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Introduction to Global Marketing

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Reasons for Global Marketing

Growth
Access to new markets Access to resources

Survival
Against competitors with lower costs (due to increased access to resources)
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Global Marketing Vs. Marketing

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals. Global marketing focuses on global market opportunities and threats.
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Globalization
Globalization is the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before - in a way that is enabling individuals, corporations, and nationstates to reach around the world farther, faster, deeper and cheaper than ever before, and in a way that is enabling the world to reach into individuals, corporations, and nation-states farther, faster, deeper, and cheaper than ever before.
Thomas Friedman
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What is a Global Industry?

An industry is global to the extent that a companys industry position in one country is interdependent with its industry position in another country Indicators of globalization: Ratio of cross-border trade to total worldwide production Ratio of cross-border investment to total capital investment Proportion of industry revenue generated by companies that compete in key world regions

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Keys to Global Success

Value creation Competitive advantage Focus

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Value Creation
Value = Benefits/Price
Price is a function of money, time, and effort Benefits result from the product, promotion, and distribution

2 methods of value creation

Improved benefits Lower prices
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Competitive Advantage
Success over competition in industry at value creation Achieved by integrating and leveraging operations on a worldwide scale

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Focus
Concentration and attention on core business and competence
Nestle is focused: We are food and beverages. We are not running bicycle shops. Even in food we are not in all fields. There are certain areas we do not touch..We have no soft drinks because I have said we will either buy CocaCola or we leave it alone. This is focus.
Helmut Maucher
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Globalization or Global Localization?

Globalization Developing standardized products marketed worldwide with a standardized marketing mix Essence of mass marketing Global localization Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction Essence of segmentation Think globally, act locally

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Where in the World?

How does a company decide which markets to enter?
Company resources Managerial mind-set Nature of opportunities and threats in that market
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Examples of Global Marketers

Coca-Cola Philip Morris Daimler-Chrysler McDonalds Toyota Ford Unilever Gillette IBM USA USA Germany USA Japan USA UK/ Netherlands USA USA

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Why Go Global?
For US-based companies, 75% of sales potential is outside the US.
About 90% of Coca-Colas operating income is generated outside the US.

For Japanese companies, 85% of potential is outside Japan. For German and EU companies, 94% of potential is outside Germany.
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Management Orientations
Ethnocentric Polycentric Regiocentric Geocentric

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Ethnocentric Orientation
Assumes home country is superior to the rest of the world; associated with attitudes of national arrogance and supremacy Management focus is to do in host countries what is done in the home country
Sometimes called an international company Products and processes used at home are used abroad without adaptation

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Polycentric Orientation
Management operates under the assumption that every country is different; the company develops country-specific strategies
Sometimes called a multinational company Company operates differently in each host country based on that situation

Opposite of ethnocentrism
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Regiocentric Orientation
Region becomes the relevant geographic unit (rather than by country) Management orientation is geared to developing an integrated regional strategy
European Union NAFTA

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Geocentric Orientation
Entire world is a potential market Managerial goal is to develop integrated world market strategies
Global companies serve world markets from a single country and tend to retain association with a headquarters country Transnational companies serve global markets and acquire resources globally; blurring of national identity
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Forces Affecting Global Integration

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Driving Forces
Regional economic agreements Market needs and wants Technology Transportation and communication improvements Product development costs Quality World economic trends Leverage

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Restraining Forces
Management myopia Organizational culture National controls

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International Trade Theory

Classical trade theories: explain national economy conditions--country advantages--that enable such exchange to happen New trade theories: explain links among natural country advantages, government action, and industry characteristics that enable such exchange to happen
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Classical Country-Based Theories

Mercantilism (pre-16th century) Takes an us-versus-them view of trade; other countrys gain is our countrys loss Neo-mercantilism views persist today Free Trade supporting theories Show that specialization of production and free flow of goods grow all trading partners economies Absolute Advantage (Adam Smith, 1776) Comparative Advantage (David Ricardo, 1817) Free Trade refined Factor-proportions (Heckscher-Ohlin, 1919) International product life cycle (Ray Vernon, 1966)

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Mercantilism/Neomercantilism
Prevailed from 1500 to 1800 Export more to strangers than we import to amass treasure, expand kingdom Maximize exports and minimize imports: no advantage in increased trade Government intervenes to achieve a surplus in exports King, exporters, domestic producers: happy Subjects: unhappy because domestic goods stay expensive and of limited variety Today neo-mercantilists=protectionists: some segments of society shielded short term

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Absolute Advantage
Adam Smith: The Wealth of Nations, 1776 Mercantilism weakens a country in the long run and enriches only a few segments A country should specialize in and export products for which it has absolute advantage; import others A country has absolute advantage when it is more productive than another country in producing a particular product
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Comparative Advantage
David Ricardo: Principals of Political Economy, 1817 Country should specialize in the production of those goods in which it is relatively more productive... even if it has absolute advantage in all goods it produces Absolute advantage is really a special case of comparative advantage
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Theory of Relative Factor Endowments (Heckscher-Ohlin)

Factor endowments vary among countries Products differ according to the types of factors that they need as inputs A country has a comparative advantage in producing products that intensively use factors of production (resources) it has in abundance Factors of production: labor, capital, land, human resources, technology
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Heckscher (1919)-Ohlin (1933) Theory

The pattern of international trade depends on differences in factor endowments not on differences in productivity Absolute amounts of factor endowments matter Leontief paradox: US has relatively more abundant capital yet imports goods more capital intensive than those it exports Explanation(?): US has special advantage on producing new products made with innovative technologies These may be less capital intensive till they reach mass production state

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International Product Life-Cycle (Vernon)

Most new products initially conceived and produced in the US in 20th century US firms kept production close to the market
Aid decisions; minimize risk of new product introductions Demand not based on price yet; low production cost not an issue

Limited initial demand in other advanced countries Exports more attractive than production there initially With demand increase in advanced countries Production follows there. With demand expansion elsewhere Product becomes standardized production moves to low production cost areas Product now imported to US and to advanced countries

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Classic Theory Limitations

Fundamentally: Free Trade expands the world pie for goods/services Theory Limitations Simple world (two countries, two products) no transportation costs no price differences in resources resources immobile across countries constant returns to scale each country has a fixed stock of resources and no efficiency gains in resource use from trade full employment
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The New Trade Theory

In many industries, as output expands with specialization, the ability to realize economies of scale increases and unit costs should decrease Because of such scale economies, world demand supports only a few firms in such industries (e.g., commercial aircraft, automobiles) Countries that had an early entrant to such an industry have an advantage in such an industry: Fist-mover advantage Barrier to entry (Airbus overcame through government subsidies?)
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New Trade Theory

Global Strategic Rivalry Firms gain competitive advantage through: intellectual property, R&D, economies of scale and scope, experience National Competitive Advantage (Porter, 1990)
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New Trade Theories

Increasing returns of specialization due to economies of scale (unit costs of prod. decrease) First mover advantages (economies of scale such that barrier to entry crated for second or third company) Luck... first mover may be simply lucky. Government intervention: strategic trade policy
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National Competitive Advantage

(Porter, 1990) Factor endowments land, labor, capital, workforce, infrastructure (some factors can be created...) Demand conditions Large, sophisticated domestic consumer base: offers an innovation friendly environment and a testing ground Related and supporting industries Local suppliers cluster around producers and add to innovation Firm strategy, structure, rivalry, competition good, national governments can create conditions which facilitate and nurture such conditions
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