CH 1 - 5 International Marketing

International marketing helps companies...

International marketing helps companies...

reach their full potential, offer the maximum return for their stockholders, and keep up with their competition.

During late stages of the product life cycle, companies change...

- promotion: different ads or sales promotion techniques, rebranding

- packaging: style can give a different appearance of a new and improved product

4 Levels of international marketing (least to most multinational)

1. Domestic Marketing

2. Export Marketing

3. International Marketing

4. Global Marketing

Domestic Marketing (aka internal market)

- supply and demand of goods and services within a single country

- least commitment to international marketing

Export Marketing (extension of domestic market)

Process of selling and promoting products in markets outside of a company's home country

International Marketing

- focuses on consumers in one or more countries

- sales offices in different countires, but firm activities are not coordinated across different countires

Global Marketing (standardized)

- Process of marketing a company's products or services in the international marketplace

- Without a country or regional focus

4 Marketing Orientations

1. Ethnocentric Orientation

2. Polycentric Orientation

3. Regiocentric Orientation

4. Geocenric Orientation

Ethnocentric Orientation (Ex: Jumpmode in Toledo)

- Domestic strategies

- international markets are secondary

- marketing plans developing in-house

Polycentric Orientation (Ex: McDonald's adjusting their menu)

- assuming that consumers in different countries or geographic regions differ drastically from one another

- may introduce new brand for each region

- specialization

Regiocentric Orientation (ex: German ad for Nike)

- grouping countries with similar market charactherists

- economic, cultural, or political similarities

Geocentric Orienation (ex: Coca-Cola)

- guided by global marketing concept

- standardized offering worldwide and maximize efficiencies worldwide

Competition

- pressure from international companies forces others to expand

- critical for trade, growth, innovation, and efficiency

- also reduce costs, improve services / products, and optimize resource allocation

Regional Economic & Politcal Integration (ex: NAFTA, EU)

- economic intergration: process of 2 or more countries working together to reduce barriers to trade and have economic & political cooperation

- enhance productivity and achieve greater economic interdependence

Technology

- new tech helps businesses better understand target

- Ex: Ads, algorithms, lack of privacy, social media, AI, etc.

Transportation and Telecommunications

- Lower cost and higher quality communication due to satellite technology, teleconferencing, and e-mail.

- Allow for frequent interaction between subsidiaries in foreign countries and the headquarters.

- Allow for outsourcing of customer service.

Economic Growth (Ex: Emerging markets)

- high potential for international brands while also opening previously closed markets

- emerging middle class like Brazil, Mexico, India

- previously closed: Loas and Vietnam

- Promising untapped: sub-Saharan Africa

Transition to a Market Economy

creates important new markets and opportunities to transform inefficient government-owned companies into successful enterprises

Converging Consumer Needs

- global brands created demand for global products and worldwide loyalty

- converges needs through same exposure to said brands, so room for standardized marketing strategies

Most customers have a set of 7 basic needs when they interact with an organization.

1. Friendliness. This is the most basic customer need that's associated with things like courtesy and politeness.

2.Empathy.

3.Fairness.

4.Control.

5.Alternatives.

6.Information.

7.Time.

The four key customer needs.

1.A fair price.

2.A good service.

3.A good product.

4.To feel valued.

6 Firm-Specific Drivers of International Expansion

1.Product Life Cycle

2.High New Product Development Costs

3.Standardization

4.Economies of Scale

5.Cheap Labor

6.Experience Transfers

Product Life Cycle Considerations

Companies prolong the product life cycle of their late-maturity brands by entering growth markets.

New Product Development Costs

- new product dev rapidly increasing and prodcut life cycles are decreasing

- result: look beyond home-country to fully recover high product dev costs and to make profit

Standardization, Scale Economies, Cheap Labor

- during the maturity stage, firms look to new international markets in search of cheap labor.

- The firm lowers costs - and prices - as it takes advantage of:

- Economies of scale

- Standardization

- Cheap labor.

What is economies of scale?

- Standardizing operation so that product/unit is increased and maximizes profit

- aka maximize units and minimize costs

4 Internal economies of scale

1. Expansion of the firm itself

2. Lowers long run average cost (LRAC)

3. Efficiencies form larger scale produciton

4. Range of economies (e.g. tech and fiancial)

4 External economies of scale

1. Expansion of the industry

2. Benefits most / all firms

3. Agglomeration econimes are increasingly important

4. Helps to explain the rapid growth of many cities

Experience Transfers (ex: Ford, Rustblet)

•Companies benefit from lessons they learn in different parts of the world and transfer their knowledge to other markets they serve.

2 Obstacles to Internationalization

1. Self-Reference Criterion

2. Ethnocentrism

Self-reference criterion

- Conscious and unconscious reference to own national culture and home-country norms while operating in the host country

Ethnocentrism

judging others in terms of one's own cultural standards, which is perceived as superior to other cultures

Government Barriers

Restrictions placed on international corporations by imposing:

- Tariffs: intended to protect local industries by making imports more expensive and driving consumers towards domestic producers

- Tariffs prevent the dependency on trade

Business Environment

1. Policy and Legal Framework

2. Regulatory and Admin Framework

3. Institutional Arrangements

4. Sector-specific Business Environment

5. Regional, National, and Sub-National Business Environment

Investment Climate

1. Rule of Law

2. Skills and HRD

3. Economic Predictability

4. Infrastructure

5. Political Stablilty

6. Efficient Labor Makrets

7. Open Financial Market

Globalization

•has led to a unified international economy: the international economy performs as a single unit.

Firms in high-income countries....

•Dominate the world economy.

•Allocate resources based on market potential, rather than based on local needs.

Firms in low-income countries...

•Ability to allocate local resources (raw materials, labor).

•Have control over access to local consumers.

•Have the ability to lessen economic gap by imposing barriers to international corporations.

5 Rostow Model Stages

1. Traditional

2. Transitional

3. Take-off

4. Drive to Maturity

5. High-mass Consumption

1. Traditional Society

•Agriculture is the dominant sector.

•Low productivity and low per-capita output.

•Little economic change and technological improvement.

2. Transitional Society

•Precondition for take-off

•Manufacturing emerges but is characterized by low productivity and low per-capita output.

•Increased productivity in agriculture.

3. Take-Off

•Economic growth and increase in per-capita income.

•Production improvements.

•Emergence of leading sectors, and a new class of entrepreneurs.

4. Drive to Maturity

•Modern technology is adopted in all economic activity.

•New leading sectors emerge.

•Economy looks beyond borders for development.

5. High Mass Consumption

•Leading sectors shift toward durable goods.

•Surge in per-capita income.

•Increased allocation to social welfare.

•Masses can afford products beyond necessities.

6 Marxist-Leninist Model Stages

1. Primitive Society

2. Slavery-Base Society

3. Feudal Society

4. Capitalism

5. Socialism

6. Communism

1. Primitive Society

•Joint ownership of primitive means of production.

•Production centered on agricultural tasks.

2. Slavery-based society

•Formed as a result of tribes claiming power over conquered tribes and their property.

3. Feudal Society

•Dominance of feudal lords, who own the land and its dwellers.

4. Capitalism

•Emerging bourgeoisie - social class that came to own the means of production during modern industrialization and whose societal concerns are the value of property and the preservation of capital to ensure the perpetuation of their economic supremacy in society.

5. Socialism

•Disappearance of private property; replaced with state property.

6. Communism

•State and cooperative ownership of all means of production and property.

3 levels of development in countries

- High-Income Countries

- Middle-Income Countries

- Low Income Countries

High Income Countries (GNI per capita: $42,558)

▪Well-developed industrial and service sectors.

▪Markets in maturity stage

▪Consumers with. established preferences

▪Markets are characterized by intense competition.

▪GNI per capita is the sum of value added by all resident producers + any product taxes not included in the valuation of output + net receipts of primary income from abroad.

Atlas Method

applies a conversion factor that averages the exchange rate for a given year and the two preceding years, adjusted for differences in rates of inflation between the country, and through 2000, the G-5 countries.

Middle Income Countries (GNI per capita: $3956 - $12,235)

- They are defined as lower middle-income economies - those with a GNI per capita between $1,006 and $3,955; and upper middle-income economies

- Middle income countries are home to 75% of the world's population and 62% of the world's poor

Low Income Countries

▪Primarily agrarian.

▪Located in different regions in Asia and sub-Saharan Africa.

▪Often neglected or underserved by large multinationals.

▪Represent potential niche markets.

▪Perceived as the emerging markets of the near future

7 top emerging markets

1. China

2. India

3. Brazil

4. Russia

5. Mexico

6. Indonesia

7. Turkey

The Political Environment

•Sovereignty:

▪Self determination and independence from external interference.

▪At the basis of international law and international relations

•International trade limits sovereignty.

Politcal Risk (2 topics)

1. Evaluating Political Risk

2. Political risk signals

•Evaluating political risk

•Business periodicals (The Economist, WSJ)

•Commercial sources (Country Reports, Economist Intelligence Unit, Chase, RUNDT's World Business Intelligence)

Political risk signals

•Poor economic performance.

•Repression of ethnic groups and/or general repression by the elite.

•Internal diversity and incongruent interests.

•Radically changing government structures.

•Fierce nationalist sentiment.

Legal Systems

1. Common Law

2. Code (Civil) Law

3. Islamic Law

1. Common Law

•Based on prior court rulings (legal precedent)

- used by many of the former Great Britain colonies.

2. Code (Civil) Law

•Comprehensive written laws that specify what constitutes legal behavior

- Used by most countries.

3. Islamic Law

•System of law based on the interpretation of the Koran, Islam's holy book and Prophet Muhammad.

•Establishes rules for business practices that can affect firm operations.

•Used in North Africa, the Middle East, the South Asia.

5 Ways to Minimize Political Risk

1. Understand both ruling and opposition parties.

2. Sell a quality product or service that is essential for local development.

3. Partner with local companies and create local expertise.

4. Use local suppliers.

5. Obtain insurance coverage against expropriation, nationalization, confiscation, and terrorism.

2 Types of Political Risk

1. Related to Gov Trade Policies

2. Related to Gov Economic Policy

1. Related to Gov Trade Policies

•Tariffs and quotas.

•Exchange-rate controls and export/import license requirements.

•Other trade barriers.

2. Related to Gov Economic Policy

•Controlling foreign investment through taxes or transfer of assets from company to local ownership:

-Confiscation.

-Expropriation.

-Nationalization.

-Creeping expropriation.

-Domestication.

4 Methods of IP (Intellectual Property) Protection

1. Patent

2. Copyright

3. Trademark

4. Trade Secret

patent

•Protection of the rights of the inventor or of the firm to use and sell the invention for a specified period of time.

copyright

rights of owner of original work of art to reproduce, sell, perform, or film the work

trademark

A brand name, mark, trade name, symbol, motto, or slogan that identifies a brand and distingusihes it from competitors' brands

trade secret

•Know-how, formulas, and special blends that are not registered and are thus not protected by law.

Natural Environment of International Marketing

Determines access to markets, production and productivity capability, and trade.

Geology and the Shortage of Natural Resources

•A country's access to natural resources determines whether the country can be a viable trade partner in the international market.

•Geology determines the natural resources available in the country and its potential for prosperity.

•There is a shortage of raw materials worldwide and prices are rapidly increasing

Topography and Access to Markets

•Topography determines access to the market and affects distribution decisions.

Hydrology

•Determines access to markets.

•Hydroelectric power is essential to economic development.

Climate

•Affects economic development: Arid lands are inhabitable only at high cost; excessive rain destroys the infrastructure.

Population

•Problematic, considering the scarcity of natural resources.

•Population growth rate is highest in South Asia and Sub-Saharan Africa.

Environmental Quality

•Concerns about the environment have led to the active regulation of business, especially in industrialized countries.

Tariffs

Any type of tax imposed on goods entering a particular country

Arguments for protectionism

1. protection of infant industry

2. natural resource conservation and environmental protection

3. consumer protection

4. national defense

quotas

specific limits on the number or volume of imported products

Voluntary Import Expansion (VIE)

country agrees to open its market to imports, increases foreign access to a domestic market while increasing competition and reducing prices

local content requirement

manipulating and assembling the product on the territory of the importing country, usually in a foreign trade zone. Favors local contribution and labor

boycott

group calling for a ban on consumption of all goods associated with a particular company or country

embargoes

prohibits all business deals with a country that is the target, often affecting business from third countries with both countries that is the target and countries that is doing the targeting

sanction

trade restriction applied by country/group against another country for noncompliance (happens a lot when countries are at war)

Non-tariff Barriers

non tax methods of increasing the cost or reducing the volume of imported goods (favors domestic over foreign)

non-automatic import license

restrict imports of a given product or from a certain country

automatic import license

facilitate import surveillance, discourages import surges, place admin and financial burdens on importer

Determinants of economic and political integration

- common culture

- shared history

- regional proximity

- similar level of economy or politics

determinants that prohibit integration

- difference in culture

- physical distance

- loss of sovereignty

- history of conflict

Bilateral & multilateral agreements

- can be industry-specific or involve some or all products exchanged between countries.

- They are least formal than other integrations

Free trade agreements

countries reduce then eliminate trade barriers on all goods/services traded between them

customs union

- Eliminate all or mostly reduce trade restrictions for member countries

- trade block composed of free trade area with common external tariff

common market

- eliminates ALL tariffs and non-tariff barriers

- adopt common external tariffs and allow free movement of capital and labor between members

monetary unions

- creation of unified central bank and use of single currency

- reduces transactions cost and increases price transparency

political union

- highest level of regional integration

- viable economic integration, viable governing bodies, legislative bodies, and enforcement powers

- European Union is the only successful volunteer of this