Chapter 5 - Developing a Global Vision PDF

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Chapter 5: Developing a Global Vision 5.1 Rewards of Global Marketing and the Shifting Global Business Landscape  Global marketing- marketing that targets markets throughout the world- has become an imperative for business. o Beyond your domestic market  U.S. managers must develop a global vision not only to recognize and react to international marketing opportunities but also to remain competitive at home.  Having a global vision means… o recognizing and reacting to international marketing opportunities o using effective global marketing strategies o being aware of threats from foreign competitors in all markets.  Despite the increasing availability of foreign customers, small businesses still account for only approx.. 34% of U.S. exporting volume.  Global marketing is not a one-way street whereby only U.S. companies sell their wares and services throughout the world. Foreign competition in the domestic market is found in almost every industry.  In many industries, U.S. businesses have lost significant market share to imported products. o In electronics, cameras, automobiles, fine china, tractors, leather goods, and more, U.S. companies have struggled at home to maintain their market shares against foreign competitors. A. Importance of Global Marketing to the United States  Gross domestic product (GDP) is the total market value of all final goods and services produced in a country for a given time period. The U.S. derives 14% of gross domestic product from world trade. o Final in the definition refers to final products that are sold, not to intermediate products used in the assembly of a final product.  Since 2009, growing exports have added 6.1 million private sector jobs to the U.S. economy.  Traditionally, only very large multinational companies have seriously attempted to compete worldwide. o However, more and more small and medium sized companies have begun pursuing international markets. Today, a record 287,000 small and medium firms export goods from the U.S. Class Notes  U.S. exports 13% of industrial production  More than 10 million American jobs are supported by exports  Every U.S. state has realized net employment gains directly attributable to foreign trade  U.S. businesses export over $2.1 trillion in goods and services each year  Less than 10% of all manufacturing businesses (25,000 companies) export their goods on a regular basis B. The Impact of Trade and Globalization  The negatives of global trade are as follows: o Millions of Americans have lost jobs due to imports o Millions of others fear losing their jobs o Employers often threaten to outsource jobs if workers do not accept pay cuts. o Service and white-collar jobs are increasingly vulnerable to operations moving offshore.  Job outsourcing and inshoring: o Outsourcing is sending U.S. jobs abroad. o Many executives have said that it leads to corporate growth, efficiency, productivity, and revenue growth. o Most companies see cost savings as a key driver in outsourcing. o Outsourcing also has its negative side.  For instance, Detroit has suffered a great deal as many factories in the auto industry have been shut down and relocated around the world. o Inshoring is returning production jobs to the U.S.  Benefits of globalization: o Economy relies on competition to drive down prices and increase product and service quality. o Business goes to countries that operate most efficiently &/or have the technology to produce what’s needed. o offers access to foreign capital, global export markets, and advanced technology.

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Faster growth, in turn, reduces poverty, encourages democratization, and promotes higher labor and environmental standards. acts as a check on government power expands economic freedom, spurs competition, and raises the productivity & living standards of people in country that open themselves to the global marketplace.

5.2 Multinational Firms  The United States has a number of large companies that are global marketers.  Multinational Firm: a corporation engaged in international trade that moves resources, goods, services, and skills across borders without regard to the country in which its HQ is located  Stages of Multinational Development: 1. companies operate in one country and sell into others. 2. set up foreign subsidiaries to handle sales in one country. 3. operate an entire line of business in another country. 4. Involvement of high-tech companies with virtual operation.  A multinational company may have several world-wide headquarters depending on where certain markets or technologies are located.

A. Are Multinationals Beneficial? 

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They account for about 19% of all U.S. private jobs Provide 25% of private wages 74% of R&D spending 41% of the increase in private labor productivity

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Cons: Technology is capital intensive and does not necessarily increase employment Support governments that benefit the company, not necessarily the country and its people May take away more wealth than they generate

They also often possess and can transfer the most up-to-date technology. o Critics claim that often the wrong kind of technology is transferred to developing nations. Usually, it is capital intensive (requiring a greater expenditure for equipment than for labor) and thus does not substantially increase employment. More and more multinationals are taking a proactive role in being good global citizens. Sometimes companies are spurred to action by government regulation; in other cases multinationals are attempting to protect their good brand names.

B. Global Marketing Standardization  Traditionally, market-oriented multinational corporations have operated somewhat differently in each country. o They use a strategy of providing different product features, packaging, advertising, and so on.  Communication and technology have made the world smaller so that almost all consumers everywhere want all the things they have heard about, seen, or experienced.  In this book, global marketing is defined as individuals and organizations using a global vision to effectively market goods and services across national boundaries.  Firms practicing global marketing standardization produce “globally standardized (uniform) products” to be sold the same way all over the world.  A multi-domestic strategy occurs when multinational firms enable individual subsidiaries to compete independently in domestic markets. o Ex. McDonalds = every single P is changed for the local market  Global Marketing standardization vs. Multi-domestic strategy = NOT a dichotomy; think of it as a continuum 5.3 External Environment Faced by Global Marketers  Many of the same environmental factors that operate in the domestic market also exist internationally.  These factors include culture, economic and technological development, political structure and actions, demographic makeup, and natural resources. A. Culture

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Culture is the common set of values shared by its citizens that determines what is socially acceptable. o Culture underlies the family, the educational system, religion, and the social class system.  A company that does not understand a country’s culture is doomed to failure in that country. o Cultural blunders lead to misunderstanding and often perceptions of rudeness or even incompetence.  Factors to keep in mind when dealing with different cultures: 1. Language is an important aspect of culture that can create problems for marketers. Marketers must take care in translating product names, slogans, instructions, and promotional messages so as not to convey the wrong meaning. 2. Each country has its own customs and traditions that determine business practices and influence negotiations with foreign customers. 3. Making successful sales presentations abroad requires a thorough understanding of the country’s culture. B. Economic Factors  A second major factor in the external environment facing the global marketer is the level of economic development in the countries where it operates.  In general, complex and sophisticated industries are found in developed countries, and more basic industries are found in less developed nations.  Not only is per capita income a consideration when going abroad, but so is the cost of doing business in a country. 

C. The Global Economy  A global marketer today must be fully aware of the intertwined natures of the global economy.  The U.S. economy’s size was so large that global markets tended to move up or down depending on its health. o The world now looks to economies such as China, India, and Brazil to help jump-start economic growth.  The lesson for the global marketer is clear: forecasting global demand and economic growth requires an understanding of what is happening economically in countries around the globe. D. Doing Business in China and India  China and India have two of the highest growth rates in the world and are emerging as megamarkets.  They also have the world’s two largest populations, two of the worlds largest geographic areas, greater linguistics, and among the highest levels of income disparity in the world- some people are extremely poor whereas others are very rich.  Both India and China have exploded in spending power, particularly in the upper class.  China is committed to protecting its businesses and asserting new global strength, which has resulted in several legislative stalemates with the United States. E. Political Structure and Actions  Political structure is a third important variable facing global marketers.  Government policies run the gamut from no private ownership and minimal individual freedom to little central government and maximum personal freedom.  The least regulated and most efficient economies are concentrated among countries with well established common-law traditions, including Australia, Canada, New Zealand, the United Kingdom, and Singapore and Hong Kong  Legal considerations: o Many legal structures are designed to either encourage or limit trade:  Tariff: a tax levied on the goods entering a country.  Quota: a limit on the amount of a specific product that can enter a country.  Boycott: the exclusion of all products from certain countries or companies.  Exchange control: a law compelling a company earning foreign exchange from its exports to sell it to a control agency, usually a central bank.  Market grouping (also known as a common trade alliance): occurs when several countries agree to work together to form a common trade area that enhances trade opportunities.  Trade agreement: an agreement to stimulate international trade.  The Uruguay Round, the Failed Doha Round, and Bilateral Agreements: o The Uruguay Round is a trade agreement that has dramatically lowered trade barriers worldwide.  Adopted in 1994, the agreement has been signed by 157 nations.

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For the first time, a trade agreement covers services, intellectual property rights, and trade-related investment measures such as exchange controls. o The Uruguay Round made several major changes in world trading practices:  Entertainment, pharmaceuticals, integrated circuits, and software: The rules protect patents, copyrights, and trademarks for twenty years.  Financial, legal, and accounting services: Licensing standards for professionals, such as doctors, cannot discriminate against foreign applicants.  Agriculture: Europe is gradually reducing farm subsidies, opening new opportunities for such U.S. farm exports as wheat and corn.  Textiles and apparel: Strict quotas limiting imports from developing countries are being phased out, causing further job losses in the U.S. clothing trade.  A new trade organization: The World Trade Organization (WTO) is a trade organization that replaced the old General Agreement on Tariffs and Trade (GATT), which was an agreement that contained loopholes enabling countries to avoid trade-barrier reduction agreements. North American Free Trade Agreement: o The North American Free Trade Agreement (NAFTA) created the world’s largest free trade zone. o The agreement includes Canada, the United States, and Mexico o The main impact of NAFTA was to open the Mexican market to U.S. companies. Dominican Republic-Central America Free Trade Agreement: o The Dominican Republic-Central America Free Trade Agreement is a trade agreement instituted in 2005 that includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. European Union: o The European Union (EU) is a free trade zone encompassing twenty-eight European member countries and five candidate countries. o In early 2010, Greece entered a financial crisis that highlighted the challenges of a large currency union where member nations maintain responsibility for their own fiscal policies.  The crisis has highlighted debt problems in other EU nations. The World Bank, The International Monetary Fund, and The G-20: o Two international financial organizations are instrumental in fostering global trade. o The World Bank is an international bank that offers low-interest loans, advice, and information to developing nations. o The International Monetary Fund (MF) makes short-term loans to member national that are unable to meet their budgetary expenses and works to promote trade through financial cooperation. o The Group of Twenty (G-20) finance ministers and central bank governors was established in 1999 to bring together industrialized and developing economies to discuss key issues in the global economy.  The G-20 is a forum for international economic development that promotes discussion between industrial and emerging-market countries on key issues related to global economic stability. o

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F. Demographic Makeup  Three key demographic considerations for marketing are: o Population density o urban or rural o personal income o age G. Natural Resources  A final factor in the external environment that has become more evident in the past decade is the shortage of natural resources: petroleum, foodstuffs, precious metals, timber, water o For example, petroleum shortages have created huge amounts of wealth for oil-producing countries. o Warm climate and lack of water mean that many of Africa’s countries remain importers of foodstuffs.  Shortages in natural resources create: o International dependencies o Inflation and recession o Huge shifts of wealth

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Export opportunities for countries with abundant resources

5.4 Global Marketing By the Individual Firm  Why “Go Global”? o Earn additional profits o Leverage a unique product or technological advantage o Possess exclusive market information o Saturated domestic markets – out of room to grow market share in the domestic market  

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Stimulus for military intervention

Excess capacity – more product available to sell than customer to buy products Utilize economies of scale Strategic reasons – a foreign company is putting pressure on you in domestic market; put pressure on them in their own

Many firms form multinational partnerships- called strategic alliances- to assist them in penetrating global markets. Five other methods of entering the global marketplace are, in order of risk, exporting, licensing and franchising, contract manufacturing, joint venture, and direct investment.

Risk Levels for Global Entry -

A. Exporting  When a company decides to enter the global market, exporting is usually the least complicated and least risky. o Exporting is selling domestically produced products to buyers in other countries.  Instead of selling directly to foreign buyers, a company may decide to sell to intermediaries located in its domestic market. Export Intermediaries o The most common intermediary is the export merchant, also known as a buyer for export, an intermediary that assumes all ownership risks and sells globally for its own account.

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A second type of intermediary is the export broker, who plays the traditional broker’s role by bring buyer and sell together. Exporting agents, a third type of intermediary, acts like a manufacturer’s agent for the exporter; the export agent lives in the foreign country.

B. Licensing and Franchising  Licensing is the legal process whereby a licensor allows another firm to use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge. C. Contract Manufacturing  Firms that do not want to become involved in licensing or to become heavily involved in global marketing may engage in contract manufacturing, which is private label manufacturing by a foreign country. D. Joint Venture  In an international joint venture, the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. E. Direct Investment  Active ownership of a foreign company or of overseas manufacturing or marketing facilities is called direct investment.

5.5 The Global Marketing Mix  To succeed, firms seeking to enter into foreign trade must still adhere to the principles of the marketing mix.  Information gathered on foreign markets through research is the basis for the four P’s of global marketing strategy: product, place, price, and promotion.  The first step in creating a marketing mix is developing a thorough understanding of the global target market. o However, global marketing research is conducted in vastly different environments. Product and Promotion

A. Product Decisions  One important decision is whether to alter the product or the promotion for the global market.  Other options are to radically change the product or to adjust either the promotional message or the product to suit local conditions.  One Product, One Message: o The strategy of global marketing standardization means developing a single product for all markets and promoting it the same way all over the world. o Sometimes the desire for absolute standardization must give way to practical considerations and local market dynamics.  Product Invention: Product invention can either mean creating a new product for a market or drastically changing an existing product.  Product Adaptation: Another alternative is to alter a basic product slightly to meet local conditions. B. Promotion Adaptation  Another global marketing strategy is to maintain the same basic product but alter the promotional strategy.

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Language barriers, translation problems, and cultural differences have generated numerous headaches for international marketing managers.

C. Place (Distribution)  Adequate distribution is necessary for success in global markets o Lack of distribution infrastructure and cultural differences create problems o Logistics & shipping costs have been a challenge for U.S. companies looking to move production overseas. o Global trade has added to strains and charges for all forms of transportation.  Innovative distribution systems can create competitive advantage D. Pricing  Must not only cover their production costs but also consider transportation costs, insurance, taxes, & tariffs.  When deciding on a final price, marketers must also determine how much customers are willing to spend on a particular product; Also need to ensure that foreign buyers will pay the price; A product can be simplified in order to lower the price; A firm must not assume low-income countries are willing to accept lower quality  Exchange Rates: o The exchange rate is the price of one country’s currency in terms of another country’s currency. o Currency markets operate under a system of floating exchange rates, in which prices of different currencies move up and down based on the supply and demand for each currency.  Dumping: o Dumping is the sale of an exported product at a price lower than that charged for the same or like product in the “home” market of the exporter. o This practice is regarded as a form of price discrimination that can potentially harm ...