Chapter 8 - Global Marketing PDF

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CH.8: Global Marketing

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(8.1) Describe the components of a country market assessment

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Assessing Global Markets • •

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through globalization, marketers are presented with a variety of opportunities - firms must assess the viability of various potential market entries 4 Sets of Criteria necessary to assess a country’s market I. Economic Analysis II. Infrastructure and Technological Analysis III. Governmental Actions or Inactions IV. Sociocultural Analysis these 4 areas offer marketers a more complete picture of a country potential as a market for products and services

I. Economic Analysis Using Metrics • the > the wealth of people in a country, the better the opportunity a firm will have with in that country • firm must look at 3 major Economic Factors using well established metrics i. General Economic Environment ii. Market Size & Population Growth Rate iii. Real Income i.

Evaluating the General Economic Environment • healthy economies provide better opportunities for global marketing expansions • several ways a firm can use metrics to measure the relative health of a particular courts economy - some are more useful for some products and services than for others • to determine market potential for its product/service a firm should use as many metrics as it can obtain

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(METRICS) -RELATIVE-LEVELS-OF-IMPORTS-AND-EXPORTSone metric is the relative level of imports/exports trade deficit: country imports more than it exports - U.S. deficit can signal potential for greater competition at home from foreign producers trade surplus: higher level of exports than imports - firms would rather manufacture in a country that has surplus, it signals greater opportunity to export products to more markets -OUTPUT-“GDP”most common way to gauge the size and market potential of an economy “the potential the country gas for global marketing” - using standardized metrics of output “GDP” Gross Domestic Product: the market value of the goods and services produced by a country in a year Gross National Income: GSP plus the net income earned from investments abroad (minus any payments made to nonresidents who contribute to the domestic economy) - U.S. firms that invest or maintain operations abroad count their income from those operations in the GNI but not the GDP

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-PURCHASE-POWER-PARITY-(PPP)metric of an overall economy Purchase Power Parity (PPP): theory that states that if the exchange rates of two countries are in equilibrium, a product purchased in now will cost the same in the other, if expressed in the same currency a novel metric that employs PPP to asses the relative economic buying power among nations is The Economist Big Mac Index - suggest that exchange rates should adjust to equalize the costs of a basket of goods and services, wherever it is bought around the world

these various metrics help marketers understand the relative wealth of a particular country, thought they may not give a full picture of the economic health of a country because they are based solely on material output • understanding the macroeconomic environment is crucial for managers facing a market entry decision as equal importance is the understanding of economic metrics of market size and population growth rate ii. Evaluating Market Size and Population Growth Rate • global population has been growing dramatically since the turn of the 20th century • many less developed nations are experiencing rapid population growth, while many developed countries are experiencing either 0 or negative population growth - countries with high PPP today may be less attractive in the future for many products/services because of stagnated growth - BRIC countries are likely to be the source of most market growth • consumer goods companies are paying close attention to the strong demand in BRIC nations • another aspect related to market size and population growth pertains to the distribution of the population within a particular region - is the population located primarily in rural or urban areas? - distinction determines where and how products and services can be delivered - long supply chains in which goods pass through many hands, are often necessary to reach rural populations in less developed countries and therefore add to the products cost iii. Evaluating Real Income • firms can make adjustments to an existing product or change the price to meet unique needs of a particular country market • Bottom of the Pyramid (market): setting in which consumers earn very low wages - there is a large impoverished population that still wants and needs consumer goods but cannot pay the prices that the fewer, wealthier consumers in developed nations can • pricing adjustments aren’t only for inexpensive products - pricing isn’t the only factor that companies adjust to appeal to lower-income markets •

II. Analyzing Infrastructure and Technological Capabilities • next component into any market assessment is an infrastructure and technology analysis • infrastructure: is defines as the basic facilities, services, and installations needed for a community or society to function, such as transportation and communication systems, water and power lines, and public institutions such as schools, post offices, and prisons • marketers are particularly concerned with 4 key elements of a country infrastructure i. transportation ‣ theres must be a system to transport goods throughout the various markets and to consumers in geographically dispersed marketplaces - trains, roads, refrigeration ii. distribution channels ‣ distribution channels must exist to deliver products in a timely manner and at a reasonable cost iii. communications ‣ particularly media access, must be sufficiently developed to allow consumers to find information about the product and services available in the market place

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commerce ‣ consist of the legal, banking, and regulatory systems, allows markets to function

III. Analyzing Governmental Actions • how issues pertaining to the political and legal structures of a country can affect the risk that marketers face in operating in a given country • includes actions of nongovernmental political groups, can influence firms ability to sell goods and services resulting in either growth to the global market or close off the country and inhibit growth i. Tariffs ii. Quotas iii. Exchange Control iv. Trade Agreements i. Tariffs • Tariff “Duty:” is a tax levied on food imported into a country • mostly intended to make imported goods more expensive = less competitive with domestic products, - which protects domestic industries from foreign competition • in others, tariffs might be imposed to penalize another country for trade practices that the home country views as unfair • tariffs reduced = supporting “welcoming” foreign trade ii. Quotas • Quota: designates a minimum or maximum quantity of a product that may be brought into a country during a specified time period • if demand exceeds supply = increases quota - level depends on annual consumption and production rates • tariffs and quotas can have a fundamental and potentially devastating impact on a firms ability to sell products in another country - tariffs raise prices, lowering demand of products - quotas reduct the availability of imported merchandise - tariffs and quotas benefit domestically made products because they reduce foreign competition iii. Exchange Control • Exchange control: refers to the regulations of a country's currency exchange Rate: the measure of how much one currency is work in relation to another • designated agency in each country - often the Central Bank - sets the rules for currency exchange - in U.S. the Federal Reserve sets the currency exchange rates • as economies and currencies continue their constant rising and falling relative to one another, marketers must keep revising their pricing strategies to reflect the current international conditions iv. Trade Agreements • marketers must consider Trade Agreements (intergovernmental agreement to manage and promote trade activities for specific regions) to which a particular country is a signatory or the Trading Bloc (consists of those countries that have signed a particular trade agreement) to which it belongs • designed to manage and promote trade activities for a specific region - trading bloc consists of those countries that have signed the particular trade agreement • together, the following major trade agreements cover 2/3rds of the worlds international trade - (EU) European Union - (NAFTA) North American Free Trade Agreement - (CAFTA) Central America Free Trade Agreement - Mecosur - (ASEAN) Association of Southeast Asian Nations • EU represent the highest level of integration across individual nations IV. Analyzing Sociocultural Factors • understanding another country culture is crucial to the success of any global marketing initiative

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culture: shared meanings, beliefs, morals, values, and customer of a group or people, exist on two levels - visible artifacts (e.g. behaviors, dress, symbols, physical settings, ceremonies) - underlying values (thought processes, beliefs, and assumptions) difficult to understand the underlying values of a culture and appropriately adapt their marketing strategies to them - to better understand the underlying values and avoid any issues, we use one important cultural classification scheme called GEERT HOFSTEDEs CULTURAL DIMENSION CONCEPT HOFSTEDEs CULTURAL DIMENSION 1. POWER DISTANCE willingness to accept social inequality as natural 2. UNCERTAINTY AVOIDANCE the extent to which the society relies on orderliness, consistency, structure, and formalized procedures to address situations that arise in daily life 3. INDIVIDUALISM perceived obligation to and dependence on groups 4. MASCULINITY the extent to which dominant values are male oriented. - lower masculinity ranking indicates that men and women are treated equally in all aspects of society, higher ranking means men dominate in positions of power 5. TIME ORIENTATION short vs long term orientation 1. long term orientation value longer times “of success such as a new product introduction” 6. INDULGENCE the extent to which society allows for the gratification of fun and enjoyment needs or else suppresses and regulates such pursuits another means of classifying culture is through importance of verbal communication - business relationships: what is said and written down through formal contract vs. nonverbal cues and finalized through handshakes signifying the importance of trust and honor over legal arrangements culture affects every aspect of consumer behavior 1. why people buy 2. who is in charge of buying decisions 3. how, when and where people shop after completing 4 parts of market assessment - better informed on decision for considering potential market

(8.2) Understand the marketing opportunities in BRIC countries The Appeal of the BRIC Countries • growth and expansion of 4 countries Brazil, Russia, India, China • greatest potential for growth Brazil • Brazil’s ability to weather, and thrive during economic storms has transformed it into a global contender • 8th largest economy • recent recession caused the country to have a negative growth rate • economic growth due to expansion of its literate population and impositions of social programs that have allowed > half 201M Brazilians to enter middle class • welcomes foreign investors political and economically Russia • since fall of Soviet Union, undergone multiple up/down turns in its economy • growth prospect seems promising in consumer market • exhibit a strong demand for US products and brands • internet users growing rate @ aprox. 10% annually - already Europe’s largest internet market • joined WTP 2012 to improve trade relations • yet faces economic and political issues, corruption, aging population with low birth rates, - created ethical dilemmas for firms trying to make their goods and services

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India • > 1.2 B people - aprox. 15% of world population - expanding middle and upper classes = one of worlds fastest growing markets • youngest population median age @ 27.9 years - adopting global attitude while living in growing urban centers and shopping at large malls • well educated, fluent in English and high skilled workforce great attraction for firms hoping to expand using local talent • also projected to become the fastest growing e commerce market in the world China • while maintaining communist political ideals - embraced market oriented economic development • increasing liberalization in the economy has prompted a large improvement in Chinas Global Retail Development Index • china maintains a thriving retail market, likely to reach $8T mark and surpass US as worlds largest market

TEACH ME THE FOLLOWING 1. What metrics can help analyze the economic environment of a country? 2. What type of governmental actions should we be concerned about as we evaluate a country? 3. What are some important cultural dimensions? 4. Why are each of the BRIC countries viewed as potential candidates for global expansion?

(8.3) Identify the various market entry strategies

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Choosing A Global Entry Strategy •

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once concluded its assessment analysis for its prod. and serv. -> conduct an internal assessment of capabilities - MKTG plan, SWOT, STP after internal market assessment = time for firm to choose its entry strategy firm can choose many approaches when it comes to entering a new market - varies according to which level of risk the firm is willing to take - typically firms begin with least risky strategy entering a new market, to riskiest - as they gain confidence in their abilities and control over operations

GLOBAL ENTRY STRATEGIES I. II. III. IV. V. I.

EXPORTING FRANCHISING STRATEGIC ALLIANCE JOINT VENTURE DIRECT INVESTMENT EXPORTING producing goods in one country and selling them in another • least financial risk, but also allows a limited return to the exporti firm • global expansion begins when a firm receives an order for its pr service from another country - little risk due to no investment in people, capital equipment, buildings, or infrastructure, hence difficult to achieve economies of scale

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FRANCHISING contractual agreement between a firm, the franchisor, and another firm/individual - franchisee • contract allows the franchisee to operate a business - retail product or service firm or a B2B provider using the name and business format developed and supported by the franchisor • firms have found that global franchising entails lower risks and requires less investment than does opening units wholly owned by the firm • when engaging in franchising, firm has limited control over the market operations in the foreign country - RISK potential in profits is reduced as it is split with the franchisee - RISK once franchisee is established, it is a possible threat as the franchisee could potentially break away and operate as a competitor under a different name STRATEGIC ALLIANCE refer to collaborative relationships between independent firms, though the partnering firms do not create an equity partnership - they dont invest in one another - ex. über and Spotify partnership which allows riders that use Spotify to control music during the ride however both operate independently JOINT VENTURE formed when a firm entering a market pools its resources with those of a local firm • as a consequence - ownership, control, and profits are shared • aside the financial burden, local partner offers the foreign entrant greatest understanding of the market and access to resources such as vendors and real estate • some countries require joint ownership of firms entering their domestic markets - RISK when partners disagree or if the government places restrictions on the firms ability to move its profits out of the foreign country and back into its home country DIRECT INVESTMENT requires a firm to maintain 100% ownership of its plants, operation facilities, and offices in a foreign country, often through the formation of wholly owned subsidiaries • HIGHEST LEVEL OF investment and exposes the firm to significant RISKS, including loss of its operating and/or initial investments - dramatic economic downturn caused by natural disaster, war, political instability, or changes in countries laws can increase RISK - some firms believe potential risk is outweighed by high potential returns • in addition to high potential returns, direct investment offers firm complete control over its operations in the foreign country

TEACH ME THE FOLLOWING 1. Which entry strategy has the least risk and why? 2. Which entry strategy has the most risk and why?

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(8.4) Highlight the similarities and differences between a domestic marketing strategy and a global marketing strategy

Choosing A Global Marketing Strategy •

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includes 2 components I. TARGET market to pursue II. developing a MARKETING MIX that will sustain a competitive advantage over time TARGET MARKET: Segmentation, Targeting, Positioning • Global STP is more complicated than domestic 1. Firms considering global expansion have more difficulty understanding the cultural nuances of other countries 2. subcultures within each country also must be considered 3. consumers often view products and their role as consumer differently in different countries

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Global Product or Service Strategies • 3 potential global product strategies 1. sell the same product/service in both the home-country market and host country 2. sell a product/service similar to that sold in the home country but include minor adaptations “GLOCALIZATION” 3. sell totally new product/service • choice depends on needs of the target market, level of economic development, difference in product and technical standards = determine need and level of product adaptation - cultural differences such as food preferences, language and religion play a role in product strategy planning same product or service similar product or service with minor adaptations - GLOCALIZATION firms standardize their products globally but use different promotional campaigns to sell them 3. totally new product or service - level of economic development and cultural tastes also affects global product strategy because it relates directly to consumer behavior Global Pricing Strategies • determining the selling price in global marketplace is an extremely difficult task - many countries have rules governing the competitive marketplace, including those affecting price - other factors such as tariffs, quotas, antidumping laws, and currency exchange policies can affect pricing decisions • competitive factors influence global pricing the same way they do in the home country - market prices must be adjusted to reflect the local pricing structure • currency fluctuations affect global pricing strategies Global Distribution Strategies • global distribution networks form complex value chains that involve - wholesalers, exporters, importers, different transportation systems - these additional intermediaries typically add cost and ultimately increase the final selling price of a product - consequence of these cost factors, constant pressure exist to simplify distribution channels wherever possible Global Communication Strategies • major challenge in developing a global communication strategy is identifying the elements that need to be adapted to be effective in the global market place - such as literacy, media availability - state controlled media, and advertising and privacy regulations • difference in language, customs, and culture also complicat...