Global Marketing Exam #2 (Chapter 6, 7, 8, 12)

Stability of the Government

Political Parties:

- Single Party System

- Dual Party System

- Multi-Party System

Single Party System

= one dominate party in the country

ex. North Korea & China - communist Cuba

lots of predictability, parties views don't change, not always favorable for foreign investors if country goes down

Dual Party System

= two parties in the countryex. U.S. = Rep/DemUK = Laborer/ConservativeFor 4 years: predictable w/Republic: pro-business policies

Multi-Party System

= multiple parties in the country

ex. India, Italy, Japan

coalition government comes about when no majority, a couple parties band together

DISADVANTAGES: have different goals, views, so a STANDSTILL!

can drop support at the drop of a hat

**HIGH UNCERTAINTY**

Investment Regulations

- Ownership Controls

- Financial Controls

Ownership Controls

talk about who can own (in foreign countries) land, natural resources, businesses, etc.

ex. Cuba, in 2011, there was no private ownership. allowed by government.

ex. U.S. has a lot of ownership regulation, FCC restricts ownership of U.S. media companies to U.S. citizens

ex. U.S. Shipping Act of 1916, requires shipping companies to be owned by U.S. companies

Financial Controls

- Profit Reparation Controls = taking back profits you make in foreign country to your home country, but foreign country might restrict that. tells them to invest profits in country itself. others may say you can take it back but export a certain percentage to foreign countries.

- Differential Taxation = local businesses have lower tax, foreign have higher tax.

***(discourages foreign businesses)

- Differential Interest Rate = foreign businesses are charged higher interest rates on loans, local businesses get low interest rates.

*** (discourages foreign businesses)

Political Sanctions

- Boycotts = ban from purchasing from another country

- Embargos = restriction of sale to other countries.

Nationalism

intense feeling of national pride and unity, an awakening of a nation's people to pride in their country.

ex. Right after 9/11, there was an intense feeling of national pride. "Buy only goods made in the USA"

Trade Animosity

animosity targeted against one single country.

ex. Intense anger towards Japan, Honda Civics in China were destroyed during protests.

Bases of Legal Systems

- Common Law

- Civic or Code Law

- Islamic Law

Common Law

- base the interpretation of the laws based on past court rulings

- tradition

- EX. U.S., Australia, England, India

Code Law or Civil Law

- rely on statues or codes for the interpretation of the law

- the legal system is generally divided into 3 separate codes

(COMMERCIAL, CIVIL, CRIMINAL)

- very detailed

EX. Japan, Netherlands, Poland, Turkey, France, Mexico

Implications (EXAMPLES)

- Ownership (Prior vs. Registration)

- Contracts and Agreements

- Impossibility of performance and non-compliance with the provisions of the contract

Islamic Law (Shari'ah)

- interpretations of the Koran

- among the unique aspects of Islamic law is the prohibitions against the payment of interest (RUBA)

Issues transcending National Boundaries

- Intellectual Property Protection

(Counterfeiting & Piracy) ex. Avastin

- Patents

(First to file vs. First to invent)

(Governmental violation)

- Trademark

(Prior use vs. Registration)

- Trade secrets

Intellectual Property Rights

- lost sales from the unauthorized use of U.S. patents, trademarks, and copyrights amount to more than $300 billion annually

TRIPS agreement = (trade related aspects of intellectual property rights)

- participating members comply w/ minimum standards of protection by 2006.

- set procedures and remedies for the enforcement of intellectual property rights.

- disputes between members shall be subject to WTO's dispute settlement procedures.

**** FAILURE to protect intellectual property rights adequately in the world marketplace can lead to the legal loss of rights in potentially profitable markets.

Commercial Laws

- Marketing Laws

(ALL COUNTRIES HAVE LAWS REGULATING MARKETING ACTIVITIES)

Legal Issues Facing the Company

- Pricing Decision

- Packaging Decisions

- Product Decision

- Competitive Decisions

- Selling Decisions

- Production Decisions

- Distribution Decisions

International Legal Disputes

- No judicial body exists to deal with legal commercial problems arising between citizens of different countries.

- Jurisdiction is generally determined in 1 of 3 ways:

1. On the basis of jurisdictional clauses included in contracts

2. On the basis of where a contract was entered into

3. On the basis of where the provisions of the contract were performed

*** The most clear-cut decisions can be made when the contracts or legal documents supporting a business transactions include a jurisdictional clause.

Conciliation (Mediation)

- Nonbinding agreement

- Third party to mediate the difference

- Private and confidential

- Not legally binding; thus an arbitration clause should be included in all conciliation agreements.

Arbitration

- Formal domestic and international arbitration groups

- Arbitration clauses require agreement on 2 counts:

1. The parties agree to arbitrate in the case of a dispute according to the rules and procedures of some arbitration tribunal.

2. They agree to abide by the awards resulting from the arbitration.

*** legally binding decisions

Litigation

Deterrents to litigation:

- fear of creating a poor image and damaging public relations

- difficulty in collecting a judgment that may otherwise have been collected in a mutually agreed settlement through arbitration

- the relatively high cost and time required when bringing legal action

- loss of confidentiality

Political Risks of Global Business

Confiscation: (not common) government takes away companies

Ex. almost all American businesses were asked to leave Cuba

Expropriation: (common) when government takes over assets of foreign company and gives them reimbursement far less than market value of company

Ex. Comex, Bolivian government offered reimbursement for company.

Ex. Zimbabwe, expropriated farms from white farmers and gave them to his wife.

Domestication/Nationalism: government takes over assets from foreign companies & reforms to local/indigenous people

Ex. Indigenization Rule, in 2011, required any company which has assets of 500k or more, must turn over 51% of equity to local indigenous Zimbabweans.

Ex. Risk of doing business in Russia, Hermitage Capital Management, CEO refused entry in Russia, based on "threat to national security", tried to extort them in order to be allowed back in, it was STOLEN by criminals.

Politically Sensitive Products & Issues

- Products that have or are perceived to have an effect on:

- Environment

(ex. Coca Cola drying out the land in India)

- National and Economic Security

- Balance of trade

(ex. could put country into trade deficit)

- Welfare of people

- Publicly visible

Lessening Political Vulnerability

Relations between governments and MNCs are generally positive if the investment:

- Improves the balance of trade by increasing exports or reducing imports through substitution

- Uses locally produced resources

- Transfers capital, technology and/or skills

- Create jobs

- Make tax contributions

Strategies that MNCs use to minimize political vulnerability and risk:

- Joint Ventures

- Expanding the investment base

- Licensing

- Planned domestication

(ex. choose a company yourself)

- Political bargaining

(ex. lobbying)

- Political Payoffs

(ex. payoff someone in power)

Country Risk Index

- International Country Risk Guide (PRS Group)

- Business Environment Risk Intelligence (BERI)

- Business Monitor International

Why Marketing Research?

- Better decisions

- Local support

ex. Oreo introduced to China, low sales, refused to buy. Oreo cookies were WAY too sweet for them, changed sweetness for Chinese palette, saw Chinese liked wafers so introduced Oreo wafers, 72 cents was way too expensive, so they reduced size of cookies, units, at 29%

Information Sources

Secondary: info/data collected from someone else for some other purpose

ex. Census, government collects info about population and can use this to segment a market for product/brand

Primary: info/data collected from the consumers to solve a problem at hand

Problems w/ Secondary Data

- availability and age of the date

ex. want to know cars bought/licensed, data from DMV, but in other countries, may not be collecting/releasing info

ex. Tienamen Square, 5 sources on it in China

- reliability of data

ex. Census, last taken in 1932 in Lebanon, governments manipulate data to look good to outsiders

- comparability of data:

1. units of measurement: triangulation

2. functional equivalence: the degree to which similar activities or produces in different countries fulfill similar functions.

ex. bicycles in US = leisure

bicycles in China, Amsterdam = transportation

3. conceptual equivalence: the degree to which a given concept has the same meaning in different environments

ex. family in US = nuclear

family in Africa = extended

Validating Secondary Data

- who collected the data? would there be any reason for purposely misrepresenting the facts?

- for what purposes was the data collected?

- how was the data collected?

- is the data internally consistent and logical in light of known data sources or market factors?

ex. coconut oil company claimed veg/canola oil caused cancer.

Problems of Gathering Primary Data

- willingness to response (people do not trust you)

ex. women won't take calls from strangers in Saudi Arabia

- contact method (depends on cultural norms of country)

ex. books for Rajamma's friend's bday in St. Lucia

- sampling issues (sometimes doesn't represent population)

- language and comprehension (may not translate well)

ex. back translation, parallel translation, decentering

Estimating Market Potential

methods of market size estimations

- expert opinion: triangulation

- analogy method

- trade audit (mkt size in A = local production + imports - exports)

- chain ratio method

Analogy Method

Identify a country

- same stage of economic development

- market size is known

Identify a related product for which demand is known

Premise:

- Relationship between demand for the product & the related product is the same in both countries.

DEMAND FOR DVDS/COLOR TVS IN USE IN POLAND

= DEMAND FOR DVD PLAYERS IN UKRAINE/COLOR TVS IN USE IN UKRAINE

DVDukr = DVD Poland x TV Ukr/TV Poland

Chain Ratio Method

ex. potential market size in Japan for Nicorette Gum

Total population = 127 million

15-64 year olds = 67.5 %

% of smokers = 25%

64% of adult smokers would like to quit;

of which 25% would like to quit immediately

Responsibility for Conducting Marketing Research

- outside foreign-based agency or

- domestic company with a branch within the country in question

The Planning Process

- Selecting the Target Market

- Selecting Goals for the Target Market

- Choosing the Mode of Entry

- Developing the Marketing Plan

- Implementation and Control

Identifying the Target Market

- Screening - Matching company and country needs: Select critical socioeconomic and political indicators

* Company's strategic objectives

* Nature of the product

* Country importance

Market Entry Strategies

Exporting

- Indirect

- Direct

- Cooperative

Contractual Agreements

- Licensing

- Franchising

Strategic Alliances

- Joint Venture

- Consortia

Direct Foreign Investment (Greenfield Operations, Mergers/Acquisitions)

Evaluating Entry Strategy (Criteria)

Resource Commitment = extent of human & asset capital

Risk = the amount of POLITICAL & ECONOMIC RISK that the company will be exposed to

Control = the extent of control the company will have over its marketing program

Returns = how much profits does the investment provide

Exporting

Indirect = company exports to another country, but uses an intermediary in that foreign country (not home country)

ex. Export to Argentina, intermediary is based in home country

Advantages =

- gives instant foreign markets expertise

- low-risk/low resource commitment

- highly motivated

Disadvantages =

- little or no control over the way product is marketed

- may not have expertise in handling product line

- may not support company's product line

**** Not good for ambitious international strategy

Direct = use intermediary based in foreign country

ex. (IN HOUSE) Entering Russian market, intermediary based in Russia

Advantages =

- has more control

- sales potential/profit is much more significant

- can build its own network in the foreign market and get a better market feedback

Disadvantages =

- resource commitment (human & financial)

Cooperative Exporting

offers some control over foreign operations, piggyback exporting

ex. Wrigley's and Parry's

ex. Gilette already had distributing company in India, but for cheaper products. They paired with TTK (household manufacturer), gave them access to department stores. TTK got exclusive rights to a broad range of products in that specific country.

(Contractual Agreements): Licensing

company is the licenser

ex. Walt Disney offers some property asset to license in return for a royalty fee (1/8% - 15%) of sales revenue

Advantages:

- low resource commitment

- can enter markets that have high import barriers

- low exposure to political and economic instabilities (licensee absorbs all risks)

Disadvantages:

- low revenue

- licensee may not be fully committed and tarnish trademark

- not getting paid

- producing in a timely manner/desired volume

- loss of control over marketing activities

- risk of opportunism (risk of self-interest seeking)

ex. Meji/Borden: dairy/competition using Borden's technology against them

(Contractual Agreement): Franchising

franchiser (McDonald's) allows franchise to use some property asset for a fixed amount of time for royalty feed and some other fee (upfront fee)

Advantages:

- low investment

- low risk

- franchises are highly motivated

- capitalize on the franchisee's knowledge of local market

Master Franchisee: one franchisee will be in charge of organizing whole country

Disadvantages:

- low revenue

- no name recognition -> hard to find potential franchisees

- lack of control over the franchisee's operations

- risk of opportunism

(Strategic Alliance) Joint Venture:

company agrees to share resource/equits with another country and establishes entity in new country

Advantages:

- more returns

- more control compared to some other entry modes (sometimes the only alternative possible)

- synergy argument (bring access to raw material, distribution networks, etc.)

Disadvantages:

- not as much control as desired

- partners could become potential competitors

- lack of trust and mutual conflicts

ex. Schwinn bicycle (U.S.), Giant #1 bicycle in world, started out as manufacturing company for Schwinn.

Majority Stake

> 50% ownership of equity

50/50

both companies have equal ownership

Minority Stake

< 50% LESS of ownership for U.S. company

Consortia

use when need big capital commitment,

- aerospatiale (France)

- DaimlerChryster Aerospace (Germany)

- Constucciones Aeronauticas S.A. (Spain)

ALL COMBINED TO MAKE AIRBUS!!!!

*** usually formed in a country where none of the companies are located

Wholly Owned Subsidaries

1. Acquisitions/Mergers

2. Greenfield Operations (start from new)

Advantages:

- full control (100%)/no partner-> go to parent company

- full profits go to the company

- sends a strong commitment signal to the local government

- easier to set up in some countries

Disadvantages:

- will have to carry full burden of possible losses

- very demanding on firm's resources

- substantial political and economic risks

- perceived as a threat

"localization": generally push back from community on acquisition SO create jobs, use local brands, sponsor local cultural events, etc.

ex. Coke in india, community hated Coke and pushed it back. Either Coke had to leave country or reveal the secret formula.

BUT: at the same time, Pepsi was there too. They were not perceived as foreign because they changed themselves for the country. New name: Leharpepsi = "waves" in Hindi. They sponsored cricket tournaments, etc.

Acquisitions & Mergers

Advantages =

- rapid means to get access to the local market

- access to market resources

ex. Kraft in Asian market, acquired with Cadbury (UK brand), now have presence in all Asian countries

Disadvantages =

- possible culture clashes

- may not live up to the expectations

- hostility toward foreign acquisition

- costly expansion strategy

ex. of corporate culture clash:

Pharmacia and Upjohn joined together. Problem: issues (communication management) right from the start.

ex. Nestle to acquire Hershey because of pushback/hostilities of community.

Greenfield Operations

Advantages:

- sometimes only option available

(good candidates not available, cost of overhauling > Greenfield operations)

- more flexibility that acquisitions

- support from local governments

Disadvantages:

- enormous investment in time & capital (doing it all alone!)

Choosing the Mode of Entry

1. Establish decision criteria

- current segment size and growth potential

- risk: political & economic stability

- legal requirements/government regulations: tariffs, local content requirements

- competitive scenario (if high-use acquisition/merger/joint venture)

- local infrastructure

- company objectives (EX. Bridgestone to be #1, top 20%, market share merged w/ Firestone)

- need for control (tied to resource commitment) as control goes up, resource commitment goes up

- Internal resources and capabilities

2. Choose the Mode of Entry

Developing the Marketing Plan

For every product, every market

Contents:

- Situation Analysis - Country Fact Book

- SWOT Analysis

- Objectives (quantify)

- Marketing Strategy (selection of entry mode)

- Action programs (what will be done? when? who? cost?)

- Projected profit and loss statement

- Controls (not apart of the project)