes of Entry into International Markets
A. Marketers enter international markets and continue to engage in international marketing activities
at several levels of involvement.
1. Traditionally, firms have adopted one of four modes of entering an international market, with
each successive “stage” representing different degrees of international involvement.
2. Companies’ international involvement covers a wide spectrum, from purely domestic
marketing to global marketing (Figure 8.1).
A. Importing and Exporting
1. Importing and exporting require the least amount of effort and commitment of resources.
a. Importing is the purchase of products from a foreign source.
b. Exporting, the sale of products to foreign markets, enables firms of all sizes to
participate in global business.
(1) A firm may find an exporting intermediary to take over most marketing
functions associated with marketing to other countries; this approach entails
minimal effort and cost.
(2) Export agents bring together buyers and sellers from different countries and
collect a commission for arranging sales.
(a) Export houses and export merchants purchase products from different
companies and then sell them abroad.
(3) Buyers from foreign companies and governments provide a direct method of
exporting and eliminate the need for an intermediary.
(a) Domestic firms that want to export with minimal effort and investment
should seek out export intermediaries.
2. Marketers sometimes employ a trading company, which links buyers and sellers in different
countries but is not involved in manufacturing and does not own assets related to
manufacturing.
a. An important function of trading companies is taking title to products and performing
all the activities necessary to move the products to the targeted foreign country.
b. Trading companies reduce risks for firms interested in getting involved in international
marketing.
B. Licensing and Franchising
1. When potential markets are found across national boundaries, and when production,
technical assistance, or marketing know-how is required, licensing is an alternative to direct
investment.
a. The licensee (the owner of the foreign operation) pays commissions or royalties on
sales or supplies used in manufacturing.
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(1) The licensee may also pay an initial down payment or fee when the licensing
agreement is signed.
b. Exchanges of management techniques or technical assistance are primary reasons for
licensing arrangements.
c. Licensing is an attractive alternative when resources are unavailable for direct
investment or when the core competencies of the firm or organization are not related
to the product being sold.
d. Licensing can also be a viable alternative when the political stability of a foreign
country is in doubt.
2. Franchising is a form of licensing in which a company (the franchiser) grants a franchisee
the right to market its product, using its name, logo, methods of operation, advertising,
products, and other elements associated with the franchiser’s business, in return for a
financial commitment and an agreement to conduct business in accordance with the
franchiser’s standard of operations.
a. This arrangement allows franchisers to minimize the risks of international
involvement in four ways:
(1) The franchiser does not have to put up a large capital investment.
(2) The franchiser’s revenue stream is fairly consistent because franchisees pay a
fixed fee and royalties.
(3) The franchiser retains control of its name and increases global penetration of its
product.
(4) The franchise agreements ensure a certain standard of behavior from
franchisees, which protects the franchise name.
C. Contract Manufacturing
1. Contract manufacturing occurs when a company hires a foreign firm to produce a
designated volume of the firm’s product (or a component of a product) to specifications and
the final product carries the domestic firm’s name.
a. Marketing may be handled by the contract manufacturer or by the contracting
company.
2. Three specific forms of contract manufacturing have become popular in the last decade—
outsourcing, offshoring, and offshore outsourcing.
a. Outsourcing is defined as the contracting of noncore operations or jobs from internal
production within a business to an external entity which specializes in that operation.
b. Offshoring is defined as moving a business process that was done domestically at the
local factory to a foreign country, regardless of whether the production accomplished
in the foreign country is performed by the local company (e.g., in a wholly-owned
subsidiary) or a third party (e.g., subcontractor).
c. Offshore outsourcing is the practice of contracting with an organization to perform
some or all business functions in a country other than the country in which the product
will be sold.
D. Joint Ventures
1. In international marketing, a joint venture is a partnership between a domestic firm and a
foreign firm or government.
a. Control of the joint venture may be split equally, or one party may control decision
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making.
b. Joint ventures are often a political necessity because of nationalism and government
restrictions on foreign ownership.
c. Joint ventures also provide legitimacy in the eyes of the host country’s citizens.
d. Joint ventures are assuming greater global importance because of cost advantages and
the number of inexperienced firms entering foreign markets.
2. Strategic alliances are partnerships formed to create competitive advantage on a worldwide
basis.
a. In an international strategic alliance, the firms in the alliance may have been
traditional rivals competing for the same market.
E. Direct Ownership
1. Once a company makes a long-term commitment to marketing in a foreign country that has a
promising market as well as a suitable political and economic environment, direct
ownership of a foreign subsidiary or division is a possibility.
a. Most foreign investment covers only manufacturing equipment or personnel because
the expenses of developing a separate foreign distribution system can be tremendous.
2. The term multinational enterprise, sometimes called multinational corporation, refers to a
firm that has operations or subsidiaries in many countries.
a. Often, the parent company is based in one country and carries on production,
management, and marketing activities in other countries.
3. A wholly owned foreign subsidiary may be allowed to operate independently of the parent
company to give its management more freedom to adjust to the local environment.
a. Cooperative arrangements are developed to assist in marketing efforts, production, and
management.
V. Customization versus Globalization of International Marketing Mixes
A. Traditionally, international marketing strategies have customized marketing mixes according to
cultural, regional, and national differences.
1. Realizing that both similarities and differences exist across countries is a critical first step to
developing the appropriate marketing strategy effort targeted to particular international
markets.
B. For many firms, globalization of marketing is a goal; it involves developing marketing strategies
as though the entire world (or its major regions) were a single entity—a globalized firm markets
standardized products in the same way everywhere.
C. For many years, organizations have attempted to globalize their marketing mixes as much as
possible by employing standardized products, promotional campaigns, prices, and distribution
channels for all markets.
1. Brand name, product characteristics, packaging, and labeling are among the easiest
marketing mix variables to standardize; media allocation, retail outlets, and price may be
more difficult.
2. In the end, the degree of similarity among the various environmental and market conditions
determines the feasibility and degree of globalization.
D. International marketing demands some strategic planning if a firm is to incorporate sales into its