Chapter 07 – Understanding and Reaching Global Consumers and Markets
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ……………………………………. 7-2
LEARNING OBJECTIVES (LO) …………………………………………………………………………….. 7-4
KEY TERMS …………………………………………………………………………………………………………… 7-4
LECTURE NOTES
• Chapter Opener: Amazon India Builds a Multibillion-Dollar Operation from the Ground
Up to the Cloud ………………………………………………………………………………………………. 7-5
• Dynamics of World Trade (LO 7-1) ………………………………………………………………….. 7-6
• Marketing in a Borderless Economic World (LO 7-2) …………………………………………. 7-8
• A Global Environmental Scan (LO 7-3) …………………………………………………………… 7-15
• Comparing Global Market-Entry Strategies (LO 7-4) ………………………………………… 7-19
• Crafting a Worldwide Marketing Program (LO 7-5) ………………………………………….. 7-23
APPLYING MARKETING KNOWLEDGE ……………………………………………………………. 7-26
BUILDING YOUR MARKETING PLAN ……………………………………………………………….. 7-28
VIDEO CASE (VC)
• VC-7: Mary Kay, Inc.: Building a Brand in India ………………………………………………. 7-29
APPENDIX D CASE (D)
• D-7: Callaway Golf: The Global Challenge ………………………………………………………. 7-32
IN-CLASS ACTIVITY (ICA)
• ICA 7-1: Introducing Carmex Healing Cream to European Markets …………………….. 7-37
CONNECT APPLICATION EXERCISES ……………………………………………… 7-41
• Protectionism Case Analysis
• Global Market Entry Click and Drag*
• Global Marketing Program Click and Drag*
• Mary Kay, Inc.: Building a Brand in India Video Case
• iSeeit! Video Case: Global Entry Strategies Video Case
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs.
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 7-1 Leading countries in global merchandise trade in terms of imports (U.S.) and
exports (China) ……………………………………………………….………………………………………. 7-7
Figure 7-2 Protectionism hinders world trade through tariffs and quota policies ………………………. 7-9
Figure 7-3 The European Union in 2018 consists of 28 countries with more than 500
million consumers ………………………………………………………………………………………….. 7-12
Figure 7-4 A firm’s profit potential and control over marketing activities increase as it moves
from exporting to direct investment ………………………………………………………………….. 7-29
Figure 7-5 Five product and promotion strategies for global marketing …………………………………. 7-34
Figure 7-6 Channels of distribution in global marketing ………………………………………………………. 7-36
Marketing Matters, Making Responsible Decisions, and/or Marketing Insights About Me
Making Responsible Decisions—Ethics: Global Ethics and Global Economics—The Case of
Protectionism ………………………………………………………………………………………………………………….. 7-10
Marketing Matters—Customer Value: The Global Teenager—A Market of Voracious Consumers 7-17
Marketing Insights About Me: Checking My Country’s Political Risk Rating …………………………… 7-27
Marketing Matters—Creative Cosmetics and Creative Export Marketing in
Japan ………………………………………………………………………………………………………………………………. 7-30
PowerPoint
Videos Slide
7-1: Nestlé Hungary Ad ……………………………………………………………………………………………………… 7-18
7-2: Nestlé Japan Ad …………………………..…………………………………………………………………………….. 7-22
7-3: Denizen Video …………………………………………………………………………………………………………… 7-25
7-4: Nescafé China Video …………………………..……………………………………………………………………… 7-35
7-5: Mary Kay Video Case ………………………………………………………………………………………………… 7-38
In-Class Activity (ICA)
ICA 7-1: Introducing Carmex Healing Cream to European Markets ………………………………………… 7-43
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 7-1: Describe the nature and scope of world trade from a global perspective.
LO 7-2: Identify the major developments that have influenced world trade and global marketing.
LO 7-3: Identify the environmental forces that shape global marketing efforts.
LO 7-4: Name and describe the alternative approaches companies use to enter global markets.
LO 7-5: Explain the distinction between standardization and customization when companies
craft worldwide marketing programs.
KEY TERMS
back translation
global competition
balance of trade
global consumers
consumer ethnocentrism
global marketing strategy
countertrade
joint venture
cross-cultural analysis
multidomestic marketing strategy
cultural symbols
protectionism
currency exchange rate
quota
customs
tariffs
economic espionage
values
exporting
World Trade Organization (WTO)
Foreign Corrupt Practices Act (1977)
global brand
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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LECTURE NOTES
TRANSFORMING THE WAY INDIA SELLS, TRANSFORMAING THE
WAY INDIA BUYS: AMAZON INDIA BUILDS A MULTIBILLION-
DOLLAR OPERATION FROM THE GROUP UP TO THE CLOUD
• “The opportunity (in India) is so large it will be measured in trillions of U.S. dollars,”
according to Amazon executives
• In order to succeed in India, the company needs great people, great platform, and
about $1 billion annually to build business for Amazon. Why India?
a. India is the 2nd most populous country.
b. India is the world’s 2nd largest English-speaking country.
• What challenges does Amazon India face?
• Trade regulations – Foreign companies are prohibited from selling products
directly to India consumers.
• Entrenched competition – Competitors in India already operate sizeable
distribution systems.
• Cloud technology expansion – Amazon had to expand its cloud computing
platform in India in 2016 to improve service.
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• India represents the last major e-commerce opportunity in the world with revenue
expected to reach $137 billion by 2020, more than 10 times the 2013 level of $13
billion.
I. DYNAMICS OF WORLD TRADE [LO 7–1]
• The dollar value of world trade more than doubled in the past decade.
• Manufactured products and commodities account for 80 percent of world trade;
service industries represent the other 20 percent.
• World trade reflects interdependencies among industries, countries, and regions.
• Manifest themselves in country, company, industry, and regional exports and imports.
• Are evolving.
a. China replaced the United States as the biggest country measured by trade.
b. Asia surpassed Western Europe as the largest region measured by trade.
A. Global Perspective on World Trade.
a. The United States, China, Japan, Western Europe, and Canada together
account for more than two-thirds of world trade in manufactured products and
commodities.
b. [Figure 7-1] In terms of imports and exports:
• China is the world’s leading exporter, followed by the U.S. and Germany.
• The U.S. is the world’s leading importer, followed by China and
Germany.
• China, Germany, and the U.S. remain well ahead of other countries in
terms of imports and exports.
c. The trade feedback effect.
• Is a phenomenon where:
– Exports and imports are viewed as complementary economic flows.
– A country’s imports affect exports and vice versa.
• Every nation’s imports arise from the exports of other nations:
– As the exports of one country increase…
– Its national output and income rise, which…
– In turn leads to an increase in the demand for imports.
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• This nation’s greater demand for imports stimulates the exports of other
countries.
• Increased demand for exports of other nations:
– Energizes their economic activity, resulting in higher national income,
which…
– Stimulates their demand for imports.
• This trade feedback effect is one argument for free trade among nations.
d. Countertrade.
• Is the practice of using barter rather than money for making global sales.
• Occurs because:
– 70 percent of all countries do not have convertible currencies.
B. United States Perspective on World Trade.
a. Gross domestic product (GDP).
• Is the monetary value of all products and services produced in a country
during one year.
b. The U.S. is among the world’s leaders in exports.
c. But over the past 40 years, its percentage share of world imports has increased
while its percentage share of exports has decreased.
d. Balance of trade is the difference between the monetary value of a nation’s
exports and imports.
• When exports exceed imports, a nation incurs a balance of trade surplus.
• A deficit results when imports exceed exports.
e. Over the past 30 years, two things have happened regarding U.S trade:
• The U.S. has had a continuing balance of trade deficit (imports have
significantly exceeded exports each year).
• The volume of both exports and imports has increased dramatically, which
impacts every American.
f. The four largest importers of U.S. products and services are Canada, Mexico,
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g. The four largest exporters to the U.S. are China, Canada, Mexico, and Japan.
U.S. has a balance of trade deficit with all four countries; China accounts for
40 percent of total U.S. balance of trade deficit.
LEARNING REVIEW
7-1. What country is the biggest as measured by world trade?
7-2. What is the trade feedback effect?
II. MARKETING IN A BORDERLESS ECONOMIC WORLD [LO 7-2]
Five developments in the past decade have significantly influenced global marketing:
1. Economic protectionism by individual countries.
2. Economic integration and among countries.
A. Decline of Economic Protectionism
• Protectionism is the practice of shielding one or more industries within a
country’s economy from foreign competition through the use of tariffs or quotas.
a. The economic argument for protectionism is that it:
• Limits the outsourcing of jobs.
• Promotes the development of domestic industries.
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MAKING RESPONSIBLE DECISIONS
Ethics: Global Ethics and Global Economics—The Case of Protectionism
World trade benefits from free and fair trade among nations. Nevertheless,
governments of many countries continue to use tariffs and quotas to protect their various
domestic industries. Why? Protectionism earns profits for domestic producers and tariff
revenue for the government. There is a cost, however. Protectionist policies cost consumers
who pay higher prices because of tariffs and other protective restrictions.
Regional trade agreements, such as those found in the provisions of the European
Union and the North American Free Trade Agreement, may also pose a situation whereby
member nations can obtain preferential treatment in quotas and tariffs but nonmember
nations cannot. Protectionism, in its many forms, raises an interesting global ethical
question. Is protectionism, no matter how applied, an ethical practice?
b. [Figure 7-2] Tariffs and quotas discourage world trade.
• Tariffs.
– Tariffs are government taxes on products or services entering a
country that primarily serve to raise prices on imports.
• Quotas.
– A quota is a restriction placed on the amount of a product allowed to
enter or leave a country.
• The World Trade Organization (WTO).
a. Is a permanent institution that…
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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• The WTO:
B. Economic Integration among Countries
A number of countries with similar economic goals:
• Have formed transnational trade groups or signed trade agreements to…
• Promote free trade among member nations and…
• Enhance their individual economies.
1. European Union (EU).
a. [Figure 7-3] As of early 2018, the EU consists of 28 member countries that
have eliminated most trade barriers across their borders. It is expected that the
United Kingdom will formally withdraw from EU in 2019 or 2020.
b. As a single market, the EU has more than 750 million consumers, with a
combined GDP larger than the U.S.
c. The euro.
d. Pan-European marketing strategies are possible due to:
• Greater uniformity in product and packaging standards.
e. The United Kingdom (England, No. Ireland, Scotland, Wales) intends to
withdraw from EU in 2019 or 2020.
2. North American Free Trade Agreement (NAFTA).
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a. NAFTA lifted many trade barriers between Canada, Mexico, and the U.S. to
create a marketplace with more than 450 million consumers. NAFTA has
stimulated trade among member nations as well as cross-border retailing,
manufacturing, and investment.
C. Global Competition among Global Companies for Global Consumers
Economic integration among countries has created a new reality for marketers.
1. Global competition.
a. Exists when firms originate, produce, and market their products and services
worldwide.
b. Broadens the competitive landscape for marketers.
c. To meet the demands of global competition:
• Collaborative relationships are developing to meet global competition.
• Strategic alliances:
• Example: General Mills and Nestlé of Switzerland:
– Created Cereal Partners Worldwide to market General Mills cereals
worldwide.
2. Global Companies. [Figure 7-A]
a. Consists of three types of companies that:
• Employ people in different countries.
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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• Have global administrative, marketing, and manufacturing operations,
often called divisions or subsidiaries.
b. International firms.
• Market their existing products and services in other countries the same
way they do in their home country.
• Example: Avon.
c. Multinational firms.
• View the world as consisting of unique parts and markets to each part
differently.
d. Transnational firms.
• View the world as one market and emphasize cultural similarities across
countries or universal consumer needs and wants more than differences.
• Employ a global marketing strategy, which:
– Is the practice of standardizing marketing activities when there are
cultural similarities and adapting them when cultures differ.
• Market a global brand—a brand marketed under the same name in
multiple countries with similar and centrally coordinated marketing
programs.
– Global brands:
* Have the same product formulation or service concept.
[ICA 7-1: Introducing Carmex Healing Cream to Foreign Markets]
3. Global Consumers. Global competition often focuses on the identification and
pursuit of global consumers.
a. Global consumers:
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• Consist of consumer groups living in many countries or regions of the
world who…
MARKETING MATTERS
Customer Value: The Global Teenager—A Market of Voracious Consumers
The global “teenager market” consists of 13– to 19-year-olds who live in Europe,
North and South America, and industrialized nations of Asia and the Pacific Rim who have
experienced intense exposure to television, movies, travel, social media, and global
advertising by companies such as Apple, Sony, Nike, and Coca-Cola. The similarities
among these teens are greater than their differences in terms of clothes, shoes, cosmetics,
video games, and music. They spend $820 billion annually for these products. Global
teenagers are influenced by the fashion and culture exhibited by U.S. teens.
D. The Presence of a Networked Global Marketspace
Internet-based technology is a growing tool for exchanging products, services, and
information on a global scale.
• Almost 4 billion businesses, educational institutions, government agencies, and
households worldwide are expected to have Internet access by 2018.
[Video 7-1: Nestlé Hungary Ad]
E. Prevalence of Economic Espionage
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Borderless economic world has a dark side of economic espionage.
• Economic espionage is the clandestine collection of trade secrets or proprietary
information about competitors.
• Practice is common in high-tech industries: electronics, specialty chemicals,
industrial equipment, aerospace, and pharmaceuticals.
LEARNING REVIEW
7-3. What is protectionism?
7-4. The North American Free Trade Agreement was designed to promote free trade
among which countries?
7-5. What is the difference between a multidomestic marketing strategy and a global
marketing strategy?
III. A GLOBAL ENVIRONMENTAL SCAN [LO 7-3]
• Global companies conduct continuous scans of the five environmental forces (social,
economic, technological, competitive, and regulatory).
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• Three of the environmental forces—cultural, economic, and regulatory—affect global
marketing practices differently than those in domestic markets.
A. Cultural Diversity
• Marketers must be sensitive to the cultures of different societies to create
successful exchange relationships with global consumers.
• Marketers conduct a cross-cultural analysis, which involves the study of
similarities and differences among consumers in two or more nations or societies.
1. Values.
a. Represent a society’s personally or socially preferable modes of conduct or
states of existence that tend to persist over time.
2. Customs are what is considered normal and expected about the way people do
things in a specific country.
a. Customs can vary from country to country (Example: 3M’s Scotch-Brite
cleaning pad for the Philippines).
b. The custom of giving token business gifts is popular in many countries where
they are expected and accepted.
c. Bribes, kickbacks, and payoffs:
d. The Foreign Corrupt Practices Act (1977).
• Is a law, amended by the International Anti-Dumping and Fair
Competition Act (1998).
• Makes it a crime for U.S. corporations to:
3. Cultural symbols are things that represent ideas and concepts.
a. Symbols play a role in cross-cultural analysis because different cultures attach
different meanings to things.
b. Semiotics is a field of study that examines the correspondence between
symbols and their role in the assignment of meaning for people.
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c. Global marketers can tie positive symbolism to their products, services, and
brands to enhance their attractiveness to consumers.
d. Global marketers must be aware that cultural symbols evoke deep feelings;
improper use of symbols can spell disaster. Examples:
4. Language.
a. Global marketers should know:
• The native tongues of countries in which they market.
• The nuances and idioms of a language.
b. English, French, and Spanish are the principal languages used in global
diplomacy and commerce.
[Video 7-2: Nestlé Japan Ad]
5. Cultural Ethnocentricity.
a. Cultural ethnocentricity is the belief that aspects of one’s culture are superior
to another’s. This view is an impediment to successful global marketing.
b. Consumer ethnocentrism is the tendency to believe that it is inappropriate,
indeed immoral, to purchase foreign-made products.
• Ethnocentric consumers believe that buying imported products is wrong
because such purchases:
– Are unpatriotic. – Cause domestic unemployment.
– Harm domestic industries.
• This view exists to some extent among various segments of the population
in every country, making the job of global marketers more difficult.
B. Economic Considerations
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Global marketing is also affected by economic considerations. Therefore, a scan of
the global marketplace should include assessments of:
1. Economic Infrastructure.
a. Consists of a country’s communications, transportation, financial, and
distribution systems.
b. Is a critical consideration in determining whether to try to market to a
country’s consumers and organizations.
c. Wholesale and retail institutions:
d. The communication infrastructures in many developing countries are limited
or antiquated compared to those of developed countries.
e. The lack of formal financial and legal systems in some countries can cause
problems when:
• Dealing with financial institutions.
2. Consumer Income and Purchasing Power.
a. Global marketers must consider:
• What the average per capita or household income is among a country’s
consumers.
• How the income is distributed to determine a nation’s purchasing power.
b. Per capita incomes vary widely between nations (EU countries = $35,000;
Liberia = $700).
c. A country’s income distribution is important because it gives a more reliable
picture of a country’s purchasing power.
d. Generally speaking, the greater the proportion of middle-class households, the
greater a nation’s purchasing power tends to be.
e. People in developing countries who have government subsidies for food,
housing, and health care are promising customers for a variety of products.
[Video 7-3: Denizen video]
f. Microfinance:
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• Is the practice of offering small, collateral-free loans to individuals who…
• Otherwise would not have access to the capital necessary to begin small
businesses or other income-generating activities.
g. Income growth in developing countries of Asia, Latin America, and Eastern
Europe is expected to stimulate world trade well into the twenty-first century.
4. Currency Exchanges Rates.
a. A currency exchange rate is the price of one country’s currency expressed in
terms of another country’s currency. Example: $ ₤ € ¥.
b. Failure to consider exchange rates when pricing products for global markets
can have dire consequences with respect to sales and profits.
c. Exchange rate fluctuations have a direct impact on global companies.
C. Political-Regulatory Climate
• Marketers must not only identify a country’s current political and regulatory
climate, but also assess how long a favorable or unfavorable climate may last.
• This assessment includes an analysis of a country’s political stability and trade
regulations.
1. Political Stability.
a. Billions of dollars in trade have been lost as a result of internal political strife,
terrorism, and war among and within countries.
b. Political stability is affected by numerous factors that combine to create a
favorable or unfavorable political climate for marketing in a country based on:
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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MARKETING INSIGHTS ABOUT ME
Checking My Country’s Political Risk Rating—Are You Surprised?
The political climate in every country regularly changes. Governments can make
new laws or enforce existing policies differently. Consulting firms prepare political risk
analyses that use a variety of variables such as the risk of internal turmoil, external conflict,
government restrictions on company operations, and tariff and nontariff trade barriers.
2. Trade Regulations.
a. Countries have rules that govern business practices within their borders,
which often serve as trade barriers.
b. Japan has some 11,000 trade regulations.
c. Trade regulations also appear in free trade agreements among countries.
d. EU nations abide by some 10,000 rules that specify how products are to be
made and marketed.
e. Many European companies require suppliers to be ISO 9000 certified.
LEARNING REVIEW
7-6. Cross-cultural analysis involves the study of __________.
7-7. When foreign currencies can buy more U.S. dollars, are U.S. products more or less
expensive for a foreign consumer?
IV. COMPARING GLOBAL MARKET-ENTRY STRATEGIES [LO 7-4]
• [Figure 7-4] Once a company enters the global marketplace, it selects a means of
market entry: (1) exporting, (2) licensing, (3) joint venture, and (4) direct investment.
• The amount of financial commitment, risk, marketing control, and potential profit
increases as the firm moves from exporting to direct investment.
A. Exporting
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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• Is a global market-entry strategy in which a company produces products in one
country and sells them in another country.
• Allows a company to make the least number of changes in its product,
organization, and corporate goals.
• Consists of two forms:
a. Indirect exporting is when a firm sells its domestically produced products in a
foreign country through an intermediary.
• It has the least amount of commitment and risk.
• It will probably return the least profit.
• Is ideal for the firm that has no overseas contacts but wants to sell abroad.
• The intermediary is often a distributor that has the marketing know-how
and resources necessary for the effort to succeed.
MARKETING MATTERS
Entrepreneurship: Creative Cosmetics and Creative Export Marketing in Japan
A medium-sized U.S. cosmetics firm has had marketing success in Japan because of
its top-quality product, effective advertising, and export marketing program relying on savvy
Japanese distributors. Fran Wilson Creative Cosmetics does not sell to department stores,
which are supplied by two leading Japanese cosmetics firms. Rather, the company sells its
Moodmatcher lipstick through Japanese distributors that reach Japan’s 40,000 beauty salons.
The company accounts for 20 percent of the lipsticks exported annually to Japan by U.S.
cosmetic companies.
b. Direct exporting is when a firm sells its domestically produced products in a
foreign country without intermediaries.
• Is used when companies believe sales will be sufficiently large and easy to
obtain so that they do not require intermediaries.
• Involves more risk than indirect exporting for a firm but can provide
increased profits.
• Is commonly employed by large firms and is the prominent strategy among small-
and medium-sized companies.
B. Licensing
• Under licensing, a company offers the right to a trademark, patent, trade secret, or
other similarly valued items of intellectual property in return for a royalty or a fee.
a. Advantages of licensing:
• Low risk.
Chapter 07 – Understanding and Reaching Global Consumers and Markets
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• Capital-free entry into a foreign country.
• Gain information that allows it to start with a competitive advantage.
• Foreign country gains employment since the product is made locally.
b. Disadvantages of licensing:
• Licensor gives up control of its product.
• Two variations of licensing represent alternative ways to produce a product within
the foreign country:
a. With contract manufacturing:
• A U.S. company may contract with a foreign firm to manufacture products
b. With contract assembly, the U.S. company may contract with a foreign firm to
assemble (not manufacture) parts and components that have been shipped to
that country.
c. In both cases:
• The advantage to the foreign country is the employment of its people.
• A third variation of licensing is franchising.
a. Is when a company contracts with an individual to set up an operation to
provide products or services under the company’s established brand name.
b. Franchising is one of the fastest-growing market-entry strategies.
c. Over 75,000 franchises of U.S. firms are located in countries globally.
C. Joint Venture
• A joint venture: