International Marketing: Fachhochschule Ludwigshafen Dr. Rer. Pol. Irene Giesen-Netzer, Diplom-Kauffrau WS 2009/2010

Introduction International Marketing
Fachhochschule Ludwigshafen Dr. rer. pol. Irene Giesen-Netzer, Diplom-Kauffrau WS 2009/2010

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Introduction International Marketing
Part of Marketing conception (8 credits)
Marketing planning and controlling (60 points) Intro International Marketing (40 Points)
Written test at the end
Literature
Albaum, G., Duerr, E., International Marketing and export management, 2008 Backhaus, K., Bschken, J., Voeth, M., International Marketing, 2005 Lascu, D.-N., International Marketing, Third edition, 2008/ Third edition 2008 www.atomicdog.com
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Content

Basics of International Marketing The international Marketing Environment International Marketing Strategies International Marketing Mix Implementation of the international Marketing Strategies Case studies
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Content
Basics of International Marketing

Importance Concepts Drivers
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Importance of IM
International expansion helps firm: Keep pace with competition Reach a larger market (e.g. US with 25% of worldwide products/services) Reap higher profits Prolong the lifecycle of their products
Also an option for small and medium sized companies

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Internationalization Philosophies
Domestic Marketing
Low or no international commitment
Focus on domestic consumers and home country environment Domestic focus
Export Marketing
Limited international commitment
Involves direct or indirect export
Multinational Marketing
Substantial international commitment
Focus on different international countries
Global Marketing
Extensive international commitment
Focus on regions market segments rather than countries Regiocentric Geocentric
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Ethnocentric
Polycentric
Raising commitment/ involvement to international markets
Ethnocentric Orientation
Guided by domestic market extension concept Domestic strategies, techniques, and personnel are perceived as superior. International markets are secondary, regarded primarily as outlets for surplus domestic production. International marketing plans are developed inhouse by the international division. E.g. Disney resort in France: Disneyland Resort Paris had to adapt it to local preferences: European fairy tales, food, and dress code for 9 staff. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Polycentric Orientation

Guided by the multidomestic marketing concept Focuses on the importance and uniqueness of each international market Firms establish independent businesses in each target country. Fully decentralized, minimal coordination with headquarters Marketing strategies are specific to each country. Outcomes:

No economies of scale Duplicated functions Higher final product costs
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Regiocentric Orientation

Guided by the global marketing concept World regions that share economic, political, and/or cultural traits are perceived as distinct markets. (e.g. EU, NAFTA*) Divisions are organized based on location. Regional offices coordinate marketing activities.
*North American free trade agreement
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Geocentric Orientation

Guided by the global marketing concept Marketing strategies aimed at market segments, rather than geographic locations Maximizes efficiencies worldwide and provides standardized product or service throughout the world E.g. McDonalds
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International Expansion Drivers

Business Environment Drivers
Competition Regional Economic and Political Integration Technology Improvements in Transportation and Telecommunication Economic Growth Transition to Market Economy

Firm specific Drivers Product Life Cycle High New Product Development Costs Standardization Economies of Scale Cheap Labor Experience Transfers
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Converging Consumer Needs
International Expansion Drivers: Business Environment (contd.)

Competition
Example: McCann Erickson has been handling the Coca-Cola account in 129 countries since 1942. Therefore the advertising agency, follows longtime client, Coca Cola, Inc., to all countries where Coke is present. Nevertheless Coca-Cola moved the management of its dedicated Red Lounge China marketing unit from McCann Erickson to Leo Burnett, a competing advertising agency (2007). At the same time Leo Burnett lost some international accounts of its longtime client, McDonald's.
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Regional Economic and Political Integration Example: Regional agreements such as NAFTA, and the European Union (EU) lower and eliminate barriers and promote trade within these markets. Subsidiaries can be established in these markets to take advantage of free trade within the region.
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Technology Examples: Consumers worldwide are exposed to similar products, services, and entertainment, and marketing communications. The Web and the Internet have revolutionized the way companies 16 conduct business. Dana-Nicoleta Lascu Atomic Dog Publishing 2006

Transportation and Telecommunications Lower cost and higher quality communication due to satellite technology, teleconferencing, and e-mail Efficient transportation due to containerization and just-in-time technology
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Economic Growth
Emerging middle class with increasing buying power in big emerging markets such as Brazil and India. Opening of new markets previously closed, such as the markets of China and Vietnam.
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Transition to a Market Economy
Transition of the Eastern Bloc to a market economy created important new markets. Created opportunities to transform inefficient government-owned companies into successful enterprises.
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Transition to a Market Economy
Yum! Brands in China and Taiwan (e.g. Taco Bell, KFC, Pizza Hut) do well in spite of E.coli (East cost) and rat infestation in NY
Yum! Brands is omnipresent in China and Taiwan 20
International Expansion Drivers: Business Environment

Uniform consumer segments emerging worldwide: Global teenagers Global elite Loyal to international brands (Nike, Levis, Coca-Cola, Heineken, Ralph Lauren, MTV, TV shows)
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International Expansion Drivers: Business Environment

Consumers traveling abroad bring with them product experiences and demand brands that may not be available in the home-country market.
Bagel shop in Berlin (Potsdamer Platz)

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Firm-Specific Drivers
(contd.)
Product Life Cycle Considerations: prolonging product lifecycle by entering growth markets
Intro Growth Maturity
e.g. Cigarette industry in emerging markets
Decline
Sales
Sales
Profits
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Firm-Specific Drivers (contd)

High New Product Development Costs Firm must look beyond home-country market to recover investment costs. E.g. Nike: one year to develop a new product, that last only half a year on the shelves in the US
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Firm-Specific Drivers
Standardization, Economies of scale, Cheap Labor
Price competition during the maturity of the product life cycle drives firm to new international markets in search of cheap labor. The firm lowers coststhus pricesdue to economies of scale and saving from standardization processes.
Experience Transfers
Experience in one country serves as basis for strategies in new international markets.
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Obstacles to Internationalization
within the company Finances Psychological: unknown environment Self-Reference Criterion
outside Government Barriers Barriers imposed by International Competition
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Self-Reference Criterion
Conscious and unconscious reference to own national culture while operating in the host country. (e.g. eye contact US-Japan)
To counter the impact of the self-reference criterion, the corporation must select appropriate personnel for international assignments and engage in sensitivity 27 training. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Government Barriers
Restriction placed on foreign corporations by imposing tariffs, import quotas and other limitations, such as restrictive import license awards.
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Barriers imposed by International Competition

Blocked channels of distribution Exclusive retailer agreements Cutting prices Advertising blitzes
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Case Study 1
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Content

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Content
The international Marketing Environment

World economy International Trade Regional Economic and Political integration Cultural Influence on IM
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The World Economy

Rather than rising and falling separately, national economies have become interdependent and respond to the same environmental forces
The international economy performs as a single unit. (e.g. Finance/ Banking crises 2008/2009)
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Categories of countries
First World (Developed countries), Second World (Socialist countries), Third world (Developing countries) United Nation: LLDCs Least developed countries and lowest income) LDCs (less developed and lower income) NICs (newly industrialized countries e.g. Singapore, South Korea, Hong Kong) World Bank (and here): Developed Countries, Emerging Countries, Developing Countries
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Big Emerging Markets
Present the greatest potential for international trade and expansion Set the pace for the economy in the region. Examples: China, India, Argentina, Brazil, Mexico
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Characteristics of Emerging Markets

High political stability Sound currency, low inflation Pro business, fiscally-conservative, transparent government policies Guarantees for the repatriation of dividends and capital Sound corporate law Markets reflecting fair prices Work ethics and a culture of integrity
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Political Environment
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At the basis of international law and international relations: sovereignty (self determination and independence from external interference, authority over all nationals) International trade limits sovereignty. Governments can invoke sovereignty and jeopardize firms operations. E.g. Iran, Cuba 37
Political Risk
Evaluating Political Risk:
Business periodicals (The Economist, Wall
Street Journal)
Commercial sources (Country reports, Chase,
RUNDTs)
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Political Risk
Country risk rankings Least risky countries, Score out of 100Source: Euromoney Country risk March 2008[1]
Rank 1 2 3 4 5 6 7 1 2 3 4 5 6
Previous
Country Luxembourg Norway Switzerland Denmark Sweden Ireland Austria
Overall score 99.88 97.47 96.21 93.39 92.96 92.36 92.25
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Finland
Netherlands United States
91.95
91.95 91.27 2006 Atomic Dog Publishing
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Political Risk
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
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Political Risk
Risk Element Economic performance signal Political repression signal Internal diversity and incongruent interests Political instability and the instability of government policies
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Example United Kingdom unemployment is increasing due to higher immigration and falling levels of economic activity. Peaceful protest is not a right for Russians: violent clashes between police and pro-democracy demonstrators in Moscow and St. Petersburg are the norm. Eastern European and Turkish migrants are flocking to the high-income countries of the European Union. They do not acculturate easily and create divergent interests in Old Europe. Taiwan's ruling party, the DDP, endorses a separatist policy relative to China, limiting access to Taiwan's market. The opposition welcomes a closer relationship to China. The parties have physical fights.
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Political Risk
Risks Related to Government Trade Policies: Tariffs, exchange-rate controls, quotas, export/import license requirements, other trade barriers (embargos, sanctions)
Details next chapter/ International Trade barriers
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Political Risk (contd.)
Risks Related to Government Economic Policy: Controlling foreign investment through taxes transfer of assets from company to local ownership:
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Risks Related to Labor and Action Groups Risks Related to Terrorism
Confiscation (without compensation) Expropriation (some reimbursement) Creeping expropriation (paperwork, judicial systems, regulations) Nationalization (local government takes over) Domestication (transfer to local enterprises)
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Minimizing Political Risk

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Understand both ruling and opposition parties. Remain politically neutral. Be exemplary corporate citizens. Sell a quality product or service that is essential for local development. Partner with local companies and create local expertise. Use local suppliers. Obtain insurance coverage against expropriation, nationalization, confiscation, and terrorism. 44
Insurance e.g.
Hompage www.opic.gov 21.1.09

Overseas Private Investment Corporation OPIC assists U.S. companies by providing financing political risk insurance, and investment funds. OPIC was established as an agency of the U.S. government in 1971 and currently does business in over 150 countries.
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Types of Coverage Currency Inconvertibility Expropriation Political Violence Standalone Terrorism Special Coverages Small Business Coverage
International Legal Environment
International Laws Host Country Laws Home Country Laws Legal Systems:
Common law Code (Civil) law Islamic law

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Jurisdiction
Not automatic

In EU: European Court of Justice Between Governments (UN): The International Court of Justice Between international enterprises: host- or home- or third country MEDIATION ARBITRATION
Independent Third Party Non-Binding Independent Third Party Binding
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Instead of a lawsuit
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Intellectual Property Rights
Violation of intellectual property rights is a significant threat to the competitiveness of international corporations. Losses attributed to the violation of intellectual property rights are estimated to be $60 billion a year. (e.g. Software $11 billion, entertainment $8, pharmaceuticals $1 billon) There is a saying in Shanghai: We can copy anything except your mother (even fake blood plasma)
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Intellectual Property Protection
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 (literature, music, film, design) to reproduce, sell, perform, or film the work.
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Intellectual Property Protection
Trademark Brand name, mark, symbol, motto, or slogan that identifies a brand and distinguishes it from competitors brands. (E.g. Rolex, Gucci, Fendi/ Design copying without the trademark is legal) Trade Secret Know-how, formulas, and special blends that are not registered and are thus not protected by law.
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Counterfeiting
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Factors Influencing Intellectual Property Violations

Lack of appropriate legislation Lax enforcement Unavailability of authentic products High prices for authentic products that limit their accessibility to local consumers Cultural Factors:
Values that perceive imitation as a form of flattery Feelings of interpersonal distrust and not getting fair deal Emphasis on material wealth 52 Belief that technology is common domain Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Protecting Intellectual Property
TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights,): member countries of the World Trade Organization, must sign the TRIPS agreement: minimum standards for the legal protection of property rights Bilateral and multilateral conventions Enlisting home and host-country government support
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Home Country Legislation
Antitrust Legislation
Prevent anticompetitive activities such as the creation of monopolies and cartels. Prevent multinational corporations from using unethical means to obtain competitive advantage in a particular market Foreign Corrupt Practices Act makes it illegal to bribe politicians.
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Anti-Corruption Legislation
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Natural Environment as a influencing factor for IM
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Geology and Shortage of natural resources (access to resources, e.g. oil) Topographies and access to Markets Hydrology Climate Population/ Human Capital Environmental Quality (regulations on the natural environment, e.g. hormones, pesticides, CO2-Levels) 55
Technological Environment as an influencing factor for IM

New product development Networks, warehouse management, electronic data interchange (EDI) Web/Internet
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World Regions Population Population % (2006 Est.) of World Middle East and Africa Asia Europe North America Latin America/ Caribbean Oceania/ Australia 1,105,295,089 3,667,774,066 807,289,020 331,473,276 553,908,632 33,956,977 17.0 56.4 12.4 5.1 8.5 0.5 Internet Usage, Latest Data 52,148,100 387,593,457 312,722,892 232,057,067 88,778,986 18,430,359 % Population (Penetration) 13.8 10.6 38.7 70.0 16.0 54.3
WORLD TOTAL
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6,499,697,060
100.0
1,091,730,861
16.8
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Opportunities Web/Internet:
200 million e-mail boxes in the United States. People send more than 7 trillion e-mails each year in the United States. The average e-mail user receives 31 e-mails per day. Business-to-business e-commerce in the United States totals $1.3 trillion per year. Businesses will place orders totaling $3 trillion per year worldwide via the Internet. Twenty-five percent of all business-to-business purchases are placed through some type of Internet connection. Internet retail sales account for almost 2.5 percent of all retail sales
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Threats Web/Internet The payment mechanism is sometimes difficult:

Different currencies Different method of payments (credit cards, debit cards) Credit card theft Accepting credit cards from unknown buyers
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Content

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Opposing Forces
National and local governments want to protect small /medium enterprises
Build trade barriers
Reduction of trade barriers

Multinational firms and governments of the multinational firms
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Arguments for Protectionism
Protection of markets with excess productive capacity/ of markets with excess labor/ Employment protection Infant industry argument Natural resources conservation and environmental protection Consumer protection National defense
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Tools of Government Protectionism
Tariffs: any type of tax imposed on imported goods

Discourage imports of particular goods Protect local industry Penalize countries that are not politically aligned with the importing country. Generate revenues
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US tariffs are generally less than 15%. Other countries impose tariffs greater than 100% for protected products. 63
Tools of Government Protectionism (contd.)
Non-Tariff Barriers: Measures, other than traditional tariffs, that are used to distort international trade flows
Raise prices of both imports and importcompeting goods. Favor domestic over foreign supply sources by causing importers to charge higher prices and to restrict import volumes.
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Tools of Government Protectionism (contd.)

Non-Tariff Barriers (contd.): Quotas:
Specify maximum quantity (unit limit) or value of a product that may be imported during a specified period.
Orderly market arrangements
Complicated approach to establishing what, in essence, is a quota. (Textile and apparel industries)
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Non-Tariff Barriers (contd.): Licenses

Non-Automatic Import Licenses:
Issued on a discretionary basis to restrict imports of a given product or from a certain country Examples:
Military equipment and other armament from any country Birds
Restrict volume and/or quantity of imports

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Non-Tariff Barriers (contd.): Licenses (contd.)
Automatic Import Licenses:

Granted freely to importing companies Facilitate import surveillance Discourage import surges Place administrative and financial burdens on importer May raise costs by delaying shipments
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Non-Tariff Barriers (contd.):
Voluntary Expansion/Restraints
Voluntary Import Expansion: Governments agree to allow imports from a particular country as a result of pressure from another country.

Increases foreign access to a domestic market. Increases competition and reduces local prices. Self-imposed export quotasimposed to avoid a greater penalty. Used by the importing country to protect local industries.
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Voluntary Export Restraints:
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Non-Tariff Barriers (contd.): Price Controls
Increasing the Price of Imports to match minimum domestic prices Antidumping and Countervailing Duty Actions:
investigations to determine
if products were sold below fair value to get rid of excess inventory (dumping) or as a result of foreign subsidies.
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Such measures can intimidate importers.

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Non-Tariff Barriers (contd.): Price Controls (contd.)
Paratariff Measures:
Additional charges that increase the cost of imports
Examples:

Advance import deposits Import charges Seasonal tariffs Customs charges

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Non-Tariff Barriers (contd.): Standards
Environmental, performance, manufacturing and other standards used as barriers to imports. Primarily imposed by highly industrialized countries E.g. EU against hormone fed US beef, bioengineered corn and soybeans
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Non-Tariff Barriers (contd.): Percentage Requirements
Requirement that a percentage of the products imported be locally produced Local content requirement:
Often met by manipulating and/or assembling the product on the territory of the importing country, usually in a foreign trade zone.
Favoring local contribution and labor Limiting foreign ownership to a certain percentage.
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Non-Tariff Barriers (contd.): Boycotts
Boycotts Action group calling for a ban on all goods associated with a particular company and/or country. Target company is representative of its country of origin.
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Non-Tariff Barriers (contd.): Embargos and Sanctions
Embargos
Prohibiting all business deals with the target country; affects third parties.
E.g. US Cuba Sanctions
Punitive trade restrictions applied by a country or group against another country for noncompliance.
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Non-Tariff Barriers (contd.): Currency Controls
Blocked Currency
Does not allow importers to exchange of local currency for currency a seller is willing to accept as payment. Favorable and less favorable exchange rates imposed on imports, based on the extent to which the goods are necessary and desirable. Give priority to imports in the national interest.
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Differential Exchange Rates
Foreign Exchange Permits
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Arguments for free trade
increases competition (lower prices for local consumers) Multinationals encourage efficiency in local manufacturing and services. Local firms no longer have to limit themselves to the local, national market. Increase production, achieve economies of scale, and offer lower prices to world markets. Avoidance of protectionism of other governments
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International trade Imperative
David Ricardos Theory Countries benefit from specialization in an industry in which they have comparative advantage and from trading with one another.
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Eastern worker in a Year makes:
2 bicycles or 4 bushels of wheat.
A Westerner can produce:
1 bushel or 1 bike.
Each country has 100 workers split evenly between producing bikes or wheat West has no absolute advantage!
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Without international trade:
East produces 50*4=200 bushels and 50*2=100 bikes, West produces 50*1=50 bushels and 50*1=50 bikes. Together: 250 bushels and 150 bikes
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With international trade based on comparative advantage:
East has absolute advantages in both. But West has a comparative advantage in bikes. East specializes in growing wheat moving 10 workers to it: East produces 60*4=240 bushels and 40*2=80 bikes West specializes in producing bikes moving 25 workers to it: West produces 25 bushels and 75 bikes Together: 265 bushels and 155 bikes
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Facilitators of International Trade
International Trade and Economic Development Organizations Government Organizations Other Institutions and Procedures Facilitating International Trade
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World Trade Organization
Largest and most influential international trade organization (153 members on

23 July 2008 from 197 countries worldwide)
Ensures free flow of trade Functions:
Provides assistance to developing and transition economies Offers help for export promotion. Promotes regional trade agreements and economic cooperation. Reviews members trade policies and engages in 82 routine notification of new trade measures. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
World Trade Organization

(contd.)
WTO agreements represent trade rules and regulations and act as contracts guaranteeing countries trade rights and binding governments to free trade policies. Agreements:

General Agreement on Tariffs and Trade (GATT) General Agreement on Trade in Services (GATS) Trade-Related Aspects of Intellectual Property Rights (TRIPS)
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Group of Eight - G8
Members from the most industrialized countries: Canada, France, Germany, Italy, Japan, United Kingdom, United States and Russia
Yearly meetings involve heads of state, government ministers, directors of central banks Addresses: biotechnology, food safety, economic development, disarmament, arms control, organized crime, drug trafficking, 84 terrorism, environmental issues and trade
United Nations Organizations

16 different United Nations Organizations Maintain international peace and security develop relations among countries achieve international cooperation encourage respect for human rights and freedom Promote the economic and financial welfare of developing countries. Focus on developing industrial, communication, agricultural and transportation infrastructures.
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International Monetary Fund (IMF)

Specialized agency of the United Nations (UN), 185 member countries Encourages unrestricted conversion of currencies through clear values. Member voting power linked to amount they contribute. a body instituting appropriate development strategies. Mediator between debtors and creditors Provides training and technical assistance for monetary and financial strategies
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Facilitators of International Trade: The Development Banks
The World Bank
Specialized agency of the UN, works with IMF
Largest international bank that sponsors economic development

Employs international specialists in economics, finance, sectoral development Focus on health and information technology
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Facilitators of International Trade: The Development Banks (contd.)
African Development Bank (poverty reduction)

Asian Development Bank (Private sector)
European Bank for Reconstruction and Development (focused on markets of transition in Central and Eastern Europe)
Inter-American Development Bank (private sector projects)
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Facilitators of International Trade: Government Agencies

Ministry of Trade, Ministry of Foreign Affairs
USA:
US Department of Commerce; ExportImport Bank of the United States State and Local Government Agencies, such as the U.S. Chamber of Commerce US Agency for International Development 89 (USAID) Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Foreign Trade Zones (FTZs) Free Trade Zones

Tax-free area not considered part of the country in terms of import regulations and restrictions site is considered an international area. Merchandise in FTZ is outside the jurisdiction of the host countrys customs services. Host country benefits: Creates demand for local services, products, and raw materialshence local jobs. Increases trade balancere-exports add to total number of exports from the respective 90 Dana-Nicoleta Lascu Atomic Dog Publishing 2006 country.
Foreign Trade Zones (FTZs)

(contd.)
Firm benefits from using an FTZ:

Foreign goods are exempt from duties as long as they do not enter the country.
Goods are imported when demand is high, thus deferring tariffs until that time.
Payment is delayed until goods are sold. Firm can use the FTZ for breaking bulk. Lowers prices for goods sold in the importing country 91
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Foreign Trade Zones (FTZs)

(contd.)
Firm benefits from using an FTZ, cont.: Helps importing country impose local content regulations on products from abroad. Safer than most ports of entrybonded warehouse. Products can be labeled as manufactured in the foreign trade zone country, if products from that country have a positive country-oforigin (country image). E.g. Port of Rotterdam (NL)
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Other Customs-Privileged Facilities

Variations of FTZ Products are brought into an in-bond area, manipulated (processed, repackaged, assembled), and re-exported to country where products originated. Low tariffs assessed only on value-added processing that took place in the zone. Limits on products imported to encourage reexporting.
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Obstacles to Economic and Political Integration
Differences in culture (language, traditions, norms, religion) and history Physical distance/ not the same borders Differences in level of economic development Political considerations:
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Concerns regarding loss of sovereignty/ national identity A history of conflict
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Levels of Regional Economic and/or Political Integration

Political Union Monetary Union Common Market
Free Trade Agreement

General Bilateral/Multilateral Agreement
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General Agreements: Bilateral and Multilateral Forums and Agreements
Bilateral Agreements
General agreements between multiple countries. Typically, they are industry specific OPEC (Organization for Petroleum Exporting Countries)/ Oil and Gas NATO (North Atlantic Treaty Organization)/ Military OECD (Organization for Economic Cooperation and Development) APEC (Asia-Pacific Economic Cooperation) CIS (Commonwealth of Independent States) non97 Baltic successors to the Union of the Soviet Union 2006 Dana-Nicoleta Lascu Atomic Dog Publishing
Multilateral Forums and Agreements:
Regional trade cooperation between two countries
Free Trade Agreements: Europe
Countries reduce or eliminate trade barriers on all goods and services traded between them. Every country is free to charge its own tariff to all external entities. Example:
European Free Trade Association (EFTA)

- Member countries: Iceland, Liechtenstein, Norway and Switzerland
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Free Trade Agreements: Asia
Association of Southeast Asian Nations (ASEAN)
Most successful example of regional economic integration in Asia Member countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
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Free Trade Agreements: Americas

North American Free Trade Agreement (NAFTA) Member countries: United States, Canada and Mexico. Free Trade Area of the Americas (FTAA) Member countries: The 34 democratic nations of North, Central, and South America. Ambitious plan to create a market of 800 million people and an annual production worth $11 trillion in the current decade.
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Free Trade Agreements: Africa

Southern African Development Community (SADC)
Free trade organization promoting economic cooperation among 14 of Africas more affluent countries: Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mozambique, Namibia, Seychelles, the Republic of South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe.
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Customs Union
Trade association that eliminates or greatly reduces all trade restrictions for member countries Identical Import duties and regulation for non-members
South African Customs Union
Botswana, Lesotho, Namibia, and Swaziland

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Common Market
Establishing a common market involves: Eliminating all tariff and non-tariff barriers to trade Adopting common external tariffs Allow for free movement of capital and labor within the common market European Union reached this stage before establishing a monetary and political union
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Common Market (contd.)
Latin American Integration Association
Member countries: Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. Member countries: Bolivia, Colombia, Ecuador, Panama, Peru, and Venezuela.
Andean Common Market
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Southern Cone Common Market (MERCOSUR)
Member countries: Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Member countries: Brazil, Argentina, Paraguay and Uruguay. Bolivia and Chile are members with contingencies.
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Central American Common Market

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Common Market for Eastern and Southern Africa (COMESA)
Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe.
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Monetary Union
Common monetary policy Unified central bank Single currency
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Monetary Union, Examples:

European Monetary Union

Also known as Euro zone, EUR-16, and Euroland Member countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain European Central Bank
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European Monetary Union 3 criteria: No more than 2 % from average interest rate Budget deficits below 3 % of GDP Public dept not exceeding 60% of GDP
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(contd.)
West African Economic and Monetary Union
Benin, Burkina Faso, Ivory Coast, GuineaBissau, Mali, Niger, Senegal, Togo
Economic Community of West African States
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Benin, Burkina Faso, Cap Verde, Ivory Coast, Gambia, Ghana, Guinea, GuineaBissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo 110
Political Union

Highest level of integration Common governing bodies, legislative bodies, and enforcement powers Example: European Union
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European Union
Member Countries: 27
Belgien (BE) Bulgarien (BG) Dnemark (DK) Deutschland (DE) Estland (EE) Finnland (FI) Frankreich (FR) Italien (IT) Lettland (LV) Litauen (LT) Luxemburg (LU) Malta (MT) Niederlande (NL) sterreich (AT) Rumnien (RO) Schweden (SE) Slowakei (SK) Slowenien (SI) Spanien (ES) Tschechien (CZ) Ungarn (HU)
Griechenland (GR)
Irland (IE)
Polen (PL)
Portugal (PT)
Vereinigtes Knigreich (GB)

Republik Zypern (CY)
Candidate Countries: Croatia , Turkey
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Bodies of the European Union

European Council:
The highest policy-making body, it consists of heads of member-countries government. Consists of 785 members elected by direct universal suffrage with representation allocated among member states based on their population (5 years) Debates the policies and legislation in the EU
European Parliament (in Strasbourg, F):
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Bodies of the European Union

Council of Nations
Consists of representatives from parliaments of member countries and acts as constitutional council that has the power to overrule the Court of Justice.
Council of Ministers:
The decision-making body (legislature) of the European Union Composed of one minister from each member country Passes laws based on proposals of the European 114 Dana-NicoletaCommission Lascu Atomic Dog Publishing 2006
Bodies of the European Union (contd.)

European Commission:

The executive body of the European Union. Subordinated to the European Council Consists of a president and commissioners who are in charge of initiating and supervising the execution of laws and policies. Answers to the European Parliament Acts only on behalf of and in the interest of the European Union, and not that of individual member states
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European Central Bank:
Enacts the monetary policy for the countries that are members of the European Monetary Union Maintains price stability within the European Monetary Union
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European Court of Auditors:
In charge of controlling sound and lawful management of the EU budget The European Unions equivalent of the United States Supreme Court. The final court of appeals Can overrule decisions of the national courts
European Court of Justice:

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The EU Fifteen Member states
The European Parliament
The European Council
The European Court of Justice
Body of 546 members (elected every 5 years)
Meeting place for heads Of the EU members
Judgments override National courts
1 minister of each member country,
Council of Ministers:
The legislature body
The European Central Bank

Price Stability
The European Commission:

Works on behalf of the EU, Subordinate of the Council,
The executive body
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The Council of Nations:
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Content

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Culture
Culture is defined as a continuously changing totality of learned and shared meanings, rituals, norms, and traditions among the members of an organization or society. Culture is also defined as a societys personality. Culture

Has a general influence on consumption Has an influence on the stakeholders Determines the manner in which individuals respond to Marketing strategies
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Example
The Turkish Client
You are in the middle of negotiations with a potential Turkish client in Istanbul, over lunch, at the Conrad Hilton Hotel. You go to the self-service buffet and pile on your plate some tasty pork chops from a serving dish clearly marked "pork." You ask the waiter to bring a bottle of wine and offer some to your potential Turkish client; he declines. Your products are known for their quality in Turkey and elsewhere in the world, and your client seems receptive to your price quote. After lunch, the potential client invites you to his home for coffee; you decline and state that you need to stay at the hotel to get some work done and bid him good-bye. You come back to your home country and find that you cannot reach your Turkish client. His secretary always claims he is not in, and he does not return your calls. 121 What went wrong?
Example
The Turkish Client
in Turkey, the dominant religion is Islam, and Islam bans the consumption of pork and alcohol. Could he have been offended by your not going to his house for Turkish coffee? Could the hotel staff have told him that you spent the evening next door, at another airconditioned hotel, a former palace, having yet another bottle of wine?
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Constituents of Culture
EcologyThe manner in which society adapts to its habitat. Social StructureThe organization of society. IdeologyThe manner in which individuals relate to the environment and to others.
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Elements of Culture

Language Religion Cultural Values Cultural Norms
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Language
Spoken/Written Language
Differences in meaning in different countries which share the same language (nappies diapers, trunk boot, vacuuming hoovering) Dealing with multiple dialects High costs of translation High costs of translation blunders (e.g. Fresca: soda pop, Mexico: slang for lesbian)
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Language (contd.)
Non-verbal communication
Proxemics (Physical space) Postures Orientations (manners, conventions) Oculesics (eye contact) Chronemics (Timing of verbal exchange)
Haptics Kinesics (Gestures)
Paralinguistics (Intonation, accents, qualitiy of voice) Appearances

Olfactions
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Religion
Societys relationship to the supernatural determines dominant values and attitudes. Examples:
Protestant Religionstresses hard work and frugality. Judaismstresses education and development. Islamfocus on rules for social interaction. Bans the use of interest rates. No pork or alcohol Hinduismencourages family orientation and dictates strict dietary constraints. Strictly hierarchical. No Beef. Buddhismstresses sufferance and avoidance 127 of worldly desires. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Religion and Its Impact on Business
Business Days Gender Roles Gift Giving Marketing Practices

Monday Tuesday Business Business Business Wednesday Business Business Business Thursday Business Business Business Business Friday Business Saturday Business Moring Business Business Business Sunday
Christian Islam Judaism
Business Business Business
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Cultural Values
Enduring beliefs about a specific mode of conduct or desirable end-state.
Guide the selection or evaluation of behavior. Ordered by importance in relation to one another to form a system of value priorities. Ultimately affecting product preferences and perception of products
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Learning New Cultures
Enculturation
Process by which individuals learn the beliefs and behaviors endorsed by ones own culture Learning a new culture.
Acculturation
Assimilation
Full adoption and maintenance of the new culture, and resistance to ones old culture.
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Cultural Norms
Norms are derived from values and defined as rules that dictate what is right or wrong, acceptable or unacceptable.
Minimum requirement for a survival in a new country
Imperative
What an outsider must or must not do.
Exclusive
What locals may do but an outsider cannot do.

What an outsider may or may not do.
Adiaphora
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Cultural Norms
Imperatives Exclusives Adiaphorous
Eating with chopsticks in Asia. Drinking banana beer in East Africa. Business cards: Asia: Wearing a sticker from presentation and a political party receiving with both hands. It has to stay on the table, dont write on the card, dont put it in the back pants pocket In Saudi Arabic woman are not allowed to drive or walk in public without a man.
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National/Regional Character

Time Orientation Business Hours Gift Giving Socializing Gender Roles Status Concern and Materialism
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Other Manifestations of National and Regional Character
Contact
e.g., phone, e-mail, in person
Access
e.g., transportation by bicycle, personal automobile, public transportation

Holland
Taiwan
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China
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Cultural Variability
Term used to differentiate between cultures on the Geert Hofstede Dimensions, which are:
Power Distance
The manner in which interpersonal relationships are formed when there are perceived differences in power.
Germany Eastern Europe Latin America China
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U.S.
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Low
High
Cultural Variability (contd.)
Term used to differentiate between cultures (contd.)
Uncertainty Avoidance
The extent to which individuals are threatened by uncertainty and risk and thus adopt beliefs and behaviors that help them to avoid the uncertainty.
Germany U.S. Japan Central/ Eastern Europe China
Low
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High
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Terms used to differentiate between cultures (contd.)
Masculinity/Femininity
The extent to which a culture is characterized by assertiveness / selfconfidence, rather than nurturing.
Canada Sweden Argentina
China
United Australia States
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Low Masculinity
High Masculinity
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Terms used to differentiate between cultures (contd.)
Individualism/Collectivism
The extent to which individuals prefer to act in the interest of the group rather than in their own self-interest.
Australia United States GB High Individualism
Thailand Latin America China Low Individualism
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Hofstede adds later a next point
Long term Orientation/ short term

Time horizon of planning in a society Values long term Orientation: frugality, insistency Values short term Orientation: flexibility, egoism
www.culturegrams.com reports on more than 200 countries, each U.S. state, and all 13 Canadian provinces and territories
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High vs. Low Context Cultures
Low-Context Cultures
What is said is precisely what is meant.
High-Context Cultures:

The context of the message is meaningful. Context:

Message source The sources standing in society or in the negotiating group The sources level of expertise, tone of voice, body language
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Cultural Change and Marketing

Marketers need to integrate culture when designing a marketing strategy by going through the following process:
Researching symbolic elements and cultural meanings in consumers lives
Identifying cultural meanings of the product
Designing the product accordingly
Designing the marketing campaign using symbolic cultural elements

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Obstacles to Cultural Understanding

Ethnocentrism
The belief that ones own culture is superior to another and that strategies that are used in the home country will work just as well internationally.
The Self-Reference Criterion:

The unconscious reference to ones own national culture, to home-country norms and values, and to their knowledge and experience in the process of making 142 Dana-Nicoleta Lascudecisions in the home country. Atomic Dog Publishing 2006
The Global Consumer Culture
Shared consumption-related symbols and activities that are meaningful to market segments A global consumer culture is attributed to the diffusion of products from the United States to the rest of the world.
Entertainment (MTV, movies, CDs) Hamburgers and pizza Jeans and running shoes, etc.
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Global Consumer Culture Trends
Proliferation of transnational firms and the related globalized capitalism
Globalized consumerism and the desire for material possessions

Homogenization of global consumption
Referred to as McDonaldization or Cocacolonization

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Positioning Based on Culture
Global consumer culture positioning
Positioning the product to appeal to individuals who want to be part of a global consumer culture. Positioning the product so that it is associated with local cultural meanings.
Local consumer culture positioning
Foreign consumer culture positioning
Positioning the product as symbolic of a desired foreign culture.

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Content

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Content
International Marketing Strategies

International Marketing Research International Marketing Planning Expansion Strategies and Entry
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Case Study 2
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International Marketing Research: Definition

International marketing research is the systematic
design, collection, recording, analysis, interpretation, and reporting
of information for a particular marketing decision facing a company operating internationally.

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International Marketing Research
International marketing managers need to constantly monitor the different forces affecting their international operations. International marketing research is especially complex.
Cultural differences Consumers remain sometimes suspicious of research

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Types of International Marketing Research
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Research of Industry, Market Characteristics, and Trends

Acquisition analyses Diversification analyses Market-share analyses Export research
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International Buyer Behavior Research

Brand preferences Brand attitudes Brands awareness studies Purchase behavior studies Consumer segmentation studies
e.g. Consumers in China tend to go for established luxury brands; they are more likely to avoid social risk than Westerners
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International Product Research

Concept development and testing studies Brand name generation and testing Product testing Competitive product studies Packaging design studies Test marketing
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International Product Research

Brand name generation and testing Bad-Choice Brand Names

Clean Finger Nail Kolic Last Climax Pocari Sweat Shocking Cat Wetty Pipi Polio Zit
Chinese tissues Japanese mineral water Japanese tissues Japanese sport drink Japanese chewing gum Japanese moistened hand towels Yugoslavian orangeade Czechoslovakian laundry detergent Greek soft drink
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International Distribution Research
Import/export analyses
E.g. Identifying logistic companies who can handle customs
Channel performance and coverage Plant/warehouse location studies
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International Promotion Research

How effective is the communication with the target market? Studies of premiums, coupons, and deals Advertising effectiveness research Local media research Studies of personal selling activities:

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Sales Force Compensation Quota Territory
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International Pricing Research

International market potential studies Sales potential studies Sales forecast Cost analysis Profit analysis Price elasticity studies Competitive pricing analyses
Studies projecting demand Currency and countertrade studies Studies of inflation rates and pricing Studies of negotiation tactics
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The International Marketing Research Process
STEP 1 Define the International Marketing Research Problem and Research Objectives

Exploratory (define the relevant dimensions, generate hypotheses) Descriptive (observe and describe the problem) Causal research (cause-and-effect relationships)
STEP 2 Develop the Research Plan (sources, instruments, methods, procedures, costs)
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STEP 3 Decide on the Information Sources Secondary Data:
The International Marketing Research Process (contd.)
Collected to address a problem other than the specific international marketing problem that the company is currently facing Internal and external secondary Data Collected before primary data
Primary Data:
Collected to address the specific international 160 marketing problem Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Secondary Data Constraints
Conceptual Equivalence Concepts have different meanings in different cultural environments. Functional Equivalence Products themselves may be used for different purposes in different country environments.
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Secondary Data
Availability, Reliability, and Validity:
Published statistics may be unavailablein many markets, relevant market data has not been collected; the most accurate secondary data is available on industrialized countries. Data may not be reliable and validdata may be underreported or exaggerated.
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Top 10 Global Marketing Research Firms

Rank Company Country Home Research Revenues (US$ millions) 2,814.0 1,219.4 1,033.2 1. VCU N.V. 2. IMS Health Inc. 3. The Kantar Group 4. Taylor Nelson Sofres Plc. U.K. 5. Information Resources Inc. U.S. 6. GfK Group 7. Ipsos Group S.A. 8. NFO WorldGroup Inc. 9. Westat Inc. 10. NOP World Netherlands U.S. U.K. 908.3 554.8 Germany France U.S. U.S. U.K. 528.9 509.0 466.1 341.9 320.0
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Source: Top 25 Global Research Organizations, Marketing News, Vol. 37, No. 17, August 18, 2003, p. H4.
Primary Data
Used in international marketing research far less than it should be: Temptation is to use secondary data to serve all research functions. Expensive: The costs of collecting primary data in international markets are likely to be much higher, especially if an adequate marketing research infrastructure is lacking. Time consuming
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Qualitative Research
Qualitative research has been useful as a first step in studying international marketing phenomena. Examples:

Focus Groups Depth interviews Observation Responses can be affected by culture. Individuals may act differently if they know they are being observed.
Constraints:

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Quantitative Research
Quantitative research are more structured, involving either descriptive research approaches, (survey research), or causal research approaches (experiments). Examples:

Content analysis, e.g. advertising research Survey research Experimental research Respondent factors
Constraints:
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Infrastructure factors
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STEP 5 Design Data Collection Instrument Emic instruments
Measure phenomena specific to each culture.
Etic instruments
Measure the same phenomenon in different cultures. Translation costs and accuracy Instrument reliability Reluctance to answer certain questions
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Constraints:

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STEP 6 Decide on the Sampling Plan

Sample Unit (Who) Sample Size (How many) Sampling Procedure (Selection)
STEP 7 Collect, Analyze, and Interpret Data
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Decision Support Systems for Global Marketing
A coordinated collection of data, systems, tools, and techniques, complemented by supporting software and hardware designed for the gathering and interpretation of business and environmental data.
Computerized Interactive Flexible Discovery oriented

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Sales Forecasting
Sales Force Composite Estimates
Personal observations and expectations of the local sales force and the international sales manager Opinions of different experts about future demand Experts to estimate market performance; findings are aggregated, and experts are queried again with the purpose of arriving at a consensus
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Jury of Expert Opinion
The Delphi Method
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Sales Forecasting (contd.)
Time Series and Econometric Models

Use data of past performance to predict future market demand. Analogy Methods

Estimation method that relies on developments and findings in markets

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With similar levels of economic development, or Where the product is in the same market development stage, or In markets which share similar cultural 171 characteristics Atomic Dog Publishing 2006
Sales Forecasting (contd.)

Point of Sale Research Made with the help of store scanners, in markets where they are available Involve comprehensive store audits.
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Content

International Marketing Research International Strategic Marketing Planning Expansion Strategies and Entry
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Developing an International Marketing Strategy
Requirements:
Strategic fit between the companys objectives, competencies, and resources and the challenges of its international market or markets. Link between the companys resources and its international objectives in a complex, international environment. The strategic planning process must be systematic and continuous Companys commitment to its international markets.
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The International Strategic Plan on different levels

Strategic plan allocates resources to each business unit based on division goals and objectives. Portfolio analysis is used to decide which brands to harvest, invest in, or divest. Has longer-term focus
A marketing plan is developed at product level, product line level, or at brand level. Has shorter-term focus Involves the marketing department
Corporate

Division
Business Unit Product Level
Strategic plan allocates resources and establishes objectives for the whole enterprise worldwide. Has long-term focus Involves the highest levels of management Involves international target market selection Planning involves decisions on which consumer segments to target in each country and how to target them.
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Developing the International Marketing Plan
Develop strategies for the target market:
Product mix, Distribution, Promotion mix, Pricing
Plan international marketing programs Manage the international marketing effort

Organize Implement Control
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International Target Marketing

The process of identifying and focusing on those international market segments that the company can serve most effectively and designing products, services, and marketing programs with these segments in mind.
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International Target Marketing
Is Used by Companies to:
Identify consumer segments with similar traits (International market segmentation). Select segments company can serve efficiently. Develop products tailored to each segment (International market targeting). Offer products to the target market, communicating through the marketing mix, product traits and benefits that differentiate it in the consumers mind (Positioning).
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International Segmentation
The process of identifying countries and/or consumers that are similar with regard to key traits, such as product-related needs and wants, that would respond to a product and related marketing mix. Must be performed at country (macro segmentation) level AND at the consumer level (micro segmentation).
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Requirements for International Segmentation

The extent to which international market segments respond differently to marketing strategies The ability to estimate the size of the market
The extent to which the international target market is responsive to the marketing strategies used
The extent to which the international market is large enough to warrant investment
The ability to communicate with the international target market
The extent to which international consumer preferences are stable 180 over time
International MacroSegmentation
Country Attractiveness Analysis Market potentialindicators:

Gross domestic product (GDP) per capita Industrial and agricultural sector statistics Market size and potential Consumer buying power Investment figures (Foreign direct investment data, other trade statistics)
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International MacroSegmentation (contd.)
Political, legal and financial environment of country:

Ethnic conflict History of war engagement Antiforeigner sentiment Recent nationalization activities Legal ambiguity Trade barriers Exchange rate controls
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Marketing support infrastructure:
Availability and reliability of distribution and logistics providers Availability of competent partners for strategic alliances. Quality of telecommunication and transportation infrastructure. Availability of other service providers:
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Marketing research firms Financial firms Management consulting firms
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Strength of own Brand brand franchise
Lead country (where products are first adopted) Lag country (where products are last adopted)
Degree of Market Fit with Company Policies, Goals, and Resources.
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Typology of international target market

Market attractiveness: e.g. Labor costs Brand management Working hours New markets Machine running times Taxes Environmental standards Administrative barriers Import barriers Structure (natural) barriers Strategic (competition) barriers
See: Backhaus,K., Bschken, J., Voeth, M, International Marketing, 2005
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Bases for Micro-Segmentation
Clusters of consumers that respond in a similar way to the marketing strategies
Demographic (descriptive statistics):

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Age Occupation Education Income Ethnicity Race Nationality Life-cycle stage Social class
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Bases for Segmentation

(contd.)
Psychographic: lifestyles, values, attitudes, interests, opinions Hofstede dimensions:

Power-distance Masculinity-femininity Uncertainty avoidance Individualism-collectivism
Global segments (psychodemographic segments):

Global teenagers Global elite Global gay and lesbian segment High sensation seekers
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(contd.)
Benefit Segmentation
Example: Cooking oil markets can be segmented based on benefits soughtolive oil is targeted to consumers who seek health benefits. Example: Avon segments its market geographically.
Geographic Segmentation
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(contd.)
Usage Nonusers Occasional users Medium users Heavy users
Ideal consumer
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User Status User of competitors products Potential users First time users Regular users
Country Screening and Selection

Three stages: Assign importance score to each country screening criteria. Evaluate country performance on each of the screening criteria. Calculate country attractiveness score.
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Country Screening/ Selection Example
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Target Market Decisions

Strategy Differentiated targeting strategy Purpose Differentiated targeting strategies identify, or even create, market segments that want different benefits from a product and target them with different brands, using different marketing strategies. Example: Procter &
Gamble with different laundry detergents
Concentrated targeting strategy
Companies select only one market segment and target it with a single brand. Companies that cannot afford to compete in a mature market with an oligopoly may choose to pursue a small segmenta niche.
Example: Mont Blanc pens
Undifferentiated targeting strategies

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The product is aimed at all markets using a single strategy, regardless of the number of markets and countries targeted.
Example: Coca Cola
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Positioning the Brand

Definition: Placing the brand in the consumers mind in relation to other competing products Six possible positioning strategies to reach a unique selling proposition
1. 2. 3.
4.
5. 6.
Attribute/Benefit Positioning Price/Quality Positioning Use or Application Positioning Product User Positioning Product class Positioning Competitor Positioning
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Attribute/Benefit Positioning: Positioning that communicates product attributes/ benefits, differentiating each brand from the other company brands and those of competitors (e.g. Procter & Gamble)
Price/Quality Positioning A strategy whereby products and services are positioned as offering the best value for the money (e.g. Wal-Mart) Or a strategy that offers the best product that money can buy (e.g. Mercedes-Benz, Kempinsky)
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Use or Applications Positioning The process of marketing a precise product application that differentiates it in the consumers minds from other products that have a more general use e.g. bikes in Asia or in the USA)
Product User Positioning A positioning strategy that focuses on the product user, rather than on the product. (e.g. Mont Blanc for business executives)
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Product Class Positioning A strategy used to differentiate a company as a leader in a product category. E.g. Disney sells magic, Harley sells excitement
Competitor Positioning The process of comparing the firms brand with those of competitors, directly or indirectly.
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Content

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Content

International Marketing Research International Marketing Planning Expansion Strategies and Entry
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Going International: Evaluating Opportunities
Consider drivers of international expansion in the environment:

Competition Regional economic and political integration Economic growth Technology Converging consumer needs
Consider firm-related international expansion drivers:
Product life-cycle considerations New product development costs Experience transfers Dana-Nicoleta Lascu Labor costs
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Example: Labor Cost Drivers

Country United States Austria Australia Brazil Denmark France Germany Israel Italy Japan Korea Mexico Netherlands Singapore United Kingdom Compensation ($U.S.) 22.87 28.29 23.09 3.03 33.75 23.89 32.53 12.18 20.48 21.90 11.52 Hourly Compensation Costs 2.50 in U.S. Dollars for Production Workers in Manufacturing 2006 30.76 7.44 24.71
Source: http://stats.bls.gov
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Control and Risk in International Expansion
Low Indirect Export
Control/Risk
Direct Export Licen- Franchi- Joint Branch sing sing Venture
High Subsidiary
in home country
Capital and Management
in host country
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Control and Risk in International Expansion
Companies need to decide whether to use middlemen in the process of taking their products internationally or to market directly to the international market:
Using middlemen requires a company to relinquish control: Distributors or agents sell the product . Direct international involvement exposes the company to substantial risk, but it also affords the company significant control of the marketing mix.
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International Entry Mode: Indirect Exporting

Company uses home country intermediaries who, in turn, sell product overseas. Lowest risk - Lowest control Often first step to a greater involvement Companies can use cooperative exporting, also known as piggybacking or mother-henning.
using the distribution system of exporters with established systems for selling abroad who agree to handle the export function of a non-competing company on a contractual basis.
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International Entry Mode: Direct Exporting

Firm handles its exporting function usually using its own in-house export department.
Provides more control over the marketing mix than indirect exporting.
Involves the use of middlemen such as:

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Freight forwarders Internet boosted this Shipping lines kind of entry mode Insurers Merchant middlemen Retailers Other marketing service providers, such as consultants, researchers and advertising companies 204
Top Purchasers of U.S. Exports

Country Canada Mexico Japan Purchases (Millions $U.S.) 190,163 110,775 54,400
United Kingdom
China Germany South Korea The Netherlands Taiwan France
35,960
34,721 31,381 26,333 24,286 21,731 21,240
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Source: http://www.ita.doc.gov/td/industry/otea/, updated November, 2006.
International Entry Mode: Licensing

An international entry mode that involves a licensor, who shares brand name, technology, and know-how with a licensee in return for royalties.
Licensor:

Offers know-how Shares technology Allows for the use of its brand name
A book published in the U.S. and its licensed Chinese reprint (for sale in Mainland China only)
Licensee:
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Pays royalties for the rights to use licensors technology, know-how, and brand name 206
Advantages:
Licensing (contd.)
Lower-risk entry mode (specially Licensing without the name Limits exposure to economic, financial, and political instability Permits the company access to markets that may be closed or that may have high entry barriers. Can produce a new competitor: the licensee Can be problematic if licensee cannot guarantee qualityit affects the brands overall reputation Solution: Licensing without the name (examples: Lada, a Fiat made in the USSR, Dacia, a Renault made in Romania). 207
Disadvantages:
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International Entry Mode: Franchising

Franchising refers to the methods of practicing and using another person's philosophy of business. Primary international entry mode in the service industry.
Franchisor:
Gives franchisee right to use brand name, trademarks and business know-how in return for royalties.
Franchisee:
Pays royalties for the right to use the know-how, 208 Dana-Nicoleta Lascu Atomic Dog Publishing 2006 trademarks, and brand name.
Franchising (contd.)
Advantages:

Lower-risk entry mode Limits exposure to economic, financial, and political instability Higher level of control Very rapid market penetration Can be problematic if franchisee cannot guarantee quality Can produce a new competitor: the franchisee Problematic if the concept can be easily copied 209
Disadvantages:

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Franchising (contd.)
Example: McDonalds
St. Petersburg
Viterbo, Italia
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Buenos Aires
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Franchising (contd.) Example: McDonalds
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The McDonalds restaurant on the left finds that the Quick imitation on the right has a comparable offering, including the Gant (giant) to 211 compete with the Big Mac. (Here in France)
International Entry Mode: Joint Venture

Joint Venture: A corporate entity created with the
participation of two companies that share equity, capital, and labor, among others.
Preferred entry mode in developing countries, where they contribute to developing local expertise and to the countrys balance of trade if production is exported.
International firm provides expertise, know-how, most of the capital, brand name reputation, trademark Local partner provides the labor, the infrastructure, local expertise and relationships, and connections to the government
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Joint Venture (contd.)

Advantages:
Higher control entry mode, potentially resulting in higher profits. Costs and risks shared with joint-venture partner. Local partner shares local market expertise, relationships, as well as connections to government decision-making bodies. Disadvantages:
Repatriation of profits may be difficult if local government has control over/stake in the local joint-venture partner. Can produce a new competitor: the joint-venture partner 70% of all joint ventures break up within 3.5 years
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Selecting the International Entry Mode: Consortia

A company created with the participation of three or more companies
Can create monopoly effect, so they are only allowed Where expensive R&D is involved In underserved markets In markets where the government and/or the marketplace can control its monopolistic activity. Example: Airbus (France Aerospatiale 38%, UK British Aerospace 20%, Germany Daimler DASA 38%, Spain Constucciones Aeronauticas 4%); founded as a challenge to Boeing 214
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International Entry Mode: Branch Offices
Branch Offices:
Entities are part of the international company, rather than a new company (as in the case of the subsidiary). Involves substantial investment Sales office Showroom Engage in a full spectrum of marketing activity High level of control
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International Entry Mode: Wholly Owned Subsidiaries
Wholly Owned Subsidiaries:

Involve long-term market commitment High cost High control of operations Greatest level of risk Can be developed by the company (greenfielding) or can be purchased (acquisition or merger)
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International Strategic Alliances

Sometimes licensing, franchising and joint ventures are called Strategic Alliances. But in general the Strategic Alliances are more short term and have not the same level of international commitment than the named entry modes.
Strategic Alliance: a relationship between two or more companies attempting to reach joint corporate and market related goals - while remaining independent organizations. Typically, the term refers to nonequity alliances.
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International Strategic Alliances

Examples of Strategic Allances Manufacturing: Manufacturing alliance (A nonequity relationship, in which one firm handles the others manufacturing (or some aspects of it), Contract manufacturing (manufacture of products) Engineering alliances, Technological alliances, R&D alliances Marketing: A nonequity relationship, in which one firm handles marketing (or some aspects) for another firm. Distribution: One firm handles the distribution or some aspect of the distribution process for another firm.
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Outsourcing
The strategic use of outside resources to perform activities that are usually handled by internal staff and resources.
E.g. customer service and billing. Outsourcing grew fast and further growth us expected. The outsourcing market ist about US $100 billion. + effective cost cutting technique + accessibility 24/7 219 - offshoring Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Outsourcing
Asia has emerged as the outsourcing hub and back-office of the Western world, and India, China, the Philippines, and Singapore are competing for the business. China is catching up as an outsourcing base for English-speaking nations, a business dominated by India. Note: Many outsourcing alliances have failed in recent years (nearly half of them).
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Success of Outsourcing:

Outsourcing must be done carefully, and with clear objectives and expectations of outsourcing activities. Outsourcing partners must be selected based on their expertise in the outsourcing activity and based on their cultural fit with the firm. The outsourcing firm must provide its partner in the strategic alliance with adequate training and skills that will help the partner adapt to other cultures. The outsourcing plan should provide clear expectations, requirements, and expected benefits during all phases of the outsourcing activity.
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Case Study 3
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Content

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Content
International Marketing Mix
International Product Mix

International Branding International Product and Service Strategies
International Distribution International Communication International Pricing
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Strategy and the companys orientation

Geocentric company orientation Global Standardization
Regiocentric company orientation Polycentric company orientation

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Regional Standardization Local adaption
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Global Standardization
Global Standardization: Standardization of products across markets and of the marketing mix worldwide. Advantages: Allows for economies of scale Encourages global branding - using the same brand name, logo, image and positioning everywhere in the world. (Ralph Lauren, Escada, Donna Karan, Pepsi, Coca Cola, Camel) - Global brands are more prestigious, signaling that the company has the resources to back the brand.
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Global Standardization
Advantages (contd.): Effective in meeting the needs of global consumers (same usage of media (internet, music), international travel) Effective in meeting consumer needs of higher quality and lower price. Facilitated by international travel Disadvantage: Cannot meet the needs of all target consumers.
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Regional Standardization: Standardization of products across regions and of the marketing mix within the region. (e.g.: EU, NAFTA, MERCOSUR) Advantages: Allows for economies of scale Addresses consumer preferences for higher quality and lower price Facilitated by international travel within the region Disadvantage: Cannot perfectly meet the needs of all target consumers in the region. E.g. Mercedes Benz, Levis
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Regional Standardization
Standardization: Global Localization

localized marketing adaptation to differences in local culture, production capabilities, governmental restrictions, etc.
Global Localization: global branding with
Types:
Modular Adaptation: Offer parts (modules) that can be assembled worldwide in different configurations, depending on market needs. Core Product Strategy: Involves using a standardized strategy for the core product worldwide, but varying certain aspects of the offering (product ingredients, advertising, for example) from market to market.
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Adaptation: Mandatory
Mandatory Adaptation: Adapting products to local requirements so that they can legally and physically operate in the respective countries. Examples: Left-hand driving in the United Kingdom 220 volt appliances in Europe, 110 volt appliances in the U.S.
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Adaptation: Non-Mandatory
Local Non-Mandatory Adaptation: Adapting a product to better meet the needs of the local market, or developing new brands for individual local markets, even though such adaptation is not required. Examples:
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Fast-food traditional hamburger places selling vegetarian burgers in India and falafel sandwiches in the Middle East. The Mercedes A class was developed for the narrow European streets. This automobile can easily fit up on narrow sidewalks and allow sufficient room for passers-by. Atomic Dog Publishing 231 2006
Private Label (Retailer) Brands
Compete effectively with multinational corporations because they:

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Campina, a popular pan-European dairy company of Dutch origin offers many retailer brands that compete with its own; for example, the company sells dairy products under the Albert Heijn (a popular Dutch retailer) brand name. 232
Offer premium store brands perceived by local markets as high-quality. Are innovative Appeal to consumers during economic downturns, and in general, since consumers today demand high quality at lower prices.
Global Branding
Country of Origin:
Country with which good/service is associated. Country where the product is manufactured (for products). Country where the headquarters are located (for services).
Country of Manufacture:
In the absence of other product information, country of origin impacts consumers product evaluations.
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Product Stereotypes
Product-specific stereotypes that associate the country of origin as a certification of quality. Examples product-country stereotypes:
French perfume, Kenyan or Columbian coffee, Chinese silk, Italian couture, Italian olive oil, German beer French waiters / with poor service.
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Example of service-country stereotype:
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Ethnocentrism
The belief
that ones culture is superior to another and that strategies used in ones home country will work just as well internationally the belief that purchasing foreign products hurts the local economy by causing loss of jobs, and that it is morally wrong and unpatriotic.
Domestic marketing extension concept Leads to the rejection of foreign products.
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Service Entry Barriers
Represent a manifestation of protectionism at the firm level, government level and consumer level
Examples:

Requirement to use national service providers Prohibition against employment of foreign nationals Direct competition from government providers Restrictions on movement Tariffs on international services
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Protecting Brand Names internationally
Addressed first by GATT (General Agreement on Tariffs and Trade); now under WTO umbrella Counterfeiting:

Design: Copying designs or scents of another company Brand Name: Selling counterfeit products as brand name originals
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Counterfeiting Factors
Consumer Factors:
Willingness to purchase counterfeit goods because risk is low and prestige gains are high. Willingness to purchase counterfeit goods/products that are consumed in publicly. Consumers and retailers might not notice the difference. Affordable, quality copying technology Local partners of multinational firm have access to know-how. 238
Technology factors:

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Counterfeiting Factors
(contd.)
Distribution factors:
Supply chains are not adequately controlled. Traders may use Internet chat rooms and unauthorized dealerships. Governments may not interfere; even the government may run counterfeiting operations. Cracking down would lead to loss of jobs and unrest. Customs representative and other enforcement officials may not be familiar with authentic brands.
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Local government factors:
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Combating Counterfeiting

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Lobbying the U.S. government. Lobbying other governments involved. Change products appearance to differentiate the authentic brands from copies. Better control of distribution chain operations. Key: cooperation with the local government
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Industrial Products and Services vs. Consumer Products and Services

Issues:
Service encounters are primarily social encounters, and rules and expectations related to services vary from culture to culture. Culture does not play as important a role for industrial products. The decision to purchase industrial products rests with the top-management at the companys headquarters. The purchase process often takes several months. In many countries, local government has substantial input in the supplier decision, favoring national suppliers. For professional services, the local government can directly restrict the company to local suppliers, or require local licenses/credentials.
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Industrial Products and Services vs. Consumer Products and Services

Issues:
Industrial consumers are businesses; business-tobusiness markets are characterized by fewer buyers and a larger purchase volume. The business-to-business market is geographically concentrated. Decision processes involve many decision makers and influencers in the country of operation and in the home country. Demand for industrial products is derived from demand for consumer products and thus is much 242 Dana-Nicoleta Lascu Atomic Dog Publishing 2006 more volatile.
Product Standards: ISO 9000
Industrial consumers need a high degree of standardization for industrial products and services. Quality standards (for each industry and businesses) are set by the International Organization for Standardization (ISO), a nongovernmental federation of national standards bodies.
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Product Standards: ISO 9000 Quality management
Quality refers to all product or service features that are required by the customer:
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Implies that the organization ensures that its products or services satisfy customer requirements and comply with any regulations applicable to them. Specifies that the organization must meet customer and regulatory requirements and follow its policies and procedures while advancing quality through continuous improvement. Addresses issues such as the phases of product development and requires performance measurement throughout the process through performing internal audits, monitoring customer satisfaction, and taking corrective action. 244
Product Standards: ISO 14000 Environmental issues
Family of environmental management system (EMS) standards designed to help businesses reduce their impact on the environment and to facilitate sustainable development and foster international trade. Discourage multinational firms from engaging in hazardous environmental practices, such as locating plants that generate hazardous emissions in poor countries with weak environmental regulations. Promote corporate policies that are environmentally sound, efficiency-embracing, and have innovative technologies and processes.
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Product Standards: ISO 14000
To receive this certification Multinational companies will have to develop EMS similar to the ISO 9000 standards and a policy that stresses commitment to continual improvement and prevention of pollution. Firms provide assurances of compliance with laws/regulations, and provide a framework for setting and reviewing objectives and targets.
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Standards for Production, Rather Than Product

Both ISO 9000 and ISO 14000 address the production process, rather than the product. However, it is implied that the process affects the product In the context of both, certification refers to the issuing of a certificate by an independent external body that has audited the organizations management system and verified that it conforms to the requirements of the standards. The auditing body then registers the certification in the clients register. ISO 9000 and ISO 14000 are implemented by about 610,000 organizations in 160 countries.
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ISO 9000 Certifications Worldwide Source: www.iso.ch, 2005 Annual Report, May 2006
Region
Africa and West Asia Central and South America North America Europe Far East Australia and New Zealand
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Total
48,327 22,498 59,663 379,937 247,091 19,092
Percent Share
6.22 2.90 7.68 48.92 31.82 5.20
Number of Countries
58 27 3 48 23 2.46
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Content
International Product Mix

International Branding International Product and Service Strategies
International Distribution International Communication International Pricing

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The International Product Life Cycle

Introduction and Growth Stages:
International Corp. IC manufactures product in developed countries; exports to developing countries
Early Maturity:
IC moves production to developing country; begins importing to home country
Late Maturity
Developing country competitor exports product to IC home country; competes with IC imports
Decline
Developing country markets remain valuable target Markets for IC; IC home country market Is diminishing
Sales
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Time
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The Product Introduction Stage

International Product Life Cycle: Introduction/Growth

Products are first developed in industrialized countries. Products are traditionally first marketed in industrialized countries; however, increasingly, product life cycles are shortened and the product is marketed in emerging markets as well.
Characterized by: Increasing competition from other multinationals Rapid product adoption Product is marketed primarily in developed countries. Product is exported to developing countries. 251 E.g. iPhone, television in India, Dana-Nicoleta Lascu Atomic Dog Publishing 2006
The Growth Stage
International Product Life Cycle: Maturity/Decline

The Maturity Stage:

Product is adopted by most target consumers. Sales are leveling off. Profits decline due to intense competition. Manufacturing operations move to developing countries to take advantage of cheap labor. New competitors: firms from developing countries.
Products are losing ground to new technologies and product alternatives. Decrease in sales and profits. Product life cycle is extended through sales to consumers 252 in developing countries. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
The Decline Stage:
Dimensions of the International Product Mix
Product mix/portfolio
The total number of products that a company offers its target markets. All the brands the company offers in one product category. Total number of brands in the product mix.
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Product line
Product length
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Dimensions of the International Product Mix
Product width
Total number of product lines the company offers to its target international consumers. Total number of different offerings in a product line.
Product depth
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Example: Unilever
Product Area Culinary products
What are the numbers for product length, product width, product depth and produce line?
Brandnames Variants Rag Spaghetti Sauces Calv Whisky Cocktail Sauce Hellmann's Mayonnaise Product Length: 4 Knorr Soups Product Width: 18 Bertolli Pastas Product Depth: Lipton: 3 Amora Vinaigrettes Magnum: Wishbone Salad Dressing Product Line: Tea: 2 Colman's Mustard Ice cream:5 Pepperami Pot Noodle Findus 4 Salti in Padella Magmum (Classic, Temptation, Minis, White, Ecuador) Cote D'Or Cornetto Klondike Bars Solero Lipton (Lipton Yellow, Lipton Ice tea, Lipton Brisk) Bovril (UK)
Frozen foods Ice cream
Tea
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New Product Development

High risk High cost Challenges in international markets:
Competition can appropriate the product/service idea and deliver final product or service to the market more swiftly than the initial developer. International consumers might not respond as anticipated . Local and/or home-country government might impose restrictions on product testing. Technological infrastructure of individual markets may 256 be substandard and unable to support the product. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
New Product Development

Generating new product ideas Screening new Product ideas
Developing and evaluating concepts

Product Business analysis
Designing/Developing the product

Test marketing Lancing product internationally
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Step 1: Generating New
Product Ideas
Most product and service firms are driven by the marketing concept.
Most of the time product development decisions are based on identifying the needs, wants, and desires of consumers. Focus is on research and development Consumers (home country, internationally), Competitive Analyses, Channel Members, Employees, Top Management, Inventors, Consultants, Researchers 258
Technology firms focus on the products:
Sources of new Ideas
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Consider:

Step 2: Screening Ideas
USP /Superior consumer fit (needs and values) Support senior management Lucrative market potential Defined brand strategy and promotional plan Fit between product strategy and technological advantage Likely trade adoption (retailers, supermarkets)
Usually a check list is developed in this stage

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Step 3: Developing & Evaluating Product Concepts
Develop detailed description of product. Ask consumers to evaluate and indicate willingness to buy Use:

Focus Groups Conjoint Analysis
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Step 4: Performing a Product
Business Analysis
Estimate:

Project costs Return on investment Cash flow Fixed/variable costs The price level for the product!
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Step 5: Designing and

Developing the Product

Create prototypes Create brand identity (name, logo, packaging) Marketing mix Coordinate strategy across international subsidiaries Product development is increasingly take place in emerging markets (e.g. India, Czech Republic, China, Russia)
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Step 6: Test Marketing

Testing new product performance in a limited area of a national or regional target market. Provides estimate of product performance in the respective country or region. Expensive Time consuming Open to competitive sabotage
Note: 8 out of 10 products fail!

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Types of Test Marketing
Simulated Test Marketing
Test marketing simulates purchase environment where samples of target consumers are observed during the decisionmaking process. Test marketing that involves offering a new product to a group of stores and evaluating market reaction.
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Controlled Test Marketing
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Test Marketing
Actual test Marketing

Focus on cities appropriate for the test. Involves selecting distributors and the additional marketing infrastructure. Most costly Leaves the company most exposed to competitive sabotage.
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Step 7: Launching Product
Internationally
Introducing a new product to the international market Quality of launch:
High service quality On-time shipment Appropriate product availability Quality sales force and support Quality and amount of promotion
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International Launch Decisions

Consumers and countries Timing of launch Marketing mix decisions
Product Place Price Promotion

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Degree of Product/Service Newness

New product to existing market/existing company 33,7% of new product New product line to a company 16,8% New item in an existing product line 11,9% (success rate the highest 83%) Modification of an existing company product 18% Innovation, new product to the world; 18,8%
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Extent to which a product/service is new to a market
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Degree of Product/Service Newness

Popular classification of innovations: Radical innovations (new industries or standards), Dynamically continuous innovations (Change in the consumption patterns), Continuous innovation
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Product Diffusion
Product Diffusion: speed of adoption
Product Factors Country-Market Factors Cultural similarity USP/relative advantage Compatibility with Adopters needs
Economic similarity
New Product/Service adoption
Observability
Triability
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International Segmentation Consumer Adopters
Innovators: (2.5% of the total market)
Risk takers who can afford to pay a higher price during the introduction stage Primarily consumers in developed countries Consumers who purchase the product early in the lifecycle stage and who tend to be opinion leaders in their community. Primarily consumers in developed countries
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Early adopters: (13.5% of the total market)
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Consumer Adopters (contd.)
Early majority: (34% of the total).

Consumers who enjoy status of being among the first to purchase a popular product Consumers are primarily from developed countries. Consumers who adopt popular products when the risk associated with them is minimal Consumers are from both developed and developing countries.
Late majority: (34% of the total)

The last consumers to adopt a product; they are risk averse and conservative in their spending 272 Consumers are primarily from developing countries. Dana-Nicoleta Lascu Atomic Dog Publishing 2006
Laggards: (16%)
Content

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Content

International Product Mix International Distribution

Operations and Logistics Retailing
International Communication International Pricing
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Issues Related to International Distribution
Using Established Channels: Channels that already exits

Could charge high prices Could be blocked by competition Channel partnership is a long-term decision: Company may be bound indefinitely to the channel choice.
Building Own Channels:
Necessary if there are no channels/ or existing channels do not conform to company needs. Expensive Time-consuming
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International Distribution Using Home-Country Middlemen

Using Home-Country Middlemen: The Company
is likely not to be involved in managing the marketing mix in the host market
Export Management Companies:

Highly specialized in certain industries and/or regions. Mostly represent smaller businesses. E.g. Amex Works as a company's export department
Trading Companies:
Large Companies that specialize in intermediary services (risk reduction, financial assistance) The Japanese Model: sogo shoshas or general trading company (more investment holdings) Atomic Dog Publishing 276 Dana-Nicoleta Lascu 2006
Home-Country Brokers and Agents:
Middlemen who bring international buyers and sellers together in the company's home country. Do not carry title to the product/ commission based Manufacturers export agent: represent a manufacturer Buying offices: buyers located in the firms home country, representing different international firms
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Cooperative Export Arrangements:

Also known as piggybacking and mother henning e.g. car manufacture market tires Involve exporters agreeing to handle export functions for unrelated companies on a contractual basis Complementary export agents export complementary products on a commission basis. Complementary export merchants take title to the complementary products that they export.
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Export merchants:

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Intermediaries who take title to and possession of the products they carry. Responsible for shipping and marketing the products in the target market. Carry competing brands Examples: - Export jobber, who carries commodity goods, but does not take physical possession of the goods. - Norazi agent, who deals in illegal and/or gray market products. 279
International Distribution Using Foreign-Country Middlemen

Using Host-Country Middlemen: The Company
is likely to have a presence in the host country
Merchant Middlemen: Intermediaries who carry the manufacturers product line in a particular country. Usually carries title to and has physical possession of the products.
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International Distribution Using Foreign-Country Middlemen
Agents and Brokers: Bring Seller and buyers together but do not carry title and take possession of the products There are many types of agents and brokers in international markets, such as manufacturers representatives and managing agents.

Act as the manufacturers sales representatives and are paid on commission. Act as managing agents (also known as compradors), with an exclusive arrangement with the company, representing it in the foreign market; they are paid as a percentage of sales.
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International Logistics
The international distribution function is supported by a number of service providers:
Transportation firms, home country freight forwarders and customs brokers, government agencies, nongovernmental organizations, logistics alliances, and other firms.
Logistics costs account for a large percentage of a company's gross revenues (10-30%) making logistics the single highest operating cost.
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International Logistics
Transportation
Order processing
Logistics
Warehousing
Inventory control
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International Transportation
transportation determines whether products arrive at the international destination on time and in good condition. transportation costs can increase the product price in the target country. transportation infrastructure
Intermodal transportation has been greatly facilitated by containerization
excellent in industrialized countries (by rail, air, and waterway ports)

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U.S Merchandise Value by Mode of Source: U.S. Department of Transportation, Transportation Bureau of Transportation Statistics, May 2006;
Mode of Transportation Total (in millions of U.S. dollars) 724,946 329,387 237,706 78,131 36,829 61,672 1,469,671 233,639 270,041 215,247 30,229 1,671 67,109 817,936
based on total, water, and air data in the United States.
Imports Water Air Truck Rail Pipeline Other and unknown Total Imports
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Characteristics of Each Mode of Transportation

Mode Flexibility (re: Area coverage) High Medium Cost Speed Product Examples
Truck Rail
Higher
Higher
Medium Lower
Air
High
High
Highest
Water
Low
Low
Low
Pipeline Low
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Lower
Low
Consumer goods, erishables, automobiles Coal, gasoline, forestry products, grains, automobiles Jewelry, electronics, expensive low-volume products Grains, gasoline, forestry products, cement and fertilizers Oil and gasoline, chemicals, semi-liquid coal, refined 286 Atomic Dog Publishing 2006 products
Logistics Facilitators
Transportation Firms

Distribution Centers
Intermodal transportation firms Containerization
Freight Forwarders and Customs Brokers
Designed to speed up warehousing and delivery by channeling distribution to a hub.

Arrange for transportation, customs clearance, document filling (Often specialized) Promote national security, international involvement of local firms. Provide financing and insurance for high risk ventures. 287
Government Agencies
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Warehousing and Inventory Control
Critical decision: number of warehouses and distribution centers needed to optimally implement the logistics function. In most industrialized countries, distribution centers are an option for the international firm; they: Receive goods from different producers. Take orders from buyers. Distribute goods promptly.
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Warehousing and Inventory Control (contd.)
Warehouses located in free trade zones are typically also facilities where product assembly and packaging may be conducted. Trend:

companies are attempting to address customer demand while reducing inventory costs, using just-in-time inventory systems, creating product flow rather than stock by ordering products more often and in lower quantity All intermediaries are using the Universal Product code (UPC) where possible - which links suppliers and customers electronic inventory systems
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Steps Involved in Forming Logistics Alliances

Establish objectives. Identify providers. Express needs/wants. Evaluate and select bidder. Develop integration plan. Create win-win relationship. Measure and analyze performance. Redefine goals and objectives.
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Challenges to International Distribution and Logistics
Distribution challenges in developing countries

Transportation infrastructure Containerization Defined as distribution systems that are not authorized by the manufacturer: Products purchased in a low-price market are diverted to other markets. Hurt companys image
Parallel imports (gray markets):
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Facing Logistics Challenges: Combating Parallel Imports
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Content

International Product Mix International Distribution

Operations and Logistics Retailing
International Communication International Pricing
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International Retailing
All the activities involved in selling products and services to final international consumers for their personal consumption.
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Internationalization of Retailing
Retailers are rapidly expanding internationally in order to:

Gain competitive advantage Increase sales Increase profits Improve overall firm performance
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As they expand internationally, retailers can take advantage of cost savings and learn from experiences in a way that could further enhance home-country operations. 295
Internationalization of Retailing

Trend: Markets, retailing technologies and consumers are changing Consolidation in the food and general merchandise sectors
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Top 10 Global Retailers

Source: "2007 Global Powers of Retailing," January2007, www.stores.org.
R 1 2 3 4 5 6 7 8 9 10
Country U.S. France U.S. Germany U.K.
Retailer Wal-Mart Carrefour Home Depot Metro Tesco
Format Discount, Hypermarket, Supermarket, Superstore Warehouse Cash & Carry, Convenience, Discount, Hypermarket, Specialty, Supermarket DIY, Specialty Cash & Carry, Department, DIY, Hypermarket, Specialty, Supers tore Convenience, Department Hypermarket, Supermarket, Superstore Convenience, Discount, Specialty, Supermarket, Warehouse Department, Discount, Superstore Warehouse Department, Specialty, Mail, E-commerce Discount, Hypermarket, Supercenter/Superstore
Sales /US$ millions 312,427 92,778 81,511 69,134 68,866
U.S.
U.S. U.S. U.S. Germany
Kroger
Target Costco Sears Schwartz
60,553
52,620 51,862 49,124 45,891
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Retail formats
General Merchandise
Specialty stores Specialized Markets Department stores General Merchandise Discount stores Off-Price Retailers Catalog Showrooms
Food Retailers
Conventional supermarkets Superstores Warehouse clubs or Wholesale Clubs Convenience store
Non-store Retailers
Internet Retailing Vending machines Television Home Shopping Catalog Retailing and Mail Retailing Direct selling Network Marketing
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General Merchandise: Specialty Stores
Specialty Stores offering a narrow product line and wide assortment: Music stores Clothing stores
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General Merchandise: Specialized markets
Specialized markets that house stores specializing in a particular product category Jade market, Hong Kong Covered bazaar, Istanbulthe shops are selling primarily brass products and Turkish folk decorative object.
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General Merchandise: Department Stores

Offer a broad variety of goods and wide assortments Trend

U.S. and Canada: recent substantial losses Europe: expansion of national chains throughout the European Union Asia: on the decline E.g. Germany: Hertie announced the close down of 19 (out of 73) stores in many German cities in Jan 2009
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General Merchandise: Discount Stores

Sell High Volumes of Merchandise Offer Limited Service, Charge Lower Prices Types:
All-Purpose: offer wide variety of merchandise and limited depth. E.g. Category specialists (category killers): Carry a narrow variety of merchandise and offer a wide assortment. E.g.
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General Merchandise: Off-Price Retailers
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Sell brand name and designer merchandise at below regular retail prices. Overruns, irregular products, previous seasons products Examples: Factory outlet stores Close-out retailers (broad, inconsistent assortments) Single-price retailers (all products for the same price) 303
General Merchandise: Catalog Showrooms
Catalog Showrooms:
Showrooms displaying products of catalog retailers, offering high-turnover, brand name goods at discount prices. Internationally goods sold through this venue tend not to be brand name, but, rather, goods that have not sold the last season through the catalog.
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Food Retailers
Conventional Supermarkets:
Self-service retailers with annual sales higher than $2 million and less than 20,000 square feet of store space. Combination stores (food and drug) Hypermarketscombine supermarket, discount, and warehouse retailing.
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Superstores:

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Food Retailers
Warehouse Clubs (Wholesale Clubs):
Require members to pay an annual fee. E.g. SAM's, Costco Operate in low-overhead, warehouse-type facilities. Offer limited lines of brand-name and dealerbrand merchandise at a substantial discount.
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306
Food Retailers
Convenience Store
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Convenience store in Polandnote that Procter & Gamble products (especially their pan-European detergent Ariel) are predominant.
Small residential retailers or retail chains consisting of small neighborhood stores. Open long hours. Carry limited lines of higher-turnover necessities. 307 One-stop shopping. Atomic Dog Publishing 2006
Nonstore Retailing
Internet Retailing:
Also known as interactive home shopping or electronic retailing. Includes both new dot-com companies and traditional retailers attempting additional market penetration. Increase company diversification.
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Global Internet Retailing Sector Segmentation

Category % Market Share
Tickets & Travel 29.00% Computers, Electronics & Software 28.70% Household 12.80% CDs, Music and Videos 11.80% Books 8.50% Apparel and Gifts 5.00% Toys & Games 4.20% Other 0.10% Total 100.0%
Source: Global Internet Retail, Internet Retail Industry Profile: Global, May 2004, 117.
309
Nonstore Retailing
Vending machines:

Increasing in popularity Accepting of Smart cards, credit cards Technology is facilitating an interactive consumer experience. Different formats worldwide Used most in Japan
At Atlanta Airport a vending machine selling iPods (minis and shuffles).
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Nonstore Retailing
Vending machines in the Netherlands with hot snacks and Japan with different vegetables
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Nonstore Retailing (contd.)
China
Television Home Shopping:
Japan
A venue for selling merchandise to consumers in their homes using cable channels. Examples: infomercials and direct response advertising. Popular in North America and Europe, and becoming increasingly popular in Asian markets.
USA, UK, Germany, Japan
312
Acorn, China
USA
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Canada
Catalog Retailing and Direct Mail Retailing:
Venues for selling merchandise to consumers using catalogs and other types of direct mail. E.g. Quelle, Neckermann, Otto It allows for the international expansion of retailers. Must be adapted to local market needs and practices. (e.g. in Japan the consumers expect to receive the product before paying) The potential fur Catalog retailing remains high international
313
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Direct Selling:
A retailing venue whereby a salesperson, typically an independent distributor, contacts a consumer, demonstrates product use and benefits, takes orders and delivers the merchandise. E.g. Avon Direct selling firms are most active in the growth markets (in emerging markets).
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Network Marketing (Multilevel Marketing)

Variation on direct selling Involves signing up sales representatives to go into business for themselves with minimal start-up capital and sell more distributorships and merchandise. E.g. Herbalife, Amway Network marketing is growing rapidly, especially in emerging markets.
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Issues in International Retailing
Legislation and Regulation

Taxation and Cross Border Shopping Variations in Retailing Practice and Customs

e.g. China banned direct selling till 1998, Germany: Control of packaging disposal Germany, France: Limit the period for sales
Consumer: US: prefer to shop in bulk, Japan: prefer to shop in smaller quantities every day Sales: Friendly in US, sometimes rude in Eastern Europe
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Issues in International Retailing
Challenges in Developing Countries:

Deficient telephone service Unreliable mail service Low income Unavailability of credit cards
Trends

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Retailers worldwide are integrating their databases (supplier and consumer) Marketplace is getting more transparent (practices and prices) More consumers will become retailers (auction sides) In developed countries consumer demographics present a problem to retailers (age) 317
Content

318
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Content

International Product Mix International Distribution International Communication
Promotional Mix and Advertising Strategies Publicity, Public Relations and Sales Promotion strategies Personal Selling and Personal Management
319
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International Pricing
International Promotional Mix

Understanding the norms, motivations, SalesAdvertising promotion attitudes, interests, and opinions of the target Promotional market is crucial to Mix company success in Sales force PR and marketing to and MangePublicity ment communicating with different cultures 320 around Dana-Nicoleta Lascu the globe. Atomic Dog Publishing 2006
The International Communication Process

Encoding Decoding
SENDER
MEDIUM
Target Market Feedback
RECEIVER
Cultural differences Competing Messages Consumer interests
Noise:
(Recall, Purchase)
Sponsor (sender) encodes message. Sponsor sends message through the channel (medium) to the international consumer (receiver). International consumer receives the message and decodes it into meaningful information.
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Communication Issues
Each step in the communication process presents a challenge in international message transfers:
Encoding also requires accurate translation: Product name and message should be tested. Media infrastructure might be underdeveloped or incapable of handling the message.
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Non-Personal Print media Broadcast media Interactive media
Non Personal and Personal Communication Media
Personal Salespeople Telemarketers Trade show and exhibits
Not widely available in developing countries.
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Individuals can interact with knowledgeable company 323 representatives.
International Communication Challenges

Media infrastructure Unreliable mail Limited broadcast media Media is not used for advertising Translation deficienciesmeanings intended may not be the meanings conveyed. Illiteracy Status of promotion
324
Lessen Communication Challenges
Hire research firm to evaluate message in multiple international markets. Evaluate effectiveness of the communication using recall tests and other memory-based procedures. Evaluate effectiveness of communication in getting different international target markets to purchase the product.
325
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Advertising
A nonpersonal communication by an identified sponsor across international borders, using broadcast, print, and/or interactive media.
Media Infrastructure Availability Reliability Restrictions Costs
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Media Reliability
The probability of the media to air advertising messages on time, at an acceptable quality and with the agreedupon frequency International constraints:

Print lag times Poor quality Off-air television or government-controlled television and radio that does not allow advertising.
327
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Media Restrictions
Limitations imposed by existing media:
Limiting the number and types of advertisements (EU Airtime: 12minutes/h for advertising) Cultural differences Clustered ads Media scheduling
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Media Costs
Differ greatly between countries, and even within a particular country:

Income per capita of target market Competition for media by advertisers Firm status (local-nonlocal) Translation costs
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Global Media
U.S. Advertising Expenditures Compared to World Ad Expenditures
Year U.S. Ad Spending Change (Billion US$) Change Spending (Billion US$) World Ad
2000
2001 2002 2003 2004
+ 8.8 7.9
247.5
231.3 236.9 249.2 266.4
+ 11.3
6.5
474.3
440.9 450.5 471.1 498.3
330
+ 2.2
+ 4.6 + 5.8
+ 2.4 + 5.2 + 6.9
Source: Robert J. Coen, Universal McCanns Insider Report, December 8,

2003, www.universalmccann.com
Dominance of global Media
Various International Formats, Features, and Trends

e.g. CNN, MTV, Walt Disney, Cosmopolitan QVC, Home Shopping Network (HSN) Home Order Television
Infomercials & TV Shopping
Billboards and Bus Stops Advertising on the Sides of Private Homes Advertising on Outdoor Umbrellas and Awnings Ads on Plastic shopping bags
331
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Various International Formats, Features, and Trends

Posters on Kiosks and Fences
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Advertising Yes mineral water on fences in Bangladesh.
Advertising Marlboro cigarettes on a kiosk in Poland. 332
Using English and U.S. Movie Stars in Local Advertisements

English:
Requires less space in print and broadcasting time. Conveys a cosmopolitan attitude. Endows a product or service with status.
333
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Product Placement
Placing brands in movies and television programming with the purpose of promoting the products to viewers. U.S. movies box-office receipts are steadily increasing. U.S. films are very successful abroad.
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Advertising Regulations

Comparative Advertising Advertising to Children Advertising vice Products (e.g. tobacco) Other Regulations:
Vary by country; examples:
France: Requirement to keep the French language pure. Islamic countries ban the use of sex in advertising.
335
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Advertising Infrastructure

Develop Ads In-House Home-Country Agencies Local Advertising Agencies (specially for polycentric orientation) International Agencies: (specially for geocentric orientation)
Top agencies are: Dentsu, Inc. (Japan),McCann Erickson (New York),BBDO (New York),Young & Rubicam (New York)
Local Agencies to implement International Agency messages

336
Advertising Strategy
Standardization vs. Adaptation
Standardization reduces costs: No duplication of effort for each market. Individual campaigns delay product launches. Consumers increasingly share similar frames of references with regard to products and consumption. (global consumer)
A battle between marketing and sales: marketing wants to be global whereas sales insists on being local: Result: Consistent overall image with local differences
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337
Barriers to Standardization

Communication Infrastructure
Agencies might not serve a particular market.
Consumer Literacy
Legal Restrictions and Self-Regulation
Differing Values and Purchase Motivations

Attitudes Toward Product Country of Origin
338 Communication is culture specific Atomic Dog Publishing 2006
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Budgeting Decisions
Objective-and-Task Method:
Identify advertising goals. Conduct research
Determine cost of achieving goals.

Allocate the necessary sum.
Percent-of-Sales Method (it is used by almost 50%)
Base budget on past or projected sales.

339
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Budgeting Decisions (contd.)
Historical Method
Base budget on past expenditures giving more weight to recent expenditures. Use international competitors budgets as benchmark. Use collective executive opinion. Best suits small and medium firms.
340
Competitive Parity
Executive-judgment method (30%)
All-You-Can-Afford
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Top 10 Global Marketers

Source: Advertising Age, "Top 100 Global Marketers," November 20, 2006, pp. 1-53.
Rank Company 1 2 3 4 5 6 7 8
Headquarters
Media Spending ($ in millions) 8,190 4,272 4,173 2,800 2,773 2,645 2,479 2,104
Procter & Gamble Co. Cincinnati Unilever General Motors Corp. Toyota Motor Corp. L'Oreal Ford Motor Co. Time Warner DaimlerChrysler London/Rotterdam Detroit Toyota City, Japan Clichy, France Dearborn, Michigan New York Auburn Hills, Michigan Stuttgart, Germany
9
10
Nestl
Johnson & Johnson
Vevey, Switzerland
New Brunswick, New Jersey
2,033
1,968
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International Publicity
A communication about a company and/or the companys products that the company does not pay for. Can be negative or positive. it is considered more credible than any promotional action. The company can influence publicity through public relations. Publicity includes:

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Print articles Broadcast messages Word-of-mouth communication about the company and/or its products Internet increases publicity venues.
343
Negative/Positive Publicity
Multinational companies in particular experience negative publicity:

Negative publicity can be harmful to the company; the company needs to address it promptly. Positive publicity is very valuable:

Antiglobalization sentiments Symbol of home-country market dominance
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Positive publicity is difficult to come by.
Difficult to measure its impact, but it is substantial since the source is perceived as credible. Has high impact on consumer purchase decisions
344
Strategies for Maximizing Positive Publicity in a Foreign Market

General Strategies
Supplement ad campaigns with publicity campaigns.
Actions and Outcomes

Establish third-party editorial credibility for products; convey more information in greater detail about products. Publishers are more likely to pick up a story if they have a good translation of the information. It helps when securing funds for new campaigns. The right distributor may come along if the company signals it is looking for distributors. Company may obtain leads if it has detailed information and contact 345 information in the press release.
Translate and be careful about translations. Inform the managers in the home country about publicity efforts. Use publicity to secure a distributor or a distribution network.
Use publicity as a sales lead.

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International Public Relations

A concerted effort on the part of a company to generate good will among publics that are essential to the company : community, government, consumers, employees
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News Releases/Letters/Company Publications:

International Public Relations Examples

Companies must regularly communicate with their publics. When new products are introduced, companies should offer news releases, press releases, and/or company publications promoting the new product or service. Growing venue for international marketing communications Important tool for shaping public opinion
Event Sponsorship and Presence:

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Corporate Advertising
International Public Relations Examples (contd.)

promote the company behind the brand. enhances perceptions of a company in a given market by creating a positive impression on the target consumers. Advertising a particular position or point of view that the company endorses. Company representatives public involvement, speaking on behalf of the international firm and its products. 348
Image Advertising
Advocacy Advertising
Public Appearances
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Consumer Sales Promotion

Sponsored communications to the target consumer or trade segment that stimulate purchases or improve relationships with middlemen Examples:

Point-of-Sale Displays Free Samples, Premiums Coupons, Gifts Sweepstakes, Contests Promotional tie-ins Frequency programs Price-offs
349
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Global Consumer Sales Promotion
Global Campaigns: a worldwide standardized advertising campaign that is not adjusted to differentiate target markets (seldom)
Require a priori feedback from local markets Rarely attempted in sales promotion Useful for markets where there are multiple languages and dialects, and which have a unifying language.
350
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Modular Consumer Sales Promotion
Modular Campaigns: Provide a template that
can be varied from market to market.
Campaign centered around one theme. Message is customized for each market.
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351
Local Consumer Sales Promotion
Local Campaigns: Tailored to local needs Retailer cooperation is of particular importance.
Gain significant importance in markets not reached by other media.

Free samples, common in United States supermarkets, are becoming a common form of consumer sales promotion in many countries.
352
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Online Sales Promotion
All-around mode of Communication with prospective Consumers:

Sweepstakes Coupons Promotional Pricing
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353
Legal, Ethical, and Logistical Issues
Sales-Promotion - related legislation differs from one country to another:

Certain campaigns may be illegal. Examples: Buy one, get one free Sweepstakes based on pure chance Promotions may have to be printed in multiple languages. Number of responses may overwhelm the company and the postal system.
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354
The ICC International Code of Sales Promotion: Examples of Rules

Be legal, decent, honest, and truthful and aimed at avoiding disappointment and complaints. Be framed in such a manner that they would not abuse public trust or exploit the publics lack of experience or knowledge; this is especially true when it comes to children. Make it easy to identify the terms of the offer and its true value to consumers and to intermediaries. Be administered with adequate resources and with the appropriate supervision. Respect the privacy of consumers. Be safe for consumers. 355
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International Trade Promotion

Business-to-business promotion that usually held annually. Trade shows and exhibitions offer potential buyers and sellers a chance to meet face-to-face.
Trade shows bring many decision makers to a single location for a limited time, enabling firms to get their message to a large number of people at one time.
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356
Trade Shows

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one-fifth of the overall U.S. (one forth in Europe) firms communication budgets. Organized at set intervals (usually one year), and tend to be specialized in one domain. Neutral sales environment Bring together managers from different departments in buyers organizations. Governments ensure that national/local companies are represented. 357
Examples of International Trade Shows
Frankfurt Book Fair Documenta Venice Biennale DRUPA Interkama World Fair
The World Fair is an excellent venue for 358 broad exposure for international firms.
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International Personnel Issues
Hiring decisions are a function of the companys involvement in the market. Market presence, entry mode and commitment to market determine:

Size of the sales team Types of sales representatives
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360
International Personnel Issues
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361
Infrastructure and Technology Issues:

Infrastructure Issues: In developed countries telemarketing is often used in selling products, Condition: companies need access to a reliable telephone system Technology Issues: electronic data interchange (EDI): buying and selling firms share important data on production, inventory, shipping, and purchasing. Condition: the firms have the appropriate resources and 362 Lascu trust their local partner with the information. Dana-Nicoleta Atomic Dog Publishing 2006
Legal Issues
In many countries, a written contract does not mean much: Sellers and buyers can readily choose to ignore the agreement without any penalty. The legal systems may endorse contracts but not defend them. In many cultures, a contract may have little value, while someones word or a handshake may be fully reliable.
363
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International Presence
Companies using home-country middlemen
Rely on sales force of the intermediary for international sales
Companies using host-country brokers and agents
Rely on sales force of the intermediary for international sales
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International Presence
Companies using host-country manufacturers representatives and distributors

Are engaged, at some level, in personal selling Hires local salespeople to call on distributors May have local sales office, or a wholly-owned subsidiary that engages in the marketing function
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365
Employees of the International Firm
Expatriates

Employees working in a foreign country Types: Home-country nationals Third-country nationals
Locals (Local Employees)
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Expatriates: Home-Country Nationals
Home-Country Nationals:

Disadvantages:
Preferred by companies whose products are at the forefront of technology Preferred when selling relies on extensive training and highly specialized information Preferred where there is a greater interdependence between overseas unit and corporate headquarters High costs Cultural barriers Lack of local personal connections in the local environment Difficulty finding employees willing to take on international assignments
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Expatriates: Third-Country Nationals
Employees working temporarily in the assignment country who are NOT nationals of that country OR of country in which headquarters is located Speak numerous languages
Familiar with customs and business practices in different environments Have learned, through experience, to adapt optimally for international assignments
368 Cost less than home-country nationals Atomic Dog Publishing 2006
Lascu Dana-Nicoleta
Host-Country Nationals
Local salespeople who work in the home country for an international corporation Understands the business environment and business practices in the companys home country Well trained technically Willing to return to home country to work for the multinational firm
369
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Long Distance International Selling

Selling via the Internet or mail is likely an important venue used in approaching new international customers. Costs of distance selling are lower, allowing for greater market coverage, but the selling infrastructure (mail, Internet accessibility) lags behind in developing countries.
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Managing International Employees

Transplant successful personnel home country policies will run against obstacles in different international environments.
Issues related to culture come into play.
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Buyer-Seller Relationship: Hard sell is inappropriate in many countries in Asia. Eye-to-eye contact may be seen as aggressive. Business cards in China are handed with both hands and received with both hands in to convey respect. Negotiation differs depending on culture; in many environments, e.g. Latin America, it is expected that a personal relationship is established before the 371 negotiation. Atomic Dog Publishing 2006
Successfully Managing Expatriates

Success requires:
Effective selection/screening Appropriate training and development strategies Motivating for peak performance Ensuring successful repatriation
50% of expatriate assignments FAIL!
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Recruiting Expatriates
The Ideal Expatriate Has

A high cultural sensitivity and awareness The ability to adapt behavior in cross-national settings A high level of resiliency Extensive international knowledge and willingness to gain it A strong desire to work overseas
373
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Attenuating Culture Shock

Culture shock is a pervasive feeling of anxiety resulting from ones presence in an unfamiliar culture. Culture shock is lessened by adequately training the employees: Short courses in cross-cultural communications Cultural immersion Culture shock is also lessened by creating appropriate expectations for the employees Help them anticipate their physical and social environment.
374
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Motivating Expatriates
Start with recruiting only those employees who are most motivated to take up an international assignment. Offer compensation, leave and family policies, and career incentives that will motivate employees to perform well abroad.
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Incentives for International Post Assignments
Cost of Living/Post Adjustment:
Housing Allowance:
A compensation incentive whereby the company adjust expatriate salaries to reflect the cost of living in the new environment at standards in the expatriates home country.
Education Allowance:
A compensation incentive whereby the company covers part or the entire cost of housing for the expatriate employee while abroad. May include covering for the cost of household help and security A compensation incentive whereby the company agrees to cover the cost of childrens education at an international private school in the country of assignment. May include covering costs of attending a boarding school at the expatriates home country
376
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Incentives for International Post Assignments (contd.)
Home-Leave Allowance:
A compensation incentive whereby the company pays for employee and family to vacation in the home country. A compensation incentive whereby the company pays for relocation expenses for moving the family household abroad and back to the home country. A large sum paid for the successful completion of the international assignment. 377
Moving Allowance:
Repatriation Allowance:
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Expatriate Obstacles
Gravitating toward home-country expatriates and relying extensively on expatriate groups and forums (websites that unite expatriates in a region, newspapers, etc.) Isolation
Isolation Going Native
378
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Repatriation Issues

Company changes in expatriate employees absence Loss of status, lack of social circle at work and at home; relationships may have changed over time Reverse culture shock: anxiety experienced after returning to the home country; attributed to:

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Reverse culture shock can be avoided by maintaining a connection to company headquarters.
Longing for the international environment left behind Difficulty readjusting to the home country Difficulty readjusting to the corporate culture at ones own firm
379
Multiple Choice
1)A third-country national is also known as a local. 2)An advantage of hiring home-country nationals for international operations is that they are less expensive for the company. 3)Expatriates working in a particular foreign country are either home-country nationals or host-country nationals. 4)Organizational culture refers to personality traits shared at the national level. 5)Reverse culture shock is a feeling of anxiety experienced after returning to the home country. 6)In low-context cultures, what is said is precisely what is meant
380
True or False
Multiple Choice
Choose the best answer
7)In Asian countries, what approach to selling would work best? a) confident, persuasive b) modest, exhibiting a humble attitude c) serious, formal hard sell d) none of the above 8)What are some preferred traits of expatriates? a) sensitivity to others b) willingness to gain international knowledge c) high level of resiliency d) all of the above 9)How do companies motivate expatriates? a) guaranteed promotion b) travel and other allowances c) finding spouses employment in the country of assignment d) all of the above 10)To relieve reverse culture shock, companies can a) keep an employee updated with office emails. b) offer promotion on return to the home country. c) fly an expatriate back regularly for meetings. d) all of the above
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Content

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Content

International Product Mix International Distribution International Communication International Pricing
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Pricing Impact
Pricing is especially important in international marketing strategy decisions, due to its effect on product positioning, market segmentation, demand management, and market share dynamics.
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Pricing Considerations
Political And Legal Environment Production Facility
Economic financial Environment
Pricing Decisions
Ability to keep track
Competitive Environment
385
Production Facilities Ability to keep track of costs

The location of production facilities determines cost control price of the products Multinationals shift production to take advantage of lower costs and exchange rates. Small- to medium-size firms are limited to exporting. Some companies price products out of the market. Products can be manufactured and assembled in different countries. Difficult to track costs
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Environmental Considerations
International companies must react effectively to changes in the competitive environment, political and legal environment economic and financial environment.
387
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Competitive environmental Influences
Competition

Retail challenges difficult to identify Competition from unauthorized channels, gray markets/Parallel Imports Cheaper prices in countries with weaker currencies Competition offers legal copycat products
388
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Competitive environmental Influences: Dumping
Selling products below cost to get rid of excess inventory and/or to undermine competition Foreign companies can impose high prices at home as a result of trade barriers imposed against imports. Company uses profits to sell at much lower prices in foreign markets:
Builds market share Suppresses profitability of competitors with open home markets
389
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Political and Legal Influences
Political and Legal:

Setting limits on gross margins. Setting price limits.
Local government subsidies to manufacturers.

Tariffs Restricting repatriation of profits by multinationals. Taxing and/or encouraging reinvestment of profits.
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Political and Legal Influences: Transfer Pricing
A pricing strategy used in intra-firm sales: between units

a) marked based or b) cost based Help multinationals under-report profits. Decreases tax burdens in countries where company has foreign direct investment.
391
Products priced at market level:
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Economic and Financial Influences:
Economic, Financial, Monetary:
Inflation
Sometimes companies must low prices only to stay in the market Fluctuating exchange rates Binding to strong currency
Percentage that covers the exchange rate
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Hard versus soft currencies Countertrade: a company sells a product and agrees to accept products from the buyers firm or trade institution for payment (20% of the world trade) 392
Economic and Financial Influences: Countertrade Brokers
Perfect matches for product exchanges are rare. Exchanges are complex. Numerous companies specialize in brokering barter deals. E.g. Active International, Tradewell Inc
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Countertrade
Disadvantages: Advantages: Foreign lenders could have Facilitates sale of prior claim on goods. products in Restricts profit margins. emerging markets. Encourage economic inefficiency. Can help an exporting company Prices are distorted. Could receive inferior quality bypass trade goods. restrictions. Exchange partners can become competitors. Involves extensive negotiations. 394
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Types of Countertrade

Usually a monetary exchange to a certain degree is involved, except in Barter Clearing Agreement with a clearing currency Switch Trading (professional switch trading firm in between) Compensation (part cash, part products) Counter purchase /parallel barter Offset Purchase (long-term; the seller agrees, in return to purchase a certain percentage of the sales) Buyback Agreements (turn key plant; plant outputs)
395
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Setting Prices
Tends to be intuition- and experience driven Highly decentralized Important for marketing managers to be familiar with the price elasticity of their products
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396
Terms of Sale

(Incoterms = International Commercial Terms)
Devised by the International Chamber of Commerce (ICC), updated in 2000. Applies both to domestic and to international transactions. E-Terms: Seller makes the goods available at the sellers plant/factory/business. EXWEx Works (factory, warehouse, etc.): Title and risk pass to buyer from sellers factory/plant/warehouse; seller has minimum responsibility. Sources: http://www.iccwbo.org/incoterms
397
Terms of Sale (Incoterms)
F-Terms: Seller delivers goods to the carrier that the buyer appoints. FCAFree Carrier (place after the origin point): Title and risk pass to buyer when the seller delivers goods cleared for export to a buyers carrier. Seller loads goods on buyers vehicle. FASFree Alongside Ship (at port, after all port charges): Title and risk pass to the buyer after the merchandise is delivered alongside the ship by the seller, who is in charge of export clearance. FOBFree on Board (port, after all port charges): Title and risk pass to buyer once delivered on board the ship by the seller, who is in charge of export clearance. 398
Incoterms (contd.)
C-Terms: Seller must arrange for transportation without assuming the risk of loss. CFRCost and Freight (destination port): Title, risk, and insurance cost pass to the buyer when delivered on board the ship by the seller, who pays transportation costs to the destination port. CIFCost, Insurance and Freight (destination port): Title, risk, and insurance costs pass to buyer when delivered on board the ship by the seller. The seller pays transportation and insurance costs to the destination port
399
Incoterms (contd.)
C-Terms:
CPTCarriage Paid To (place at destination;
includes all port charges): Title, risk, and insurance costs pass to the buyer when delivered to the carrier or seller. The seller pays transportation and insurance costs to the destination port. CIPCarriage and Insurance Paid To (place at destination): Title and risk pass to buyer when delivered to the carrier or seller. The seller pays transportation and insurance costs to the destination port. 400
Incoterms (contd.)
D-Terms: Seller bears all costs and risks to bring the goods to a location agreed upon by the buyers. DAFDelivered to Frontier (border of country): Title and risk pass to the buyer who is responsible for import clearance. DESDelivered Ex Ship (on board ship to destination port): Title, risk, and responsibility for vessel unloading and import clearance pass to buyer when the seller delivers goods on board the ship to the destination port.
401
Incoterms (contd.)
D-Terms:
DEQDelivered Ex Quay (Wharf), Duty Paid
(destination port, includes duties and taxes but not destination charges and delivery): Title and risk pass to buyer when delivered on board ship at the destination by the seller. DDUDelivered Duty Unpaid (destination; excludes all duties and taxes): Title, risk, and responsibility for the vessels discharge and import clearance pass to the buyer when delivered on board the ship at the destination point by the seller. DDPDelivered Duty Paid (buyers door; includes all charges): Title and risk pass to the buyer when the seller delivers goods to the destination; seller is responsible for import clearance.
402
Incoterms (contd.)
Sellers risk, title, insurance
Buyers risk, title, insurance
403
Terms of Payment
Cash in AdvanceBest for seller, but not for
buyer. It is used for sellers markets primarily or for high-risk buyer environments. Open AccountGoods are delivered without payment guarantee; the buyer and seller conducted past transactions, and continued business is expected for both. Consignment with Open AccountSellers still own the merchandise, so risk is low; but costs of recovering the goods are high in international transactions.
404
Dana-Nicoleta Lascu
Terms of Payment
Documentary CollectionTitle and possession pass to buyer
when documents attesting to title and shipping documents pass as well. The payment document, (bill of exchange or draft), requiring the buyer to pay on sight (sight draft) or at a specified time (time draft), is sent through sellers bank to buyers bank after the goods are shipped. The buyer then pays the sight draft or accepts the time draft; documents are released to the buyer who takes possession of the goods. Letter of Credit (L/C)Letter is drawn by buyers bank, which guarantees to pay seller for merchandise upon presentation of documents providing evidence of shipment, adherence to the purchase order, and inspection. The bank releases funds when all conditions of sale are met. Most L/Cs are irrevocable. 405
Pricing Practices
Higher Home Market Prices
Justified by:
Lower labor or raw material cost in the international market Strong local competition in the international market Lower buying power of host-country consumers Marketing strategy: Increase market share via penetration pricing.
406
Dana-Nicoleta Lascu
Pricing Practices (contd.)

Lower Home Market Prices
Justified by:

No cost advantages to producing overseas Few or no challenges from international competition. Limited market potential International buyers can afford higher prices.
407
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Aggressive Export Pricing

Goal: Gain market share in the international market Dynamic Incremental Pricing:

Assumes certain fixed costs. Does not factor in international promotion costs for domestic distribution or full overhead. Product cost reflects only variable costs.
408
Dana-Nicoleta Lascu
Standardized vs. Local Pricing

Local Pricing
Prices set to meet purchase power of consumers and to account for differences in local distribution systems, market position, and taxes. Even/odd pricing
Standardized Pricing
Uniform price worldwide
Dana-Nicoleta Lascu
409
Penetration Pricing and Skimming

Penetration Pricing
Price lower than competitors in order to quickly penetrate the market at competitors expense. Goal: high sales volume Pricing above competitors prices when competition is minimal. Focus on quality, uniqueness and status.
410
Skimming
Dana-Nicoleta Lascu
True or False
True or False
1)Dumping is defined as selling products at cost to get rid of excess inventory and/or to undermine competition. 2)Dumping represents a problem if it threatens to cause injury to an established industry in a particular market and/or if it delays the establishment of a viable domestic industry. 3)Hard currency is currency that is accepted for payment by any international seller. 4)Countries with a shortage of soft currency reserves are more likely to engage in countertrade. 5)Aggressive export pricing involves pricing products below market price to penetrate new markets.
411
Multiple Choice
6)Which of the following is NOT an external economic or financial factor affecting pricing decisions? a) inflation pressure on price b) shortage of hard currency c) transfer pricing d) fluctuating exchange rates 7)A manufacturer may charge different prices in different markets for the same product a) to meet target market needs. b) due to changes in the exchange rate. c) due to differences in wholesale prices. d) all of the above 8)What company was responsible for initiating a countertrade relationship with the Soviet Union in the late 1960s? a) McDonald's b) PepsiCo c) Philip Morris d) none of the above 9)What type of countertrade involves buying a party's position in a countertrade in exchange for hard currency and selling it to another customer? a) compensation b) switch trading c) counter purchase d) offset purchase 10)If a firm's objectives are centered on generating high profit and recovering product development costs quickly, it is likely to use which one of the following international pricing strategies? a) skimming b) penetration pricing c) standardized pricing d) competitive pricing
412
Content

413
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Organizing for International Marketing Operations

Companies often need to reorganize to more effectively meet the international challenges Organizational designs have to fit with their external environment and with company characteristics and goals. Organizational design is determined by factors: In the firms environment

competition, (quick decisions->more flexibility->decentralized) environmental stability, similarity with the home country, common regional integration, availability of qualified labor.
Factors within the firm

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Factors Within the Firm
Internationalization as a priority:
Involvement in international business
Organizational structure with worldwide regional divisions in charge of particular countries. an international division that oversees international operations. small international department.
Minimal involvement in international business
Companies usually maintain their organizational structure when they go international.

Concerning hierarchy and centralization. Concerning product lines
Dana-Nicoleta Lascu
415
International Organizational Designs

International divisions
The matrix structure
Organizational designs
Worldwide regional divisions
Product Divisions
416
Worldwide Regional Division Structure

Operations are organizes by geographical region or by country. Subsidiaries report directly to the single division responsible for operations in the country or geographic region. Creates competitive advantage for firms
Allows for some duplication of activities and thus might increase costs.
Example: It is better equipped to immediately process and respond to country-specific information and conditions because of its strong regional focus.
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417
Worldwide Regional Division Structure

W o r l d w i d e R e g i o n a l D i v i s i o n S t r u c t u r e :
Worldwide Regional Division Structure: Frito-Lay.

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418
Product Division Structure
Subsidiaries report to the product division (strategic business unit) with responsibility for the particular products. In the past, this structure was common for hightech companies or multinational companies with diversified portfolios increasingly, this format is replaced by the matrix structure.
Dana-Nicoleta Lascu
419
International Division Structure
Firms with an international division have two main divisions:

The domestic division The international division
export department structure: division has
responsibility for all international operations international division structure: all foreign subsidiaries report directly to a single division responsible for international operations.
420
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Matrix Structure
Takes into account the multiple dimensions involved in doing business internationallyfunctional areas, product, and region/country. In a matrix structure, two dimensions are integrated so that each operational unit reports to both region/country managers and product managers. E.g. Unilever with global and local brands
Dana-Nicoleta Lascu
421
Example of Matrix Structure: BASF Corp.

Europe
Chemicals Plastics Performance Products Functional Solutions Agricultural Solutions Oil & Gas
422
North America
Asia Pacific
South America, Africa, Middle East
Controlling Marketing Operations

Challenges Local units and a regional focus add levels that complicate management, communication, and evaluation processes. External environment changing at different rates. Tendency to resist influence in both directions: Headquarters involvement Subsidiary Input
423
Controls
Formal Controls Establishing performance standards Measuring performance Addressing discrepancies Informal Controls Frequent contact between home-country headquarters and regional/local office. Rotate managers to different assignments. Hire third-country managers to oversee new or problematic operations. Training employees
424
Future Perspectives in International Marketing
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425
Future Perspectives in International Marketing
Internet: expanded the area of international marketing increased access to new markets Research conducted by Nielsen found that more than 491 million people are using the internet (one third in the US)
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426
Internet use in selected international markets

Country Active Users (in millions) 10.8 17.9 23.0 32.8 18.2 PC Time per Person per Month 34 hrs 28 min 35 hrs 53 min 39 hrs 49 min 34 hrs 25 hrs 27 min Sessions/Visits per Person per Month 63 31 44 36 30 Australia Brazil France Germany Italy
Japan
Spain United States
36.6
12.7 61.0
14 hrs 57 min
28 hrs 45 min 82 hrs 32 min
25
33 67
427
Internet retail industry profile

Source: Internet Retail Industry Profile:
Global Internet Retail," April 2006: Datamonitor
a. Online Retail Sector Growth (in billions) Year 2003 2004 2005 b. Retail Segments' Share Product Category Drugs, health, beauty Computer and related materials Clothing and shoes Kitchen and home Jewelry Other c. Geographic Segmentation Geography European market U.S. market Asia-Pacific market Rest of the world
$ Billion 425.1 544.6 656.4

% Share 23.50 17.50 11.70 4.60 4.00 38.70 % Share 44.40 22.50 21.70 11.40
% Growth 26.00 28.10 20.50
428
Challenges for the Internet
Dana-Nicoleta Lascu
Companies cant handle the amount of sales: 46 percent of companies with e-commerce capabilities turn away international orders because they do not have the processes in place to fill them. About $10 million are turned away annually by companies due to: Language and cultural barriers that hinder basic communications. Difficulty handling the destination countrys import and tax regulations or export controls in the home country. Difficulty in handling cumbersome payment mechanisms. High rate of credit card theft, adding to the companys risk. 429
Product Challenges
Product life cycles will become shorter:
International firms must be prepared for rapid new product introductions simultaneously in world markets, regardless of the markets levels of development. The battle for market share for market leaders will increasingly take place in developing countries. As the world population grows, there will be significant changes in the consumption process. (Environmental concern)
430
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Promotion Challenges
Firms will compete on their ability to resonate themes that appeal to world consumers. Integrated marketing communications are going to be standard for both international consumer product companies and for business-to-business communications. Consumers will expect extensive information on the websites of companies with which they do business.
431
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National and Global Appeals

National advertising campaigns will continue to be used for local brands, services and issues.
Global advertising campaigns will continue to be developed for global market segments. The global elite continues to be the target market for the Jaguar automobile.
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432
Distribution
Dana-Nicoleta Lascu
Companies will continue to pursue measures to reduce distribution costs by adopting just-in-time inventory systems and creating product flows rather than stocks. Companies will coordinate their inventory systems with suppliers and clients through electronic data interchange. Companies will have to abide by post September 11, 2001, security measures, which will further reduce merchandise theft. Entertainment will be especially important when communicating with consumers in all retailing environments. 433
True or false
1)Companies operating in countries characterized by unstable political environments or countries where government policies are unstable need an organizational structure that allows them to react quickly. 2)Companies operating in countries that have ample educated and qualified labor are more likely to be centralized. 3)A worldwide regional division structure has two main divisions: the domestic division and the international division. 4)An advantage of the worldwide regional division structure is that it is better equipped to immediately process and respond to country-specific information and conditions than other formal structures. 5)In a regional or worldwide matrix division structure, subsidiaries report to the product division (strategic business unit) with responsibility for the particular products. 6)Informal controls are used in international marketing to ensure that international company operations are in line with company goals and objectives.
434

7)Which of the following companies has a worldwide regional division structure? a) Frito-Lay b) Coke c) Eli Lilly d) none of the above 8)Which of the following companies has a matrix structure? a) IBM b) Unilever c) Disney d) all of the above 9)What is the process for instituting formal controls? a) measuring performance, establishing standards, addressing discrepancies b) establishing standards, measuring performance, addressing discrepancies c) addressing discrepancies, establishing standards, measuring performance d) none of the above 10)In spite of extensive Internet access worldwide, companies are not equipped to handle sales due to a) language and cultural barriers. b) difficulty handling the destination country's import and tax regulations. c) difficulty in handling export controls in the home country. d) all of the above 435

International Marketing: Fachhochschule Ludwigshafen Dr. Rer. Pol. Irene Giesen-Netzer, Diplom-Kauffrau WS 2009/2010

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International Marketing: Fachhochschule Ludwigshafen Dr. Rer. Pol. Irene Giesen-Netzer, Diplom-Kauffrau WS 2009/2010

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Introduction International Marketing

Fachhochschule Ludwigshafen Dr. rer. pol. Irene Giesen-Netzer, Diplom-Kauffrau WS 2009/2010

Introduction International Marketing

Part of Marketing conception (8 credits)

Written test at the end

Basics of International Marketing

Importance Concepts Drivers

Atomic Dog Publishing 2006

Also an option for small and medium sized companies

Raising commitment/ involvement to international markets

No economies of scale Duplicated functions Higher final product costs

International Expansion Drivers

Converging Consumer Needs

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment (contd.)

Atomic Dog Publishing 2006

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment (contd.)

International Expansion Drivers: Business Environment

International Expansion Drivers: Business Environment

Bagel shop in Berlin (Potsdamer Platz)

e.g. Cigarette industry in emerging markets

Firm-Specific Drivers (contd)

Atomic Dog Publishing 2006

outside Government Barriers Barriers imposed by International Competition

Atomic Dog Publishing 2006

Atomic Dog Publishing 2006

The international Marketing Environment

Atomic Dog Publishing 2006

The World Economy

Atomic Dog Publishing 2006

Big Emerging Markets

Atomic Dog Publishing 2006

Characteristics of Emerging Markets

Atomic Dog Publishing 2006

Evaluating Political Risk:

Business periodicals (The Economist, Wall

Commercial sources (Country reports, Chase,

Atomic Dog Publishing 2006

Country Luxembourg Norway Switzerland Denmark Sweden Ireland Austria

Overall score 99.88 97.47 96.21 93.39 92.96 92.36 92.25

Political Risk Signals:

Atomic Dog Publishing 2006

Atomic Dog Publishing 2006

Details next chapter/ International Trade barriers

Atomic Dog Publishing 2006

Political Risk (contd.)

Risks Related to Labor and Action Groups Risks Related to Terrorism

Minimizing Political Risk

Atomic Dog Publishing 2006

Hompage www.opic.gov 21.1.09

International Legal Environment

Common law Code (Civil) law Islamic law

Intellectual Property Rights

Intellectual Property Protection

Atomic Dog Publishing 2006

Intellectual Property Protection

Atomic Dog Publishing 2006

Factors Influencing Intellectual Property Violations

Protecting Intellectual Property