CH1-6 International Marketing Exam 1

What are the four major drivers of globalization?

1. Better resource utilization & scale economies (lower manufacturing costs)

2. Adoption of free market systems

3. Growth of regional trade agreements (USMCA, EU, RCEP)

4. Advances in technology (internet, transportation, communication)

What is meant by resource utilization and scale economies?

Producing goods where resources and labor are cheapest while producing large quantities to lower per-unit costs.

Example: Apple manufactures many products in China to reduce costs.

How does technology drive globalization?

• Faster communication

• Lower transportation costs

• E-commerce

• Digital marketing

• Global supply chains

What is product line rejuvenation?

Selling older products in new international markets after demand declines domestically.

Example: Apple selling older iPhones in developing countries.

Why do companies market internationally?

• Increase sales

• Extend product life cycle

• Diversify economic risk

• Access new customers

• Gain competitive advantage

• Lower production costs

What is geographical diversification?

Entering multiple countries to reduce dependence on one country's economy.

Why is international marketing important?

Because 95% of consumers live outside the United States.

What are controllable factors?

The marketing mix.

• Product

• Price

• Place

• Promotion

(Professor also includes service and marketing research.)

What are uncontrollable factors?

• Political/legal environment

• Culture

• Economy

• Competition

• Technology

• Geography

Companies cannot control these but must adapt.

What is adaptation?

A conscious effort to adjust the marketing mix based on foreign and domestic uncontrollable factors.

What is Self-Reference Criterion (SRC)?

Unconsciously using your own culture as the standard for making decisions.

Example:
Thinking Americans prefer large drinks, so everyone else will too.

What is ethnocentrism?

Believing your own culture or country knows the best way to do things.

SRC vs. Ethnocentrism

SRC

• Unconscious

• Based on personal experiences

• Usually accidental

Ethnocentrism

• Conscious belief

• Think your culture is superior

• Can cause poor international decisions

International marketing vs. Global marketing

International Marketing

• Country-by-country strategy

• Marketing mix adapted for each country

Global Marketing

• Treats the world as one market

• Standardized marketing mix

Which strategy uses one standardized marketing mix worldwide?

Global marketing.

Which strategy creates different marketing campaigns for each country?

International marketing.

Balance of Trade

Difference between exports and imports of goods only.

Balance of Payments

Complete record of all international economic transactions.

Includes:

• Goods

• Services

• Investments

• Financial transfers

Balance of Trade vs Balance of Payments

Balance of Trade

• Goods only

Balance of Payments

• Goods + services + investments + financial flows

Why don't many U.S. small businesses export?

Because the U.S. domestic market is so large.

This creates self-complacency.

What is self-complacency?

Believing the domestic market is large enough and not seeing the need to export.

Approximately what percentage of U.S. GDP comes from exports?

About 10–14%

What percentage of U.S. small businesses export?

Only about 35%

Large exporters account for approximately what percentage of U.S. exports?

Around 80%

What is protectionism?

Government policies that restrict imports to protect domestic industries.

What is a tariff?

A tax placed on imported goods.

What is a quota?

A limit on the amount of a product that can be imported.

What is an import license?

Government permission required before importing goods.

What are local content requirements?

Rules requiring part of a product to be produced domestically.

What is a Voluntary Export Restraint (VER)?

The exporting country voluntarily limits exports to another country.

Example:
Japan limiting automobile exports to the U.S.

What is an embargo?

A complete ban on trade with another country.

What is a boycott?

Refusing to buy goods from a country or company.

What is dumping?

Selling products abroad below production cost.

Why are antidumping penalties used?

To prevent predatory pricing and unfair competition.

What are domestic subsidies?

Government financial support for domestic producers.

WTO

Promotes free trade by reducing trade barriers.

IMF

Stabilizes the international monetary system and provides financial assistance.

World Bank

Provides loans and development assistance to developing countries.

Omnibus Trade and Competitiveness Act (1988)

U.S. law promoting fair international trade and competitiveness.

How does geography affect international marketing?

Geography influences:

• Transportation

• Distribution

• Climate

• Natural resources

• Consumer needs

Companies often must adapt products.

Sustainable development

Meeting present needs without harming future generations.

What is Hofstede's definition of culture?

The collective programming of the mind that distinguishes one group from another.

Four global population trends

• Aging population

• Rural → Urban migration

• Lower fertility rates

• International migration

How does aging affect marketing?

Greater demand for healthcare, retirement products, and convenience.

Rural → Urban migration

Creates larger urban markets and increases demand for housing, transportation, and technology.

What is international migration?

People moving from one country to another.

Why do people migrate?

• Jobs

• Education

• Better living conditions

• Safety

• Political freedom

What is brain drain?

Highly educated workers leaving one country for better opportunities elsewhere.

What are cultural components?

• Language

• Religion

• Values

• Symbols

• Technology

• Education

• Social institutions

What is uncertainty avoidance?

The degree to which people dislike uncertainty.

High uncertainty avoidance countries

Consumers prefer:

• Rules

• Guarantees

• Detailed information

• Trusted brands

Marketing implication:
Reduce risk.

Low uncertainty avoidance countries

Consumers are more comfortable with:

• Innovation

• Risk

• New products

Marketing implication:
Emphasize novelty.

Individualism

People value independence and personal achievement.

Marketing:
Focus on personal success.

Collectivism

People value family and group harmony.

Marketing:
Focus on community and relationships.

Harvard Business Review Article (Know All Six): Mistake #1

Not specifying countries.

Example:
Saying "We're expanding into Asia" instead of choosing Japan or Vietnam.

Mistake #2

Ignoring internal company data.

Example:
Failing to notice that Brazil already generates many online sales.

Mistake #3

Not adapting sales and marketing channels.

Example:
Using Twitter everywhere when Facebook works better in Brazil.

Mistake #4

Not adapting the product offering.

Example:
Selling the exact same software in every country despite different customer needs.

Mistake #5

Not letting local teams lead.

Example:
Ignoring advice from employees in France about local customer preferences.

Mistake #6

Not thinking through global logistics.

Example:
A website cannot display local currencies or send emails in customers' time zones.

The world's largest trade bloc beginning in 2022?

RCEP (Regional Comprehensive Economic Partnership).

Why did Disney Paris initially struggle?

Ethnocentrism—Disney assumed what worked elsewhere would work in France (e.g., banning wine and relying only on American cartoon characters).

Example of product rejuvenation?

Apple selling older iPhones in developing countries.

France limiting U.S. movies is an example of what?

A non-tariff trade barrier used for cultural protectionism.

China's restriction of rare earth metal exports is an example of what?

An export control used as a trade barrier.

Japan claimed that its unique snow conditions required Japanese-made skis and that U.S. baseballs were unsuitable for Japanese baseball. What type of trade barrier is this?

Standards-based non-tariff barrier.

Japan used product standards to make importing foreign products more difficult.

What is a standards-based non-tariff barrier?

Government regulations or product requirements that imported goods must meet before entering a country.

Examples:

• Safety standards

• Product testing

• Local content requirements

• Agricultural regulations

A country requires imported electronics to pass a 12-month safety certification conducted only by a domestic agency. What type of trade barrier is this?

A standards-based non-tariff barrier because it delays imports under the appearance of protecting consumers.

Why are standards considered a non-tariff barrier?

They restrict imports without charging a tax, often by making foreign products difficult, expensive, or slow to sell.

England classified Pringles as a taxable snack food, creating a large tax bill for Procter & Gamble. What does this illustrate?

A standards/classification-based trade barrier, where government regulations increase the cost of imported products.

What is the difference between a tariff and a standards-based barrier?

Tariff

• Tax on imports

Standards Barrier

• Rules or regulations that make imports harder to sell

What is the infant industry argument?

A government protects new domestic industries until they become strong enough to compete internationally.

Example of the infant industry argument

A developing country places tariffs on imported electric vehicles so its own EV manufacturers have time to grow.

What are domestic subsidies?

Government financial support that helps domestic companies lower prices and compete with imports.

Agricultural subsidies are an example of what type of trade barrier?

Domestic subsidies (a non-tariff trade barrier).

Example of a domestic subsidy

The U.S. government provides financial support to American farmers so they can sell crops at lower prices.

What are antidumping penalties?

Financial penalties imposed on foreign companies that intentionally sell below production cost to eliminate competitors.

What is dumping?

Selling products below production cost in another country to gain market share and drive competitors out of business.

Example of dumping

A foreign steel company sells steel below cost in the U.S. until American steel companies go out of business.

Why do governments impose antidumping penalties?

To prevent unfair competition and protect domestic businesses from predatory pricing.

Name three arguments for protectionism.

• Infant industry protection

• National security

• Protect domestic jobs

Other acceptable answers:

• Protect consumers

• Prevent dumping

• Retaliation

• Protect strategic industries

Explain the infant industry argument.

New businesses need temporary protection until they become competitive.

Example:
A developing country protects its new solar panel manufacturers with tariffs.

Explain the national security argument.

Governments protect industries essential for defense or emergencies.

Example:
The U.S. supports domestic semiconductor manufacturing because computer chips are critical for military technology.

Explain the domestic jobs argument.

Protectionism reduces foreign competition to preserve employment.

Example:
Tariffs on imported steel help protect American steel workers.

Explain the anti-dumping argument.

Governments stop foreign firms from selling below cost to eliminate domestic competitors.

Example:
The U.S. imposes antidumping duties on imported steel sold below production cost.

Explain the consumer protection argument

Governments require safety or health standards to protect consumers.

Example:
Imported food must pass health inspections before being sold.

What is the balance of payments?

A record of all economic transactions between one country and the rest of the world.

Includes:

• Goods

• Services

• Investments

• Financial transfers

What is the balance of trade?

The difference between exports and imports of goods and services.

Exam Tip: Although some textbooks define it as goods only, your professor's practice question defines it as goods and services, so study it that way for this exam.

Balance of Payments vs. Balance of Trade

Balance of Trade

• Exports and imports of goods and services

Balance of Payments

• Everything in the balance of trade

• PLUS investments

• PLUS interest payments

• PLUS financial transfers

Think:
Trade = one part of Payments

What belongs on the PLUS side of the U.S. balance of payments?

Money flowing into the United States.

Examples:

• Exports of goods

• Exports of services

• Foreign investment in the U.S.

• Tourist spending by foreign visitors

What belongs on the MINUS side of the U.S. balance of payments?

Money flowing out of the United States.

Examples:

• Imports

• Americans traveling overseas

• U.S. investment abroad

• Foreign aid payments

Give two examples of PLUS-side items in the balance of payments.

1. U.S. exports of airplanes to Europe.

2. A Japanese company builds a factory in the U.S.

Both bring money into the United States.

Give two examples of MINUS-side items in the balance of payments.

1. Americans buying imported cars.

2. An American company builds a factory in Mexico.

Both send money out of the United States.

Why would a government use standards instead of tariffs?

Standards appear to protect health, safety, or quality, but they can also discourage imports without directly taxing them.

Which trade barrier is easiest to disguise as consumer protection?

Standards-based non-tariff barriers

Which trade barrier involves the exporting country voluntarily limiting exports?

Voluntary Export Restraint (VER).

Which trade barrier involves government financial assistance to domestic companies?

Domestic subsidies.

Which trade barrier involves limiting the quantity of imports?

Quotas.

Which trade barrier completely stops trade with another country?

An embargo.

A company sells products below production cost to eliminate competitors. What is this called, and what is the government's response?

Dumping. Governments respond with antidumping penalties.