CHAPTER 21 – Tapping Into Global Markets

Redbull

- has gained 70 percent of the worldwide energy drink market by skillfully connecting with global youth. Founded in Austria by Dietrich
Mateschitz
- its first foreign market is Hungary in 1992

Global industry

- industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions.

Global firm

a firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

ASEA Brown Boveri

ABB

ASEA Brown Boveri

formed by a merger between the Swedish company ASEA and the Swiss company Brown Boveri.

- products include power transformers, electrical installations, instrumentation, auto components, air-conditioning equipment, and railroad equipment.

• The company discovers that some foreign markets present higher profit opportunities than the domestic market.
• The company needs a larger customer base to achieve economies of scale.
• The company wants to reduce its dependence on any one market.
• Global firms offering better products or lower prices can attack the company's domestic market. The company might want to counterattack these competitors in their home markets.
• The company's customers are going abroad and require international servicing.

Several factors are drawing more companies into the international arena:

• The company might not understand foreign customer preferences and fail to offer a competitively attractive product.
• The company might not understand the foreign country's business culture or know how to deal effectively with foreign nationals.
• The company might underestimate foreign regulations and incur unexpected costs.
• The company might realize that it lacks managers with international experience.
• The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property.

Before making a decision to go abroad, the company must weigh several risks:

1. Deciding whether to go abroad
2. Deciding which markets to enter
3. Deciding how to enter the market
4. Deciding on the marketing program
5. Deciding on the marketing organization

Major Decisions in International Marketing

1. No regular export activities.
2. Export via independent representatives (agents).
3. Establishment of one or more sales subsidiaries.
4. Establishment of production facilities abroad.

The internationalization process has four stages:

Ayal and Zif

They argued that a company should enter fewer countries when

• Market entry and market control costs are high.
• Product and communication adaptation costs are high.
• Population and income size and growth are high in the initial countries chosen.
• Dominant foreign firms can establish high barriers to entry

Ayal and Zif have argued that a company should enter fewer countries when:

Amway Corp

one of the world's largest directselling companies, markets its products and services through independent business owners worldwide.

waterfall approach
sprinkler approach

companies entry strategy to possible approaches:

Waterfall approach

countries are gradually entered sequentially.

Sprinkler approach

many countries are entered simultaneously within a limited period of time.

Attractiveness

- influenced by the product, geography, income and population, political climate, and other factors.

Kenichi Ohmae

recommends that companies concentrate on selling in the "triad markets"

Triad markets

a large percentage of all international trade

1. United States
2. Western Europe
3. Far East

Triad markets

Grameen

phone markets cell phones to 35,000 villages in bangladesh by hiring village woman as agents

Colgate

palmolive rolls into indian villages with video vans that show the benefits of toothbrushing

An indian

australian car manufacturer created an affordable rural transport vehicle to compete with bullock carts rather than cars

Palio

fiat developed a three world car that far outlets the ford fiesta in brazil

Low income housing in mexico

builds by corporacion GEO, two bedroom homes that are modular and can be expanded, it is now moving into chile and southern US communities

Latin american building supplier retailer

it offers bags of cement in smaller sizes to customers building their own homes

regional economic integration

trading agreements between blocks of countries has intensified in recent years

EU

one of the communities-groups of nations organized to work toward common goals in the regulation of international trade

EUROPEAN UNION

Union set out to create a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries, and by developing trade policies with nonmember nations.
- is one of the world's largest single markets.
- now contains more than 454 million consumers and accounts for 23 percent of the world's exports

1. Cyprus
2. Czech Republic
3. Estonia
4. Hungary
5. Latvia
6. Lithuania
7. Malta
8. Poland
9. Slovakia
10. Slovenia

10 countries added in EU in May 2004

Fortress Europe

helps favors on firms from EU countries but hinders outsiders by imposing obstacles such as stiffer import quotas, local content requirements, and other nontariff (nontax) barriers.

pan european

marketing campaigns directed to a unified europe should proceeds with caution

North American Free Trade Agreement

NAFTA

NAFTA

- established a free trade zone among the United States, Mexico, and Canada
- agreement created a single market of 360 million people who produce and consume $6.7 trillion worth of goods and services annually
- will eliminate all trade barriers and investment restrictions among the three countries

Mercado Comum do Sul

MERCOSUL

MERCOSUL

links Brazil, Argentina, Paraguay, and Uruguay. Chile and Mexico

Asian Pacific Economic Cooperation forum

APEC

APEC

21 Pacific Rim countries, including the NAFTA member states, Japan, and China, are working to create a pan-Pacific free trade area
- attempts at regional economic integration in the Caribbean, Southeast Asia, and parts of Africa

psychic proximity

- determines choices

1. Rank high on market attractiveness.
2. Low in market risk
3. Possesses a competitive advantage.

Company prefers to enter countries with:

1. Direct Investment
2. Joint Ventures
3. Licensing
4. Direct Exporting
5. Indirect Exporting

5 models of Entry into Foreign Markets

- commitment
- risk
- control
- profit potential

5 models involves

Bechtel

- provides premier technical, management, and directly related services to develop, manage, engineer, build, and operate installations for customers in nearly 60 countries worldwide.

Export

Best way to get involved in international markets.

Occasional exporting

is a passive level of involvement in which the company exports from time to time, either on its own initiative or in response to unsolicited orders from abroad.

Active exporting

takes place when the company makes a commitment to expand into a particular market.

Domestic-based export merchants

buy the manufacturer's products and then sell them abroad.

Domestic-based export agents

seek and negotiate foreign purchases and are paid a commission. Included in this group are trading companies

Cooperative organizations

carry on exporting activities on behalf of several producers and are party under their administrative control

Export-management companies

- agree to manage a company's export activities for a fee.

1. Less investment
2. Less risk

Indirect export has two advantages.

• Domestic-based export department or division.
--Might evolve into a self-contained export department operating as a profit center.

• Overseas sales branch or subsidiary.
--the sales branch handles sales and distribution and might handle warehousing and promotion as well. It often serves as a display and customer service center.

• Traveling export sales representatives.
--Home-based sales representatives are sent abroad to find business.

• Foreign-based distributors or agents.
--These distributors and agents might be given exclusive rights to represent the company in that country, or only limited rights.

A company can carry on direct exporting in several ways:

Bob Moog

president and founder of University
Games

Licensing

a simple way to become involved in international marketing.

licensor

- issues a license to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty.
- The licensor gains entry at little risk
- The licensee gains production expertise or a well-known product or brand name.

Contract manufacturing

the firm hires local manufacturers to produce the product

Franchise

more complete form of licensing

Franchiser

offers a complete brand concept and operating system.

Franchisee

invests in and pays certain fees to the franchiser.

KFC

- is the world's largest fast-food chicken chain, owning or franchising 12,800 outlets in about 90 countries-60 percent of them outside the United States.

Joint Ventures

Foreign investors may join with local investors to create a Joint venture company in which they share ownership and control.

Joint ownership

can also prevent a multinational company from carrying out specific manufacturing and marketing policies on worldwide basis.

Direct Investment

The ultimate form of foreign involvement is direct ownership of foreign-based assembly or manufacturing facilities.

Standardized marketing mix worldwide

Standardization of the product, communication, and distribution channels promises the lowest costs.

Adapted marketing mix

- where the producer adjusts the marketing program to each target market.

Hofstede

he identifies four cultural dimensions that can differentiate countries:

- Individualism vs. collectivism
- High vs. low power distance
- Masculine us. feminine
- Weak vs. strong uncertainty avoidance

Hofstede identifies four cultural dimensions that can differentiate countries:

• Economies of scale in production and distribution
• Lower marketing costs
• Power and scope
• Consistency in brand image
• Ability to leverage good ideas quickly and efficiently.
• Uniformity of marketing practices

Advantages

• Differences in consumer needs, wants, and usage patterns for products.
• Differences in consumer response to marketing-mix elements
• Differences in brand and product development and the competitive environment
• Differences in the legal environment
• Differences in marketing institutions
• Differences in administrative procedures

Disadvantages

Disneyland Paris

Europe's biggest tourist attraction

Marketing Insight: Establishing Global Service Brands

describes some of the special concerns for marketing services globally.

Warren Keegan

- has distinguished five adaptation strategies of product and communications to a foreign market.

- straight extension
- product adaptation
- product invention
- Backward invention
- Forward invention

five adaptation strategies of product and communications to a foreign market:

Straight extension

introducing the product in the foreign market without any change.

• Product features
• Brand name
• Labeling
• Packaging
• Colors
• Advertising execution
• Materials
• Prices
• Sales promotion
• Advertising themes
• Advertising media

Elements which would add more revenue than cost

Product adaptation

involves altering the product to meet local conditions or preferences

regional version
country version
city version
retailer version

levels of adaptation

1. Understand similarities and differences in the global branding landscape.
2. Do not take shortcuts in brand-building.
3. Establish a marketing infrastructure.
4. Embrace integrated marketing communications.
5. Establish brand partnerships.
6. Balance standardization and customization.
7. Balance global and local control.
8. Establish operable guidelines.
9. Implement a global brand equity measurement system.
10. Leverage brand elements.

THE TEN COMMANDMENTS OF GLOBAL
BRANDING

Product invention

- consists of creating something new.

Forward invention
Backward invention

two forms of Product invention

Backward invention

reintroducing earlier product forms that are well adapted to a foreign country's needs.

Forward invention

creating a new product to meet a need in another country.

Haagen-Dazs

had developed a flavor for sale solely in Argentina, called "dulce de leche." Or sweet of milk

Communication adaptation

Companies can run the same marketing communications programs as used in the home market or change them for each local market.

1. Set a uniform price everywhere'
2. Set a market-based price in each country.
3. Set a cost-based price in each country.

Companies have three choices on how to set the prices in different countries.

1. Price escalation
2. Transfer Price
3. dumping charges
4. Gray markets

Problem related to prices:

Transfer price

- (the price it charges another unit in the company) for goods that it ships to its foreign subsidiaries.

dumping

occurs when a company charges either less than its cost or less than it charges in its home market in order to enter or win a market

Arm's-length price

that is, the price charged by other competitors for the same or a similar product

Gray market

consists of branded products diverted from normal or authorized distributions channels in the country of product origin or across international borders.

- sellers international marketing headquarters
- channels between nations
- channels within foreign nation

3 major links between seller and ultimate buyer:

seller's international marketing headquarter

the export department or international division makes decisions on channels and other marketing-mix elements.

channels between nations

gets the products to the borders of the foreign nation. The decisions made in this link include the types of intermediaries (agents, trading companies) that will be used, the type of transportation (air, sea), and the financing and risk arrangements.

channels within foreign nations

gets the products from their entry point to final buyers and users.

1. seller
2. sellers international marketing headquarters
3. channels between nations
4. channels within foreign nations
5. final buyers

whole channel concept for international marketing

- building country images
- consumer perceptions of country of origin

country of origin effects

toyota

has made sales in north america a top priority

Country-of-origin perceptions

are the mental associations and beliefs triggered by a country.

1. Through export departments.
2. International divisions.
3. Global organization.

Companies manage their international marketing activities in three ways:

Export Department

A firm normally gets into international marketing by simply shipping out its goods.

1. they can be geographical organizations.
2. be world product groups.
3. units may be international subsidiaries, each headed by a president.

Operating units can be organized in several ways: