CGMS522, Module 1 - Introduction-Merged-Merged

7/24/2021 CGMS522, Module 1 - Introduction
Introduction
Global marketing is an exciting and
important area of study. As you work your way through the various
modules of
this course you will learn strategies and tools for getting your products into
the hands of
consumers in foreign countries and approaches that you can use to
build market share and compete
effectively in markets around the world. For
many companies penetrating international markets is a
matter of survival while
for others it is an opportunity to build new customer bases and generate
additional revenues. Whatever the company’s motivation, however, a solid
understanding of the
principles of global marketing will likely pay dividends
for the firm. It is assumed that you
have taken a
basic course in marketing and that you are already familiar with
concepts such as segmentation,
targeting and positioning as well as the 4Ps. It
may be useful to review these concepts before delving
too deeply into the
material presented in this course. We begin this module by examining some key
definitions and concepts.
Topics and Learning Objectives

The purpose of this module is to introduce you
to the key definitions and concepts that form the basis for
the study of global
marketing. We will also discuss the importance of global marketing as a
business
discipline and introduce the concept of globalization.
Upon completion of this module, you will be
able to:
1. Define the term “global
marketing” and explain how it differs from other terms such as
“international
marketing”, “multi-domestic marketing” and “glocal marketing”.
2. Discuss
the similarities and differences between global and domestic marketing.
3. Discuss
globalization and its consequences.
4. Discuss
the anti-globalization movement.
Readings
Reading
Farrell, C. (2015). Global Marketing.
Sage Publications. Chapter 1
Levitt, T. (1983). The globalization of markets. Harvard Business Review, (May-June), 92-
102.
[Note: You can retrieve the second reading by going to the “Course Readings” area of your course.]
Global Marketing
Global marketing may be defined as “the systematic planning,
coordination and implementation of the
firm’s marketing activities across
national borders” (Farrell, 2015). You should note, therefore, that
unless the
marketing transaction involves parties in different countries it cannot
properly be considered
to be global marketing. A firm in New York City in the United
States, for example, marketing its products
to consumers in another US city, say
Washington, is not engaged in global marketing. The same firm
marketing its
products to consumers in Mexico City, Mexico or Toronto, Canada will be
considered to be
https://de.ryerson.ca/de_courses/templates/m/?c=0D352B4D3A317E3EAE221199FDB49651&m=1&p=137777 1/5
engaged in global marketing. Global marketing is significantly

more challenging than domestic marketing
as it necessitates an understanding of
key differences between the company’s home and host countries.
Activity
Consider the country in which you were born
(i.e., your home country) and any other foreign country
with which you are
familiar (i.e., a host country). On a blank sheet of paper make a list of all
the
differences between these two countries that could have an impact on the
ability of a firm from your
home country to market products in the foreign
country you selected. Which do you think is most
important? Why?
To be considered “global marketing” it is

essential that the firm engage in systematic planning and
coordination of its
marketing activities across the foreign markets that it serves. This allows the
firm to
take advantage of the synergies involved in doing business in multiple
countries. To better understand
this consider a company with several
subsidiaries in Latin America. In such a case it may well make
sense for the
country managers in each Latin American country to, for example, plan and
coordinate
their advertising strategies for the region rather than for each to
develop and execute its own advertising
campaign independently. It may
similarly make sense for the country managers to coordinate product
launches
and their approach to pricing so as to maximize the overall benefits to the
company.
It is important to recognize that global
marketing is different from domestic marketing and is certainly
more complex.
The liability of foreignness that
firms confront when marketing their products
internationally should not be
minimized. That being said, however, you
should also note that there are
important similarities between the two types of marketing, such as a focus on the
exchange of
something of value and the need to satisfy the needs of consumers.
Evolution of the Concept

The term “global marketing” owes much to the
pioneering work of Theodore Levitt, a Harvard University
business professor and
management consultant. In a seminal article published in the Harvard Business
Review, Levitt argued that, driven by technology, we were witnessing a
convergence of national tastes
and preferences by consumers around the world,
i.e., regardless of nationality consumers were
demanding essentially the same
brands whether these were Nike running shoes or Apple iPhones. If
Levitt is
correct it means that it would make sense for companies to standardize their
product offerings
and market the same products to consumers around the world. By
doing so firms would not only be
giving consumers what they want but they
would also be able to benefit from all of the economies of
scale that come with producing a standardized
product.
Prior to the popularization of the concept
of global marketing, firms focused on foreign markets by
merely extending their
domestic marketing strategies to these markets. Unique differences between
countries were essentially ignored and companies made little or no adjustments
to their domestic
marketing strategies. This was termed “international marketing”. As may perhaps be expected, this
approach
was not particularly successful in reaching foreign consumers and the companies
involved
saw only modest growth in their international sales. The recognition
that there was a need to consider
country differences would eventually force
some firms to develop what is described as multi-domestic
marketing strategies in which separate strategies are designed and
implemented for each foreign
jurisdiction in which the company does business. Returning
to the example of the firm with subsidiaries
across Latin America this approach
would require that the company have a separate marketing strategy
in Brazil,
another in Argentina, a third in Peru and a fourth in, say, Mexico. While this
strategy allowed
firms to cater to unique consumer differences in each of these

markets it was clearly inefficient and did
not allow the company to exploit the
advantages of a more integrated and coordinated approach. It was
at this point
that Levitt’s notion of global marketing and homogenized consumer demand
appeared and
the concept was enthusiastically embraced by multinational
companies in the developed world.
Despite the intuitive appeal of the concept
of global marketing with its dependence on consumers all
demanding the same
global brands it soon became clear to marketers that this may not be entirely
reflective of the real world. Depending on the product, differences in consumer
tastes and preferences
around the world may indeed be important. This led
marketers to consider the concept of “glocal”
marketing which attempts to
strike a balance between global standardization and catering to the unique
needs of consumers in the local market.
Pause and Reflect

Consider the examples in the textbook of
glocal marketing, e.g., McDonald’s including beer on their
menus in Europe or
Disney’s theme park in Hong Kong. Can you identify two companies you are
familiar with that use the concept of glocal marketing?
Definition, Forms and Drivers

There is evidence that the world has become
more interconnected. When we consider the effects of the
subprime
financial crisis that saw mortgage defaults in the Southern United States
precipitate social
unrest in Eastern Europe and the collapse of the government
of Iceland there is little doubt that we are
living in an interconnected world.
This “increasing integration and inter-dependence of economies,
national
institutions, firms and individuals around the world” (Farrell, 2015) is what we refer to
as
globalization.
Discussion Question 1
View the following video and answer these questions:
Globalization explained [4:19]
1. What do you see as some of the
negative consequences of globalization?
2. Would you say that
globalization is a phenomenon driven largely by advances in technology?
3. Do you believe that poor
countries derive more benefits from globalization when compared to
more
advanced industrialized countries?
4. Do you see the impact of
globalization diminishing over time?
You should also note the two major forms of

globalization, i.e., the globalization of
markets and the
globalization of
production. The former is consistent with Levitt's view of the
homogenization of
consumer demand while the latter reflects the ability of
companies to move their production operations
to any country around the world
in response to changes in wage rates and other costs. You should also
think
about the key drivers of globalization, such as market, cost, environmental,
competitive and
technological factors.
Measurement
Countries around the world will vary by the
extent to which they are globalized, i.e., globalization can in
fact be measured
and these metrics will vary by country. The KOF Globalization Scale is one
measure of
globalization and ranks countries on three dimensions – economic,
social and political. These sub-
indices are combined to arrive at an overall
globalization score for the country. The scale has values
from 1 to 100 with
higher numbers reflecting a greater degree of globalization. You may be interested in
looking at data from the KOF Index of Globalization. You should become familiar with what
each of the
sub-indices measures.
Do you believe the KOF scale is useful to global marketing managers?
Why or why not?
Consider the social dimension of the KOF index. What would account for
China’s very low score on
this dimension of globalization?
Anti-globalization
While globalization does provide firms
(large and small) with tremendous growth opportunities and
consumers have
access to a wider range of goods and services, the trend has been associated
with
problems such as job losses, environmental degradation and exploitation.
As noted in the text there has
been an anti-globalization movement in place for
almost two decades, raising awareness of the trend
and galvanizing public
opposition.
Summary
This module has discussed the concept of
global marketing as well as related concepts such as
international,
multi-domestic and “glocal” marketing. We have also examined globalization and
discussed its major drivers and key advantages and disadvantages. The
anti-globalization movement
has also been touched on briefly in this module.
Assignments
Discussion Board Questions
Answer one or more of the discussion questions found throughout the course content. Make
sure to reply to
your peers about their answers.

You
should begin to form groups for the CountryManager simulation (3-4 students
per group).
You must make use of the Discussion Board to identify potential

team members.
Note: Each student must
purchase a license for the CountryManager Simulation.
Introduction
One of the most important factors that
differentiates global from domestic marketing is the impact of
culture. The
culture of the host country is an uncontrollable variable but one which has a
profound
impact on the success of a firm’s global marketing strategy. A
consumer’s approach to the buying
process, for example, is influenced by
his/her culture and in a business context, culture will have a
significant
impact on the approach used in negotiations. In this module we will focus on
culture and how
it impacts global marketing strategy.

In this module we will define what is meant
by “culture”. We’ll then proceed to consider cultural literacy
and
ethnocentrism; cultural analytics; cross cultural management and the role of
culture in ethical
decision making.
Upon completion of this module, you will
be able to:
1. Define
the term “culture” and explain its importance in global marketing.
2. Discuss
the various elements of culture.
3. Discuss
key approaches to classifying and analyzing cultures.
4. Identify
the main issues involved in managing across cultures.
5. Discuss
the impact of culture on ethical decision making.
Readings
Reading
Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 2
Shimp, T.A., & Sharma, S. (1987). Consumer Ethnocentrism: Construction and
Validation of the
CETSCALE. Journal of Marketing Research, Vol. XXIV (August),
280-9.
[Note: You can retrieve

the second reading by going to the “Course Readings” area of your course.]
Culture Defined
There are literally hundreds of definitions
of the term “culture”. In essence the term refers to an all-
encompassing system
of learned behaviour patterns that serve to distinguish members of a particular
society. It is important to recognize that culture is learned and that it is
transmitted from one generation
to another. A society’s culture is fairly
stable over time and changes only slowly in response to outside
influences.
Pause and Reflect

While culture is stable, can you think of
three outside influences that can cause a society’s culture to
change over
time?
Individuals have little difficulty learning

their own culture. The process is quite natural and seamless as
one is exposed
to influences from family members, religious organizations, social groups, etc.
This
process is referred to as enculturation.
Problems are, however, more likely to occur when an individual
is transplanted
into a foreign culture and is required to make the necessary adjustments, i.e.,
to become
acculturated. This is
often the case when a multinational company sends its executives to live and
work
in a foreign country for an extended period of time. Adjustments may come
easily for some but may be
extremely traumatic for others. As global marketing
managers we should strive to become culturally
literate, i.e., possess an in-depth understanding of the foreign culture
which allows us to function
effectively in the new environment. The opposite is ethnocentricity or a belief that one’s
culture is
superior to others. This is a perspective that could easily blind us
to opportunities in global markets.
The Elements of Culture

Culture is a multi-dimensional construct and
while there is agreement that the concept is multi-faceted,
there is no
agreement on the constituent elements. Various authors list slightly different
elements. The
eight identified in Figure 2.1 below are, however, fairly representative.
Figure 2.1: The

Elements of Culture
Source: Adapted
from Farrell,
C. (2015). Global Marketing. Sage Publications.
Long Description - Figure 2.1
Language
Mastery of the host country language gives
the global marketer the ability to independently analyze and
interpret events
taking place in the society. Note that we make a distinction between verbal and non-
verbal (or silent) language. In cross-cultural communication it
is often necessary to translate the
company’s tagline and advertising messages
from one language to another. This often poses difficulties
for the firm and
may lead to serious reputational damage if errors are made. It is also
important to note
that the global marketer must also pay attention to the five
aspects of non-verbal language (time, space,
material possessions, friendship
patterns and business agreements).
Click-n-Reveal:
When translating marketing material from one language to another
what technique should a company use to minimize the potential for
errors that may seriously damage its reputation?
Religion
Many individuals believe in the existence of
a higher power and this belief can act as an anchor and give
individuals a sense of
purpose in their lives. Christianity, Islam, Hinduism and Judaism are some well-
known religions, but it is important to be informed about the various religions that might be practiced in
the countries with which you have dealings.
Is an understanding
of a host country’s predominant religions important to success in marketing to
consumers in
that country? Why or why not?
Values and Attitudes

Our values and attitudes guide what we see
as being right or desirable. You should note the concept of
consumer ethnocentricity that guides
some people to believe that the purchase of foreign products is
somehow morally
wrong.

Click-n-Reveal:
As a researcher, what instrument would you use to measure the
degree of consumer ethnocentricity in a society?
Manners and Customs

It is important to be aware of the manners
and customs of the host countries in which we do business.
These vary from one
country to another and touch various aspects of the business relationship from
gift
giving to business negotiations and how products should be packaged. Note
the issue of cultural
superstitions and the fact that these may override
economic rationality in some societies.
Can you
think of a situation when it is not appropriate to adjust to the manners and customs of the
host country where you are
doing business? Provide a concrete example.
Aesthetics
Societies vary in terms of what is
considered to be in good taste. These differences have a bearing on
how
business should be conducted with individuals from those societies. Again
aesthetics touch many
aspects of the business relationships from how products
are packaged and presented to what gifts are
considered appropriate. Colour
associations are extremely important in this context. Colours have
special
meaning in all societies (e.g., green is the colour of Islam) and, therefore,
great care must be
exercised in the design of global advertising campaigns.
Click-n-Reveal:
____________ is the traditional colour of mourning in China.
Click-n-Reveal:
In some African countries ________ is associated with witchcraft.
Click-n-Reveal:
In Japan black is associated with _______________.
Education
Education is an important vehicle of
cultural change in society. Traditional educational institutions such
as
schools and universities have a role to play in the transmission of established
cultural values but also
in exposing members of the society to new ideas and
approaches which may eventually lead to cultural
change.
Pause and Reflect

Should the
type of education emphasized by a society (math/science versus the arts) have
any
bearing on the global marketing strategy that firms develop? Why or why not?

Social Institutions
Social institutions are also an important
element of culture. In some societies households may include
three generations
of the family residing under the same roof with each having a voice in major
purchase
decisions. The global marketing manager must be aware of who the
decision makers are in these
situations and what their primary motivations might be. Issues
of social stratification also need
to be
considered as these can have a bearing on how business is conducted.
Pause and Reflect

The caste
system in India is one form of social organization. What is the caste system
and is it still
relevant to doing business in India today?
The Material
In some societies material possessions are
important signs of progress and well-being and individuals
are encouraged to
focus on their acquisition. Other societies place much less of an emphasis on the
material and focus instead on individuals' spiritual development.
Identify
one society for whom the material is not heavily emphasized. For a North American
multinational company,
how will its marketing strategy have to change when targeting individuals
from
that society?
Cultural Analytics
There are several
approaches to classifying cultures. These are clearly extremely useful to the
global
marketer in her efforts to penetrate and build market share in foreign
countries. Cultural analytical
frameworks range from the simple and intuitive
(e.g., simply classifying countries as high
context or
low context to Gannon’s
Metaphors) and more sophisticated approaches (e.g., Hofstede’s
Framework which is widely used by both academics and
practitioners).
High vs. Low Context

In high context societies it is important to
“read between the lines” because the entire message is not
conveyed in the
words used. In contrast, in low context societies words are used explicitly and
communication is more direct.
Activity
Consider the Context
Continuum presented in the text. Redraw the graph to show where Russians
and
Chinese would likely fall.
Gannon’s Metaphors
These figures of speech are essentially
words or phrases which when heard or read create a mental
image of the culture
of a particular society. For example, Gannon used American football to
characterize
the United States and the classical symphony to characterize
Germany.
Pause and Reflect

Think of a suitable
metaphor that would adequately reflect the cultures of the three countries
listed
below:
Jamaica
Canada
UK
Hofstede’s Framework
Hofstede measured culture on four
dimensions: masculinity vs. femininity; uncertainty avoidance; power
distance;
and individualism vs. collectivism. Hofstede subsequently added a fifth
dimension, time, to
reflect society’s long (or short) term orientation.
Activity
Visit The Hofstede Centre. Where does your country of birth fall on the
major dimensions? Select a
foreign country that you have visited or read about.
How do the two countries compare? Would
culture present a barrier for
individuals from your home country doing business in the foreign country
you
selected?
Managing Across Cultures

As noted above global marketers must strive
for cultural literacy. Becoming thoroughly at home in a new
cultural
environment is, however, a long process as illustrated by the model proposed by
Shapiro,
Ozanne and Saatcioglu (2008) and found in the textbook. The Romantic Sojourner has little more than
a passion for travel and a desire to learn more about foreign cultures. The Foreign Worker, on the other
hand, has
a much more realistic view of foreign cultures and has developed a deeper
understanding of
the local business environment. Skilled Workers have an even deeper level of understanding of the
local environment and have begun to develop the requisite diplomatic and
negotiating skills to function
effectively. Skilled Workers who continue to
function in the foreign society become truly embedded and
eventually attain the
status of Partner. Partners have a high level of cultural
sensitivity and a deep
appreciation of the nuances of the particular culture.
Figure 2.2: The Development of Cultural Knowledge

Source: Adapted from Farrell, C. (2015). Global Marketing. Sage Publications.
Click-n-Reveal:
At what stage in the model proposed by Shapiro, Ozanne and
Saatcioglu (2008) is there the greatest reliance on declarative
knowledge?
Culture and Ethical Decision Making

Ethics and culture are closely related. Cultural
values provide individuals with a frame of reference to
determine whether a
particular decision falls in the moral domain and when ethical reasoning is
appropriate. Societies will, therefore,
differ on which issues fall in this domain and on the approach used
to arrive
at an ethical decision.
Given that
culture and ethical reasoning are closely related, should global marketers be
governed
more by the ethics of their home country or those of the host country?
Summary
This module has
examined a number of issues related to culture. The concept was first defined and its
constituent elements discussed. A number of approaches to classification were also
presented and the
module concluded with a discussion of cross cultural
management and the relationship between culture
and ethical decision making
Assignments
sure to reply to

You should complete your group formation this week.
Note: Make sure you have purchased a license for
the CountryManager Simulation.
First quiz – short answer/multiple choice/case study questions covering Modules 1 & 2
Introduction
An understanding of the economic environment is central to the successful implementation of a firm’s
global marketing strategy. Economic variables such as exchange rates, inflation, income, levels of
unemployment and the pace of economic growth are key drivers of a firm’s decisions to enter or exit
particular country markets. This module will demonstrate how economic variables impact the decisions
of the global marketer bearing in mind that the factors that define the economic health of the target
country are completely beyond the control of the firm.

This module will focus on three key areas. First we will examine the importance of economic and
financial variables in assessing foreign markets. Note that these variables provide support not only for
market entry decisions but also guide the global marketer in her decisions to exit particular country
markets. Second we will address the issue of economic integration, or the trend observed in which
countries form themselves into blocs or economic groupings. Finally we will address the need for firms to
examine issues related to marketing to consumers at the base of the economic pyramid.
Upon completion of this module, you will be able to:
1. Discuss the importance of economic variables such as inflation, income and employment in
assessing potential foreign markets.
2. Explain the challenges and opportunities presented by marketing to low income consumers at the
base of the economic pyramid.
3. Discuss the various forms of economic integration.
Readings
Reading
Prahalad, C.K., & Hammond, A. (2002). Serving the World’s Poor Profitably. Harvard
Business Review, September.
Karnani, A. (2007). The Mirage of Marketing to the Bottom of the Pyramid: How the Private
Sector can Help Alleviate Poverty. California Management Review, 9 (4).
Simanis, E. (2012). Reality Check at the Bottom of the Pyramid. Harvard Business Review,
June.
[Note: You can retrieve the readings by going to the “Course Readings” area of your course.]
Income and Income Distribution

Several economic variables are important in assessing foreign markets. The most important of these are
identified in the next few pages.
The ability of consumers to purchase foreign goods and services is driven by income. Income (in
addition to savings rates, access to credit and debt levels), define consumers’ ability to purchase foreign
products and, therefore, the relative attractiveness of the target market. As we will discuss later in this
module, low income per capita does not necessarily mean that global marketers should ignore such
consumers but it does mean that product and pricing strategies will have to be adjusted. As noted in the
textbook, a country’s income level is measured in terms of gross domestic product (GDP) or gross
national product (GNP) and these are usually expressed on a per capita basis when making
comparisons across countries. GNP is often referred to as gross national income or GNI.
Pause and Reflect

China recently overtook Japan to become the second largest economy in the world. Given this
performance should the World Bank continue to classify China as a “developing country”?
In assessing foreign markets it should be recognized that it is not only

the absolute level of income that
is important but the distribution of that income. Income distribution in the target country has major
implications for the implementation of the firm’s global marketing strategy.
Click-n-Reveal:
Income distribution is important to the assessment of foreign markets.
What metric would you use to assess the degree of income inequality
in a country of interest?
Market Size
The overall size of the foreign market is governed to a large extent by the income level of consumers.
However, the number of consumers is also an important determinant. Populous countries such as India
and China may be relatively more attractive to some marketers despite their low incomes per capita. As
noted in the textbook, the global marketing executive also needs to pay attention to trends in population
growth rates as these provide clues as to the long run viability of particular country markets. There are
many examples of firms having to make major strategic adjustments in the face of traditional markets
with stagnant or declining populations.
Exchange Rates
An exchange rate is simply the price of one country’s currency expressed in terms of some other
country’s currency. Currencies which are weak (say relative to the US dollar) provide a major impetus to
the country’s exporters making their products more price competitive on international markets. By the
same token, however, consumers are penalized as they must now surrender more of their local currency
in order to purchase imported products.
In August of 2019 the Trump Administration charged China with being a currency manipulator. In its
trade war with the United States the Peoples' Bank of China allowed the yuan to depreciate beyond
the psychologically important 7 yuan to 1 US Dollar level. Do you believe China is manipulating its
currency to circumvent the tariffs imposed by the United States? Why?/Why not?
As noted in the textbook, when comparing countries the use of nominal exchange rates may lead to poor
decisions. If one is comparing, say, income across two countries it is better to use purchasing power
parity exchange rates in the calculations.
Debt Levels
As noted above, consumers’ ability to purchase foreign goods and services is dictated not only by
income but also by debt. Excessive levels of consumer debt will dampen consumers’ incentive (and
ability) to consummate new purchases and will reduce the overall attractiveness of the foreign market.
Of course, the global marketing executive is also concerned about levels of government debt in the
target host countries. Highly indebted host country governments may, for example, be forced to reduce
spending on infrastructure projects that support the ongoing marketing operations of the firm, e.g., port
facilities and highways. Further, public sector workers may be laid off which reduces their demand for
both domestic as well as imported products. The global marketer is well advised to consider debt levels
in assessing the merits of prospective host countries.
Proponents of the Strategy

As the textbook notes, there are over 4 billion people in the world who are forced to live on less than
$2/day. A key question for the global marketer is whether these individuals present an attractive market
opportunity or not.
Scholars such as the late C. K. Prahalad argue that marketing to consumers at the base of the income
pyramid (BoP) is potentially quite lucrative for global firms even though individually these consumers
have little money. He argues that even in the slums of Mumbai and Rio de Janeiro these poor
communities may have combined purchasing power measured in the millions of dollars. Proponents of
the strategy also suggest that poor consumers may be an attractive market even for more expensive,
branded products such as washing machines and mixers. In most instances, however, these products
will have to be modified in some way in order to achieve a more realistic price point.
Opponents of the Strategy

Opponents of the base of the pyramid strategy include writers such as Karnani and Simanis. These
scholars argue that the market size estimate of 4 billion is exaggerated as is the propensity of poor
consumers to purchase luxury items. They argue that in accordance with Engel’s law the bulk of the
income of poor consumers will be devoted to meeting their basic need for food with little left over to
purchase items such as washing machines and mixers. They also argue that the poor are culturally
heterogeneous and geographically dispersed making them difficult and expensive to reach. Further, the
global marketing firm will have to achieve an exceedingly high penetration rate for the strategy to be
successful. Marketing to consumers at the base of the pyramid is essentially a low price-low margin-high
volume business which is not suitable for all companies.
The Customer at the Bottom of the Pyramid Stuart Hart from Cornell [4:04]
Why is the notion of the poor as producers so important to the success of base of the pyramid
marketing?
Are you convinced that there is a market at the base of the economic pyramid? Why or why
not?
Forms of Economic Integration

Countries form themselves into economic groupings or trading blocs in order to make more efficient use
of their national resources. The process, known as economic integration, has resulted in the creation of
such groupings as the European Union and the North American Free Trade Association (NAFTA).
The major forms of economic integration are described in the textbook and range from free trade areas
in which there is merely the elimination of tariffs and duties between members to economic unions which
involve a single currency and the harmonization of economic policies between member states (see
Figure 3.1).
Figure 3.1: Major Forms of Economic Integration

Source: Adapted from Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 3.

Free Trade
No trade restrictions on the movement of goods among members.
Each member maintains its own policies towards non-members.
Customs Union
Free movement of goods and services among members.
Common trade policy towards non-members.
Common Market
Free trade in goods and services among members.
Common external tariff.
Factors of production are mobile across member countries.
Economic Union
Free trade in goods and services.
Mobility of factors of production.
Harmonization of economic policies among member countries.
Benefits and Costs

As noted in the textbook, economic integration allows member nations to achieve a number of benefits
that would be difficult to achieve acting alone, such as:
Trade Creation
One of the benefits of economic integration is trade creation. Countries substitute imports
from beneficiary countries within the bloc for their own domestic production. In essence
countries are able to rely on their more efficient trading partners and, therefore, provide their
citizens with products at more competitive prices.
Greater Consensus
Countries are able to make decisions more effectively in smaller groups and arrive more
quickly at mutually beneficial trading decisions.
Trade Negotiations
Economic integration gives countries, particularly smaller trade dependent countries, a bigger
voice in multilateral trade negotiations.
Economic integration may also impose certain costs on member countries. These include:
Trade diversion in which a country diverts imports from more efficient non-beneficiary outside the
bloc to less efficient preferred countries within the bloc.
Shifts in production to low wage countries that are part of the bloc. This, of course, results in job
losses in other member countries with higher wage rates.
Membership in an economic bloc does require that the members give up some national
sovereignty in the interest of the group as a whole. This may prove to be quite difficult for some
nations.
On assuming office as president, Donald Trump withdrew the United States from the proposed
Trans-Pacific Partnership (TPP). What are the implications of this action for the US economy? What
are the implications for China?
Summary
This module has examined the economic environment within which global marketers implement their
strategies. It has examined the economic factors that are important to the assessment of foreign market
opportunities such as income, debt levels and exchange rates. Also discussed were the challenges and
opportunities presented by consumers at the base of the income pyramid. The module concluded with
an examination of the concept of economic integration – its forms, benefits and limitations.
Assignments
sure to reply to your peers about their answers.
CountryManager Simulation
Students should play through a practice round of the CountryManager simulation to become
familiar with the decisions required. No group member changes after the first round decision.
However, should some team members drop the course the instructor may allow the
remaining member(s) to join other groups.
Introduction
This module introduces another element of the uncontrollable environment within which global marketing
decisions are made. Developments in the political environment are well outside the ability of the global
marketing manager to control yet can have important ramifications for the success of the firm’s
strategies in international markets. Note that the global marketing firm must contend not only with the
political actions of host country governments but also those of its own home country government.

The purpose of this module is to discuss the various ways in which political decisions, both at home and
abroad, can impact the design and execution of global marketing strategy. The module also presents
approaches available to the global marketing manager to mitigate, to the extent possible, the impacts of
such adverse political decisions.
1. Discuss the various forms of political organization.
2. Discuss the impact of the political/legal environments in the home country on the design and
execution of global marketing strategy.
3. Discuss the impact of the political/legal environments in the host country on the design and
4. Define the term “political risk”.
5. Discuss the various forms of political risk and how they may be mitigated.
6. Discuss the measurement of political risk.
7. Explain differences in the legal systems and how they impact the design and execution of global
marketing strategy.
Readings
Reading
Cuervo-Cazurra, A. (2008). The Effectiveness of Laws Against Bribery Abroad. Journal of
International Business Studies 39, 634–651.
Bremmer, I. (2005). Managing Risk in an Unstable World. Harvard Business Review, June,
51–60.
Czinkota, M., Knight, G., Liesch P.W., & Steen, J. (2010). Terrorism and International Business:
A Research Agenda. Journal of International Business Studies, 41 (50), 826–843.
Dictatorship
The global marketer will likely do business in countries which have a very different form of government
organization when compared to what exists in her home country. It is important to have at least a basic
understanding of these differences in forms of government organization and the implications for the
global firm.
In a dictatorship, political and military power is concentrated in the hands of a single individual. There is
no sharing of political power and citizens are denied the right to elect their leaders or debate the
decisions made by the dictator. Military force and imprisonment are often used to enforce the dictator’s
will.
From your perspective, would North Korea meet the criteria to be classified as a “dictatorship”?
Identify three challenges that would be faced by multinational companies when doing business in
North Korea.
Oligarchy
In some instances political power is in the hands of not a single individual, but a small group of
individuals. These may, for example, be members of the same family. As with a dictatorship citizens
have no say in the choice of their leaders and there are no term limits, i.e., oligarchs rule for as long as
they choose or until they are deposed.
Democracy
Dictatorships and oligarchies are relatively rare in the real world. As noted in the text most countries
subscribe to a democratic form of political organization.
Pause and Reflect

Identify two important characteristics of democratic governments.
Embargoes and Sanctions

As noted in the text political decisions made by a firm’s home country government may have a profound
impact on its ability to do business around the world. The firm is never the target of these decisions but
may be hurt by them merely because it operates globally.
The multinational firm’s home government may be obliged to impose sanctions on a target country in
order to fulfill its obligations under Chapter VII of the United Nations Security Council Charter.
Unfortunately the target may be a country with which the firm does business – either as a supplier of raw
materials and inputs or as a consumer of its finished products. All business relations with firms from the
target country will be disrupted by these sanctions (with the exception of the purely humanitarian).
Click-n-Reveal:
What is the ultimate goal of multilateral sanctions imposed by the

United Nations?
Sanctions have been imposed on North Korea since 2006 when that country tested it's first nuclear
device. The latest sanctions imposed in 2017 include limiting oil exports to the country and banning
imports of its textile products. China and Russia have gone along with these limited sanctions. Do
you believe that sanctions will force North Korea to behave responsibly or will the United States and
other Western countries be forced to take military action?
Export Controls
The global marketer’s home country government may also impose export controls in order to deny a
target country access to certain products. As noted in the text such products may include dual use
materials such as uranium that may be used for both peaceful (e.g., energy generation) as well as
adversarial (e.g., weapons development) purposes. The multinational firm may be hurt if it is a major
supplier of such products to the target country.
Import Controls
Similar to export control, the firm’s home country government may also impose import control which will
prevent the importation of certain products from a target country. The imposition of import control may
have a negative impact on the multinational company if supplies from the target country were important
inputs into its manufacturing operation. Import control may force the firm to seek out alternative sources
of the product which may prove to be more expensive or of lower quality.
Boycotts
The global marketing firm may also have to contend with boycotts sanctioned by their own home country
government. In this case the firm is prohibited from doing business with companies headquartered in the
country under boycott. Consumers may also refuse to purchase the products of firms based in the
country under boycott. As noted in the textbook, the Arab League has discouraged Arab companies from
doing business with Israeli companies since the late 1940s and Japanese products have been boycotted
in China due to tensions between these two nations that date back to the 1930s.
Click-n-Reveal:
The belief that it is morally wrong to purchase foreign products is
termed _____.
As stated in the textbook, the US government has in place anti-boycott legislation designed to
discourage American companies from complying with the Arab boycott of Israeli firms. Do you think it
is appropriate for the United States to become involved in this long standing dispute? Why or why
not?
Bribery and Corruption

In doing business around the world the global marketer will be forced to deal with issues of bribery and
corruption. While the payment of government officials for the performance of their duties is tolerated or
even expected in some countries, it is generally frowned upon in developed Western nations such as the
United States and Canada.
Should Western governments impose high ethical standards on their companies when conducting
business abroad even though these standards may put them at a competitive disadvantage relative
to firms from other countries?
Click-n-Reveal:
What measure could be used to measure the propensity of executives
from one country to offer a bribe when doing business in some other
country?
As stated in the textbook, bribery and corruption may discourage foreign direct investment and force
companies to alter the way in which they enter foreign markets. It is also important to note the OECD
tips to strengthen the firm’s internal control and procedures for dealing with corruption.
Click-n-Reveal:
What measure could be used to measure the level of corruption that
exists in a country?
Political Risk
The global marketer must consider not only the impact of political decisions made by their home country
but must also be alert to the political actions of governments in the host countries in which they operate.
Host country political decisions may in fact have a much more profound impact on the firm’s strategic
decisions.
Firms face varying degrees of political risk when operating in foreign countries. As noted in the textbook,
political risk refers to the risk of loss due to changes in the host country’s political structure, policies,
regulations or laws.
Click-n-Reveal:
What are the major types of political risk that firms face when
conducting business in foreign countries?
Other Host Country Interventions

Apart from political actions which may impact the firm’s ability to operate in the host country, its ability to
transfer assets outside of the host country or result in a change in ownership, the global marketing
manager must also be cognizant of other types of political interference. As noted in the textbook, host
country governments may also impose price controls on foreign firms, mandate local content
requirements or impose import restrictions. Although they are not usually state sponsored, the global
marketer must also consider the possibility of terrorist actions that may disrupt its normal operations in
the host country and more importantly lead to significant loss of life.
Click-n-Reveal:
Identify the indirect effects of terrorist actions that the multinational
firm should be aware of.
Measurement of Political Risk

It is important for the global marketer to have a handle on the extent of political risk that exists in the
various foreign countries in which it has an interest. As noted in the textbook, political risk can be
measured. One measure that the firm may find useful is the Profit Opportunity Recommendation Index
(POR). The POR classifies countries as low risk, moderate risk, high risk or prohibitive risk (see Table
4.1).
Click-n-Reveal:
Which sub-index of the POR would be of most interest to the global
marketer concerned about getting funds out of a foreign country in
which it is conducting business?
Table 4.1: POR Scores, Selected Countries
POR
Country Score
(2012)
Low Risk (POR: 70-100):

“Political changes will not lead to conditions seriously adverse to business. No
major sociopolitical disturbances are expected”.
POR
Country Score
(2012)
Switzerland 76
Singapore 78
Norway 73
Moderate Risk (POR: 55-69)

“Political changes seriously adverse to business have occurred in the past, but
governments in power during the forecast period have a low probability of
introducing such changes. Some demonstrations and strikes have a high probability
of occurring”.
Canada 63
US 58
UK 62
France 55
China 57
Australia 55
Germany 68
Japan 56
High Risk (POR: 40-54)

“Political developments seriously adverse to business exist or could occur during the
forecast period. Major sociopolitical disturbances, including sustained rioting, have
a high probability of occurring periodically”.
Chile 54
India 42
Russia 48
Brazil 41
Colombia 41
Indonesia 43
Italy 42
POR
Country Score
(2012)
Prohibitive Risks (POR: 0-39)

“Political conditions severely restrict business operations. Loss of assets from rioting
and insurgencies is possible. Disturbances are part of daily life”.
Iran 36
Mexico 35
Venezuela 38
Greece 27
Argentina 39
Source: Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 4.
Mitigating Political Risk

As mentioned in the textbook, the firm has a number of options available to mitigate the political risks it
faces when doing business in foreign countries. These include the purchase of political risk insurance,
lobbying, building strong ties with local communities in the foreign country or choosing a form of market
entry that does not directly expose it to the vagaries of the host country government.
Consider lobbying and licensing. For a North American firm which is likely to be more effective in
mitigating political risk when doing business in Russia?
Host Country Legal Environment

The global marketing firm must also consider the legal environment of the host country when designing
and implementing its marketing strategies. As the textbook notes, common law and code law govern
most international business transactions but Shari’ah law will be encountered when doing business in
Muslim countries.
Click-n-Reveal:
Shari’ah law forbids investment in certain industries such as alcoholic
beverages, pork, tobacco and gambling. These industries are
considered ________________ or impermissible.
Should Western companies modify their business practices, e.g., the charging of interest, when
operating in Muslim countries? Why or why not?
Summary
This module has examined the impact of political decisions, both at home and abroad, on the design and
execution of the firm's global marketing strategy. The point was made that the global marketer has no
control over political decisions made by its own home government or the governments in those countries
in which it does business. Despite this the firm may be greatly impacted by these decisions. Sanctions,
boycotts, import and export controls, price controls and local content requirements were discussed as
were the various forms of political risk. The measurement of political risk as well as strategies that may
be employed to mitigate those risks were also discussed.
Assignments

First simulation decision due (Friday 11:59 pm EST). No group member changes after this
first decision is submitted.
As a reminder failure to register for and purchase the simulation license will result in a grade
of zero for the competitive component of the simulation.
Second quiz – short answer/multiple choice/case study questions covering Modules 3 & 4

Introduction
This module is focused on international trade and protectionism. As with the economic and political
environments or the culture of the host country, the international trade environment is an uncontrollable
variable for the global marketer. Governments establish their international trade policies, and while these
policies may impact the firm’s global marketing strategy there is little the firm can do to influence them. A
key aspect of trade policy is protectionism which, as will be discussed in this module, may make foreign
market entry extremely difficult or, in some cases, impossible.

In order to better understand the international trade environment and the implications for global
marketing it is necessary to consider why countries engage in trade. There are several theories which
attempt to explain the benefits of international trade and these are explored below. Also discussed are
the mechanisms by which trade between nations is governed. The point is made that these governance
mechanisms operate at both the national and supranational levels. As noted previously, protectionism is
also an important consideration and we examine below the various motivations for governments to be
protectionist and the forms these restrictions on trade may take.
1. Discuss the major theories used to explain the pattern of international trade and investment flows.
2. Define the term “protectionism” and discuss the various arguments used by national governments
for implementing protectionist policies.
3. Discuss the various ways in which national governments may be protectionist and the impact on
global trade and investment.
4. Discuss the various ways in which governments may promote exports.
5. Discuss the role of major transnational organizations involved in the regulation of global trade and
investment.
Readings
Reading
Early Trade Theories

While countries vary in their reliance on international trade, no country produces all the goods consumed
by their citizens. Countries such as China and Canada are heavily dependent on trade with other nations
while others such as the United States are much less dependent. A number of theories have been put
forward over the years to explain why countries engage in international trade.
As noted in the textbook, the mercantilists used a rudimentary model of the economy consisting of a
manufacturing sector, agricultural sector and the colonies to argue that countries could advance
economically by aggressively expanding exports while severely discouraging imports. International trade
was seen as a zero sum game. The mercantilist doctrine was refuted by Adam Smith in his theory of
absolute advantage. Smith argued that trade was not a zero sum game and that it was possible for two
countries engaged in trade to both benefit from the exchange. Countries must, however, have an
absolute advantage in the production of a traded product. Building on the work of Adam Smith, David
Ricardo would later prove that countries needed only a comparative advantage in order to benefit from
international trade.
Click-n-Reveal:
According to the theory of comparative advantage trade is a
_____________ sum game, i.e., it is possible for both countries to
benefit simultaneously.
Later Trade Theories

Following from the work of the mercantilists Smith and Ricardo, a number of scholars proposed
alternative trade models. These include the Swedish economists Elie Heckscher and Bertil Ohlin as well
as Raymond Vernon. The Heckscher-Ohlin theory examined the role of factor endowments and factor
intensities while Vernon’s model attempted to explain trade flows based on the life cycle of an
internationally traded product.
Click-n-Reveal:
Vernon’s product cycle theory argues that firms responsible for
product innovation are based in developing countries. True or false?
Click-n-Reveal:
The Heckscher-Ohlin model argues that countries will import those
products that use most intensively their least abundant factor of
production, while they will export those products that use most
intensively their most abundant factor of production. True or false?
As noted in the text most of the theories of international trade focus on the supply side. One exception is
the Linder (or Country Similarity) theory which attempts to explain trade flows by examining the pattern
of demand. The key point here is that a country will tend to trade with other countries with similar levels
of income and patterns of demand. Note that empirical support for this model has been mixed and that
geographic and cultural proximity may well influence the results observed.
It should also be noted that all of the models discussed up to this point implicitly assume that we are
dealing with a homogeneous product. However, the New Trade Theory proposed by Paul Krugman
relaxes this assumption and allows for product differentiation. In order to better our understanding of
international trade, the work of Michael Porter should also be reviewed. His diamond of competitive
advantage has been used extensively to analyze the competitive advantage of nations and industries.
Do developing countries benefit more from free trade than advanced countries?
Investment Theories
Countries are concerned not only about trade flows but also about the flow of investments. Theories
proposed to explain international trade flows include transactions cost analysis, Dunning's OLI model
and the Springboard perspective. The latter is particularly useful in explaining the investment behaviour
of multinational companies from emerging markets such as China. Dunning’s OLI model, on the other
hand, was developed to explain the investment activity of multinationals from developed countries. As
noted in the textbook, the OLI model argues that the foreign investment decisions of the firm are driven
by Ownership, Location and Internalization (OLI) advantages. In the absence of these advantages the
firm would opt to remain domestically focused. The Springboard model argues that emerging market
multinationals expand abroad in order to overcome the “institutional voids” that exist in their home
countries and do so by making a series of aggressive and recursive moves to acquire assets in foreign
markets. Transactions cost analysis, on the other hand, argues that firms seek to minimize overall
transactions costs when expanding into foreign markets.
What aspects of Dunning’s OLI model make it difficult to apply in the context of multinational
companies from emerging markets?
Click-n-Reveal:
According to transactions cost analysis what are the three types of
costs firms attempt to minimize when expanding into foreign markets?
Definition and Arguments

Nations often impose measures that may unduly restrict trade and investment. As noted in the text these
measures are designed to protect domestic firms and industries from foreign competition and have little
to do with safeguarding the health and well-being of the country’s citizens. Countries may attempt to
justify the implementation of protectionist measures by appealing to one of several arguments.
Government policy makers may argue in support of protectionism by claiming that particular industries
need to be shielded from direct global competition if they are to develop and themselves become global
competitors. While the infant industry argument does have some appeal it requires governments to inter
alia pick winners and decide when protection should be withdrawn. Government policymakers may opt
to implement protectionist measures for other reasons such as national security, i.e., ensuring that
assets do not fall into the hands of terrorist organizations or rogue states. In some instances industries
may be protected by governments because they employ substantial numbers of people. Job losses that
result from international competition will have not only economic consequences (e.g., reduced tax
revenues and increased social assistance costs), but may also have political consequences for the
government.
Given the theoretical arguments for free trade do you believe that the implementation of protectionist
measures by a national government, e.g. the imposition of tariffs on steel and aluminum by the
Trump administration, is ever justified? Why or why not?
Forms of Protectionism
Governments have a number of tools at their disposal to protect domestic industries. Tariffs, or taxes on
traded products, may be used by national governments to increase the price of imported products and
make them less competitive (relative to domestically produced goods). Quotas, or quantitative
restrictions, may also be used to reduce the availability of imported products on the domestic market
thereby providing domestic suppliers with a larger share of the market. As the textbook notes, tariff rate
quotas combine elements of both tariffs and quotas and may also be used to restrict trade flows and
provide domestic producers with a competitive advantage. In some cases it is not the importing country
that takes action to limit trade but the exporting country. This is seen, for example, in the case of
voluntary export restraints which require the exporting country to place curbs on its own exporters (or
face retaliatory action by the importing country).
Click-n-Reveal:
A tariff that combines both specific and ad valorem components is
referred to as a ___________ tariff.
National governments have other tools at their disposal to restrict trade including limiting the availability
of foreign exchange or maintaining a dual exchange rate system which penalizes importers but favours
exporters. Governments may also implement policies which restrict access to local distribution, impose
unrealistic quality standards on imported products, or simply turn a blind eye to protecting the intellectual
property of foreign firms conducting business in the country.
It should be noted that national governments may also wish to restrict foreign investment in certain
industries deemed to be sensitive. Various countries may define these sensitive sectors differently but
may include telecommunications, banking and financial services, as well as natural resources.
Should national governments designate certain sectors/industries as off-limits to foreign investment?
Why or why not?
Forms of Export Promotion

In contrast to the various measures national governments may adopt to restrict trade they often engage
in activities specifically designed to boast the competitiveness of their own exporters. These export
promotion measures are designed to mitigate risk and enhance the probability of success in international
markets.
The various forms of export promotion are described in the textbook and include the provision of market
intelligence, export subsidies, export financing and the establishment of foreign trade zones. While all of
these approaches may be useful in promoting exports, some such as the provision of export subsidies
may fly in the face of multilateral trade agreements.
Do you believe that foreign trade zones contribute to the development of
the countries in which they
are located or merely give multinational firms an opportunity to exploit cheap labour and raw
materials?
Governance of International Trade and Investment

National governments are, of course, important in the design and implementation of international trade
policy. The governance of international trade and investment does, however, also involve a number of
transnational organizations.
Trade Institutions
As described in the textbook, the World Trade Organization (WTO) has been central in the reduction of
tariffs since its creation in the 1940s. The organization has also played a pivotal role in the resolution of
international trade disputes between member countries. The Bretton Woods institutions – The World
Bank and International Monetary Fund – are also important in the governance of international trade and
investment. The former plays a key role in loan and equity financing of projects around the world while
the latter has a mandate to provide exchange rate stability, which is critical to the proper functioning of
Summary
This module has examined international trade and investment. A number of models were discussed
which attempt to explain the pattern of international trade and investment between nations. The issue of
protectionism was also taken up with a discussion of the arguments for protectionism and the specific
measures that may be used by national governments to protect domestic industries. The module
concluded with a brief review of the role of transnational institutions in the regulation of international
trade and investment
Activity
Video
Watch the following video. Do you believe that the criticism leveled against the Bretton Woods
institutions is justified? Why or why not?
A Short Introduction to the Bretton Woods System [4:59]
Assignments
Answer one or more of the discussion questions found throughout the course content. Make sure
to reply to your peers about their answers.
Second simulation decision due (Friday 11:59 pm EST)

CountryManager
Introduction
Having examined the external environment within which global marketing decisions are made, the focus
now shifts to the selection and penetration of foreign markets. With approximately 200 countries in the
world it is unrealistic to expect that any company, even a large multinational, would have a presence in
every country. With finite resources all companies must make decisions with respect to which countries
to focus on and which to ignore. As noted in the text it is important to adopt a systematic approach to
country selection – one which includes a detailed analysis of several prospective target countries and an
objective assessment of the capabilities of the firm. Having selected a target country the global marketer
must next decide how the firm will enter the foreign market being targeted. Both of these decisions are
the subject of this module.

As noted in earlier modules, countries differ in terms of their national culture, stage of economic
development and political structures. Also, as discussed in Module 5, countries differ in terms of their
commitment to the principles of free trade with many countries adopting protectionist policy measures
designed to frustrate the efforts of foreign firms. Given these differences the selection of a target country
represents a critical decision for the firm. The approach used by the firm to enter foreign markets also
requires some consideration as these vary in terms of their level of risk and the potential for reward.
Indeed a firm may use a series of different approaches to market entry as it becomes more comfortable
with the inherent risks involved in doing business in various countries.
1. Define the term “internationalization”.
2. Discuss the various motives that drive firms to internationalize.
3. Explain the various theories of internationalization.
4. Outline a step-by-step approach to selecting foreign markets.
5. Define the term “entry modes”.
6. Discuss the pros and cons of the alternative entry mode choices available to the firm.
Readings
Reading
Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 7 & 8
Johanson, J., & Vahlne, J.K. (2009). The Uppsala Internationalization Process Model Revisited:
From Liability of Foreignness to Liability of Outsidership. Journal of International Business
Studies 40, 1411-1431.
Luo, Y., & Tung, R. (2007). International Expansion of Emerging Market Enterprises: A
Springboard Perspective. Journal of International Business Studies, 38 (4), 481-498.
Ellis, P. (2008). Does Psychic Distance Moderate the Market Size-Entry Sequence
Relationship? Journal of International Business Studies, 39 (3), 351-369.
Dunning, J.H. (2003). Some Antecedents of Internalization Theory. Journal of International

Business Studies, 34, 108-115.
Chiao, Y.C, Lo, F.Y., & Yu, C.M. (2010). Choosing between wholly-owned subsidiaries and joint
ventures of MNCs from an emerging market. International Marketing Review, 27 (3), pp.
338-365.
Internationalization Defined
Internationalization may be defined as the process by which firms become increasingly more engaged in
global markets. As noted in the textbook, as companies become more comfortable operating in a foreign
country they may gradually increase their commitment, moving from indirect/direct exporting to foreign
production (see Figure 6.1). As will be noted later in this module, indirect/direct exporting and licensing
represent very low levels of commitment to the foreign country whereas foreign production involves a
substantial commitment of the firm’s resources. Firms may move sequentially through each stage of the
process, but there is empirical evidence to suggest that firms may also leapfrog, i.e., skip directly from
low commitment approaches such as exporting to much higher commitment approaches such as foreign
production – bypassing intermediate steps. Firms may also transition smoothly thorough the various
stages only to exit the country altogether but re-enter later using a lower commitment approach.
Click-n-Reveal:
What is the last stage in the process of internationalization?
Figure 6.1: The Process of Internationalization

Source: Carlyle Farrell, 2015

The process of internationalization is shown
in a downward cascading arrangement of the following
items: Indirect Exporting/Licensing, Direct Exporting, Foreign Sales Subsidiary, Local Assembly, and
Foreign Production. Different possible pathways from certain elements to others are shown:
Indirect Exporting/Licensing can lead to Foreign Sales Subsidiary, Local Assembly, and Foreign
Production.
Direct Exporting can lead to Local Assembly and Foreign Production.
Foreign Sales Subsidiary can lead to Foreign Production.
Motivation
As noted in the textbook, there are two general motives for internationalization. Firms internationalize
because they want to (i.e., they are proactive) or because they have no other choice (i.e., they are
reactive). Companies with superior technologies or aggressive management may be driven to exploit
profit opportunities in foreign markets and would be proactive in their approach to internationalization.
Some companies, on the other hand, may be faced with mature and stagnant markets at home or with
declining sales and market share as a result of foreign competition. The survival of such firms may be in
question without foreign market expansion. They are forced to react to business conditions by seeking
out new markets abroad.
Theories of Internationalization
As noted in the textbook, various theories have been espoused to explain the internationalization
behaviour of the firm (see also Module 5). Dunning’s OLI model posits that firms expand abroad to take
advantage of ownership, location and internationalization opportunities. This so-called eclectic paradigm
argues that ownership of foreign assets confer advantages on firms that operate abroad – advantages
that are not enjoyed by firms that do not have a physical presence in the foreign country. Similarly firms
may derive location advantages by operating in a foreign country, i.e., they may be able to benefit from
host government incentives used to attract foreign firms, or a more stable industrial relations climate or
even access to strategic natural resources. Dunning also argued that firms would venture abroad if it
was cheaper for them to perform the foreign market functions themselves, thereby internalizing the
benefits, as opposed to some other institutional arrangement.
Also discussed in the text is the Uppsala or “U” model which focuses on the psychic distance between
home and host countries. The basic premise of this model is that firms will expand into psychically close
markets before venturing further afield. With each market expansion the firm gains experience and host
country knowledge which can be applied to subsequent moves.
Do you think that the Uppsala model would apply to a high technology company such as Apple Inc.?
Why or why not?
Click-n-Reveal:
What is the name given to companies that internationalize quickly,
operating in a number of foreign countries almost from inception?
Both the Uppsala and OLI models were developed to explain the internationalization behaviour of firms
from the developed world. As noted in the textbook, the Springboard perspective provides a more
convincing explanation of the internationalization approach of firms from emerging markets. These firms
do not take a gradualist approach to foreign market expansion, as suggested by the Uppsala model, and
do not possess the types of firm-specific advantages, e.g., strong brands, suggested by the eclectic
paradigm.
Selecting Foreign Markets

Companies are encouraged to adopt a systematic, logical, step-by-step approach to selecting foreign
markets. A systematic approach reduces the potential for costly and demoralizing errors. When the
wrong country is selected the firm will eventually be forced to admit the error and exit the market having
wasted considerable resources. One approach to foreign market selection is outlined in the textbook and
argues in favour of a four step process – macro-segmentation, fine grain screening, secondary
screening and finally country selection.
Click-n-Reveal:
At what stage in the country selection process does the firm consider
its own resources and capabilities?
In essence the process is one of subjecting a group of countries to a series of screens to reduce their
number. Screening criteria, as noted in the textbook, may include commitment to democratic
governance, GDP growth rate, income level, etc. The end result is the selection of 1 or 2 countries that
represent the best options for the firm.
Amazon plans to build a second head-office (HQ2) which will involve an investment of $5 billion and
create 50,000 high paying jobs. The company received 238 bids from jurisdictions across the US and
Canada as well as Mexico and Puerto Rico. Twenty cities were short-listed. Toronto is the only non-
US city on the short list. What factors should Amazon consider in making its final selection?
Optional Activity
Consider the case of a Canadian cosmetics company evaluating the Chinese
market. As a
consultant, make a generic list of the types of individuals/organizations you would meet with in
conducting a site visit
on behalf of this company.
Entry Modes Definition

Having selected a country for market entry, the firm’s next decision is the selection of an appropriate
entry mode.
Entry modes are defined as institutional arrangements used by firms to penetrate international markets
(Farrell, 2015). These are usually classified as being of three types – export modes, intermediate modes
and hierarchical modes (see Figure 6.2). As illustrated, export modes are essentially low risk, but also
low return, while intermediate modes involve the sharing of risks and rewards while hierarchical modes
give the firm full control of the foreign operation but with all of the risks this would entail.
As noted in Figure 6.3, each entry mode has its own risk vs. reward profile. Firms need to understand,
for example, that hierarchical entry modes such as a greenfield investment may provide the firm with
superior profit potential and full control, but comes with considerably more risk.
Entry Mode Types
Figure 6.2: Entry Mode Types


Three types of entry modes:
1. Export modes, which includes direct exporting, and indirect exporting.
2. Intermediate modes (risk and reward shared), which includes Licensing, IJVs, and Strategic
Alliances.
3. Hierarchical modes, (full control but all the risks), which includes
Wholly Owned Foreign
Subsidiary, Cross Border Acquisition and Greenfield.
Figure 6.3: Risk-Reward Profile

Alternative Entry Modes

There are a number of entry mode options available to the global marketer. Exporting, or the
manufacture of a product in one country with its sale in a foreign country, is perhaps the easiest way to
enter a foreign market. This mode of entry requires minimal managerial expertise but offers little in terms
of control and profit potential (relative to hierarchical modes).
Click-n-Reveal:
What is the major difference between direct and indirect exporting?
The firm also has the option of licensing its technology in order to gain access to the foreign market.
Here one company, the licensor, allows another firm, the licensee, to use its intellectual property in the
foreign market in exchange for a royalty. As noted in the textbook, the intellectual property in question
may be include patents, copyrights or some form of technical know-how.
One of the problems inherent in licensing a technology to another firm in the host country is the
potential to create a new competitor at the end of the licensing and non-compete agreements. How
can a firm mitigate this risk?
Franchising is very similar to licensing but typically involves the use of one company’s (the franchisor)
business model and operating procedures by another (the franchisee). This entry mode is quite common
in industries such as fast foods, hotel accommodation and car rentals.
Pause and Reflect

From the perspective of the licensor what are the key advantages of entering a licensing agreement
with a licensee based in a foreign market?
Consider the case of Tim Hortons. How does its acquisition by Burger King
impact its chances of
successfully expanding into the US market?
From the perspective of the licensee, what are the key advantages of entering a licensing agreement
with a licensor with superior technology and who is based in a foreign country?
With exporting and licensing the firm does not need to establish a physical presence in the host country.
On the other hand, the establishment of a foreign sales subsidiary represents a deeper level of
commitment on the part of the firm. With this entry mode the firm recruits its own dedicated team of
sales professionals in the host country. While R&D and manufacturing may still be undertaken in the
home country the firm does maintain an ongoing physical presence in the host country with a sales force
dedicated to serving only the firm’s customers.
Click-n-Reveal:
Sales professionals who travel between the parent company’s home
country and the foreign country to generate sales and take orders are
referred to as _______________.
Foreign direct investment (FDI) represents the highest level of commitment to a foreign market. Here the
firm establishes a long term relationship with the host country – maintaining manufacturing facilities,
recruiting local workers and operating as a “local” company subject to the laws and regulations of the
host country government. Despite the high costs and long term nature of FDI several factors may drive a
firm to pursue this mode of entry. As noted in the text these may be classified as market related, trade
related, cost related or customer related.
American companies such as Chesapeake Bay Candle and Peerless AV have been reducing their
presence in China and other low wage countries and returning manufacturing jobs to the USA. What
actions (if any) could the
Chinese government take to stem this exodus of manufacturing/export
jobs?
What would you consider to be the major advantages of an international joint venture over a
greenfield investment?
Optional Activity
From a reading of articles in the business press identify the key reasons that Target was forced to
exit the Canadian market.
Summary
This module has examined two related issues – how the company should go about the selection of
countries for foreign market expansion and the mode of entry that should be used. A systematic process
for market selection was outlined to allow the company to narrow down its country prospects and select
a country that best matches its capabilities and that offers the best prospects for success. Various entry
modes were also presented ranging from low commitment approaches such as exporting to approaches
that represent costly long term commitments. Before these topics we discussed, however, the module
examined the concept of internationalization and the various theories that have been used to explain the
phenomenon.
Assignments

Third simulation decision due (Friday at 11.59 pm).
Third quiz – short answer/multiple choice/case study questions covering Modules 5 & 6
Introduction
To this point we have examined the environment within which global marketing decisions take place. We
have considered culture, the economic environment, political environment and issues associated with
international trade and protectionism. In Module 6 we focused on country selection and the various entry
mode strategies available to a firm. In this and the next three modules we turn our attention to the
implementation of product, place, price and promotion strategies in the host country. Module 7 is
concerned with global product strategies.

In many instances products which are destined for sale in international markets must be modified in
some way to meet the expectations of foreign customers or regulators. While standardization has its
advantages the firm may well be required to make product modifications. In this module we consider the
standardization versus adaptation decision of the global marketing firm. It should also be recognized that
firms seldom have one brand but more likely market a portfolio of local and global brands. The issue of
global brand management is, therefore, an important consideration for the firm. In this module the point
is also made that in a competitive global environment firms are under some pressure to continuously
innovate and bring new products to market. Given this pressure this module will also examine the
process of global product development. Finally, firms which market products in foreign jurisdictions put
their intellectual property at risk. Issues surrounding counterfeit production have major implications for
the global marketer and are also discussed in this module.
1. Discuss the merits and demerits of standardization versus adaptation.
2. Discuss the drivers of adaptation.
3. Outline strategies for transferring brand names and meanings across borders.
4. Describe and explain alternative brand changeover strategies.
5. Describe the process of new product development.
6. Discuss the implications of counterfeit production for the global marketing firm.
Readings
Reading
Townsend, J.D., Yeniyurt, S., & Talay, M.B. (2009). Getting to global: An evolutionary
perspective of brand expansion in international markets. Journal of International Business
Studies 40, 539-558.
Bian, X., & Moutinho, L. (2011). The role of brand image, product involvement, and knowledge
in explaining consumer purchase behaviour of counterfeits: Direct and indirect effects.
European Journal of Marketing, 45 (1/2), 191-216.
Keller, K.L., & Lehmann, D.R. (2003). How Do Brands Create Value? Marketing
Management, 12 (3), 26.
Standardization versus Adaptation

In most instances in order to be sold in a foreign market the firm will be obliged to make some changes
to products which it markets at home. As noted in the textbook, the firm has a number of strategic
options available which depend on whether homogeneous or heterogeneous market segments are
being targeted. The textbook also points out the key distinction between adaptation and localization. The
latter relates to product changes that need to be made to have the product included in the customer's
consideration set while the former relates to changes that are designed to ensure a better fit with the
tastes and preferences of the foreign target market.
The firm is subject to a number of factors that may necessitate that it modifies the products it markets in
foreign countries. These may range from the impact of culture to the need to benchmark against
competing firms and the product's stage in the product life cycle. In some cases the changes undertaken
are mandatory as is the case with the bilingual labeling of food products in Canada. Firms have little
choice but to make the adjustments if they want to conduct business in the country.
Click-n-Reveal:
What product adaptation strategies should be used if the firm's target
markets are heterogeneous?
Drivers of Adaptation
As the text notes firms are driven by several factors to adapt their products to foreign markets. Some of
these drivers may be within the control of the firm and serve to give the company a competitive
advantage in the new market while others may be mandated by the host country government giving the
company little choice if it wishes to do business in the country.
Click-n-Reveal:
According to the textbook, the drivers of adaptation may be grouped
into three categories. What are they?
In some instances the firm may need to engage in backward innovation before the product is
introduced to markets in countries at a lower level of economic development. What factors should the
firm consider before making such a decision?
Economics of Adaptation
The extent to which firms are able to customize their product offerings to the needs of specific foreign
consumers is heavily dependent on the costs involved. Product modifications may be costly for the firm
and the global marketing manager must consider not only manufacturing costs but also the cost of lost
sales.
Click-n-Reveal:
Why would you expect that a company’s cost of lost sales will
increase as it moves from a highly customized product to one which is
completely standardized?
Click-n-Reveal:
Why would you expect that a company’s manufacturing costs will
decline as it moves from a highly customized product to one which is
Transferring Brand Names and Meanings Across

Borders
Successful brand names have a number of characteristics as pointed out in the textbook. These include
having a consistent pronunciation across all languages and being simple enough that consumers in the
host country will be able to spell the name when they hear it and pronounce it when they see it.
Transferring a brand name across national borders is not a simple task. Firms do have a number of
options as stated in the text, i.e., translation, transliteration and transparency.
Distinguish between translation, transliteration and transparency. Which
approach is likely to be most
effective in allowing the firm to transfer its brand name to countries around the world? Provide a
rationale for your answer.
Optional Activity
Research one example (not included in the textbook) in which translation failed to capture the
essence of the firm’s message when used in a foreign country.
Brand Changeover Strategies

Firms may, of course, have a number of brands on the market. These may constitute a portfolio of local
brands, acquired through M&A activity over the years, as well as a number of global brands. In the
interest of cost and efficiency, the firm may be motivated to replace its local brands with global brands.
While this may improve the firm’s operational and financial performance, it does present risks to the firm
as these local brands may have a dedicated following of loyal customers. The firm has a number of
options when considering the changeover from local to global brands. Strategies such as fade in-fade
out and forewarning present the least risk of a strong consumer backlash while summary axing exposes
the firm to consumer resentment and reduced sales.
Given
the potential for consumer dissatisfaction are there ever any situations where summary axing
may be the preferred brand changeover strategy employed by the firm?
Optional Activity
Research one example (not included in the text) of a brand changeover strategy used by a
multinational consumer products company. Was the approach used successful?
New Product Development

New products are the lifeblood of the global firm. The continuous introduction of high quality and
innovative products are one of the keys to success in international markets. The process of new product
development is described in the textbook and is central to the firm’s long term success in global markets.
The process begins with idea generation and ends with the global launch of the new product.
Intermediate steps require that the firm test the concept, develop sales forecasts and eventually launch
the product in a limited number of test markets.
Click-n-Reveal:
Why is the development of new global products described as a stage
gate process?
In the context of developing new global products why is it important to listen to the voice of the
customer? Given that it is impossible to solicit feedback from prospective consumers in every
country, what strategy should the firm use to ensure that it has a solid understanding
of what the
market needs and wants?
Do you believe that an understanding of the Kano model would benefit the
firm in the concept testing
stage of the global product development process? Why or why not?
Pause and Reflect

Consider the launch of the new Apple watch. Do you believe this product reflects an understanding of
the needs of prospective global customers? Why or why not?
Counterfeit Production
A firm may invest millions of dollars in research and development only to find that its intellectual property
is compromised when products are introduced into certain markets. Counterfeit production is a serious
problem for the global marketer as it may result in a tarnished brand image, lost sales and increased
costs as firms attempt to monitor and enforce their intellectual property rights.
Click-n-Reveal:
The size of the global counterfeit market has been estimated to be as
high as $650 billion. What two factors are the most important in
explaining the size of this illegal market?
Some consumers may knowingly purchase counterfeit products. What would motivate consumers to
do this and what are the implications for manufacturers of the genuine product?
Summary
This module has examined a number of issues related to global product strategy. The standardization
versus adaptation decision was considered as well as issues associated with the management of global
brands. The module concluded with a brief discussion of counterfeit production and the implications for
the global marketing firm.
Assignments

Fourth simulation decision due (Friday 11:59 pm EST).

Test #1 – Modules 1-6
Test #1 covering the first six modules of the course.
Introduction
This module is focused on global distribution strategy. Having already covered the selection of a target
country, an entry mode strategy and the product that we wish to offer to consumers, our next task is to
decide how we will get that product into the hands of foreign customers. Clearly the firm will not realize
its financial and market share objectives in the host country unless it can make the product available to
prospective customers. The firm must, therefore, design a distribution channel that meets its needs in
the foreign market as well as consider how its channel relationships will be managed as it builds out its
presence in the foreign country. However, despite the firm’s efforts to design and effectively manage its
distribution system, problems may still emerge. One such issue is parallel distribution where the firm
finds its products being sold through unauthorized distributors. It is imperative that the global marketing
manager understand this phenomenon and develop strategies to combat the problem.

1. Define the term "marketing channel" and distinguish between domestic and international marketing
channels.
2. Define the term "channel design" and describe the 11 Cs framework.
3. Discuss the types of international channel intermediaries and their role in global distribution.
4. Discuss the major issues involved in the management of a global distribution channel.
5. Discuss the major issues involved in international logistics management.
6. Define parallel distribution and discuss strategies that may be used by the firm to mitigate its
impact.
Readings
Reading
Farrell, C., & Lin, X. (2010) The evolution and governance of marketing channels in the
People’s Republic of China. In C. Lu Wang (Ed.), Handbook of Contemporary Marketing in
China. Hauppauge, NY: Nova Science Publishers.
Huang, J.H., Lee, B.C.Y., & Ho, S.H. (2004). Consumer attitude toward gray market goods.
International Marketing Review 21 (6), 598-614.
Liu Y., Li Y., Tao, L., & Wang, Y. (2008). Relationship Stability, Trust and Relational Risk in
Marketing Channels: Evidence from China. Industrial Marketing Management 37, 432-446.
Distribution Channels Defined
From introductory marketing courses one should recall that a distribution channel refers to a sequence
of firms/individuals involved in making a product available to a consumer or industrial buyer. Depending
on the number of intermediaries involved, channels may be relatively simple or quite complex. As noted
in the textbook, the firm has a number of options for making its products available to foreign buyers,
including digital delivery in the case of certain product categories such as books or music. In this course
we are concerned with channels that cross international borders, irrespective of the nature of the
product. Our focus is on channels that involve firms and intermediaries in different countries.
Activity
Cross-border distribution channels are inherently more difficult to establish and manage. Write out
three reasons why this is generally the case.
Companies may use wholly owned sales subsidiaries or foreign market intermediaries, e.g.,
distributors to get their products into the hands of prospective customers. Which would you use for
an innovative high technology product such as the recently launched Apple watch? Provide a
rationale.
Channel Design
The term channel design refers to the length and width of the marketing channel. Both aspects need to
be considered if the firm is to construct a channel that meets its needs in the foreign market.
Click-n-Reveal:
Is a short or a long channel more appropriate in the case of perishable
products?
Click-n-Reveal:
In the case of industrial products do distribution channels tend to be
short or long?
The 11 Cs Framework
As noted in the textbook, the 11 Cs framework is useful in ensuring a complete consideration of all
aspects of channel design. By considering each element of this framework the global marketing
manager is unlikely to miss any of the issues that contribute to the design of an effective distribution
channel. Note as well that some elements of the framework are endogenous to the company while
others are completely outside its control.
Click-n-Reveal:
Which of the elements of the 11 Cs framework are exogenous to the
company?
The Japanese keritsu may make it extremely difficult for foreign companies to market to consumers
in Japan. In terms of designing a distribution system do you believe that the keritsu model should be
adopted by companies in other countries? Why or why not?
Channel Intermediaries
In moving products across international marketing channels, the firm has the option of utilizing various
types of channel intermediaries. These include foreign distributors, wholly owned foreign sales
subsidiaries, export management companies and manufacturer’s agents. These are discussed in more
detail in Module 9 but here we consider how they may be selected. The essential point is that the
selection of a foreign market intermediary should be a rational and systematic process and as noted in
the textbook, should begin with a clear understanding of precisely what the firm wishes to accomplish in
the foreign market. Once potential intermediaries have been identified, the textbook outlines a number of
criteria that could be used to screen prospective channel partners.
Click-n-Reveal:
According to the text criteria used to screen foreign market
intermediaries fall into four categories. What are they?
Can a firm be successful in international markets without following a systematic approach to the
selection of foreign market intermediaries? Please justify your answer.
International Channel Management

Several issues are involved in the management of channel relationships. When channels cross
international borders, issues such as cultural differences and differences in approach to business serve
to significantly increase the challenges firms face. Leadership, power and motivation need to be
considered if the channel is to function effectively. The channel leader is usually a dominant
manufacturer with considerable resources and a global reach and is able to exert power over the
intermediaries that comprise its distribution chain. In some cases, however, a dominant retailer (e.g.,
Walmart) may play the role of channel captain.
Click-n-Reveal:
What are the five bases of power in an international channel?
Click-n-Reveal:
What type of channel power is likely to be least effective in motivating
Asian market intermediaries?
Why are financial or psychological incentives necessary to motivate foreign market intermediaries?
Which (financial or psychological) do you believe is likely to be more effective in collectivist cultures?
Once a relationship has been established with a foreign market intermediary, the firm will need to
undertake ongoing monitoring of the intermediary's performance and exercise some level of control over
the agent's activities. Monitoring and control are, of course, much easier if there is an explicit distributor
agreement that specifies performance expectations. As the textbook notes, the need for ongoing
monitoring and control is heavily dependent on the culture of the firm and its intermediaries.
Click-n-Reveal:
What are the two types of trust that are most important in the
management of international channel relationships?
As the textbook notes, however, relationships between the firm and its intermediaries are not always
positive. Conflict is likely in channel relationships and in extreme cases termination of the representation
agreement may be the only viable solution.
International Logistics
The firm endeavors to ensure that there is a smooth flow of products from its manufacturing facility to the
final consumer. This is the area of international logistics and, as discussed in the textbook, it
encompasses both materials management and physical distribution.
Click-n-Reveal:
What area of international logistics is concerned with the movement of
the finished product to the final consumer?
Distribution
The international movement of products is complex. The firm needs to take into account various modes
of transportation, documentation requirements of the foreign country, facilitation, packaging, inventory
management and warehousing. These various functions are described in the textbook and the point is
made that the global marketer is unlikely to be an expert in each of these areas. Distribution is a team
activity involving the services of a number of specialists in several areas.
Click-n-Reveal:
What mode of transportation should not be used if the company’s
finished product is bulky, inexpensive and non-perishable?
Activity
List three functions that are performed by freight forwarders in the movement of international
shipments.
Click-n-Reveal:
What two factors drive the firm’s inventory management decisions?
Parallel Distribution
The firm may sometimes encounter situations where its products enter the market through unauthorized
distributors. Referred to as the gray trade or parallel distribution, the phenomenon can occur with any
type of product – from small consumer items to large industrial equipment. Unlike counterfeit products
discussed in the previous module, parallel distribution is not illegal and gray traders are simply taking
advantage of arbitrage opportunities as they exist in international markets.
Click-n-Reveal:
What three conditions are necessary for the development of a gray
market?
Activity
The manufacturer is paid regardless of the distribution channel by which the product reaches the final
consumer (authorized or unauthorized distributors). List four reasons why the manufacturer should
be concerned about parallel distribution.
Click-n-Reveal:
Click here for a possible answer to the activity.
Do gray traders perform a value added function in the distribution channel? Why or why not?
One strategy used by firms to combat the gray trade is dealer interference in which the manufacturer
visits the unauthorized distribution outlets in the foreign countries and attempts to convince the
importer to discontinue the practice. Is this approach likely to be successful?
Activity
View the following video and reflect on the question below:
Drug companies exploit "Gray Market" [3:45]
Question: The sale of gray market products is not illegal. Do you believe there should be government
regulation of parallel distribution for some products such as prescription drugs?
Summary
This module has examined the issue of global distribution. The design of an effective international
distribution channel was discussed as was the selection of intermediaries and the overall management
of the distribution system. International logistics was briefly highlighted. The module also discussed the
important area of parallel distribution and its consequences for the global marketing firm.
Assignments
Discussion Board Questions Answer one or more of the discussion questions found throughout the
course content. Make sure to reply to your peers about their answers.
CountryManager Simulation. Fifth simulation decision due (Friday 11:59 pm EST).
CountryManager
Introduction
To this point we have considered the first two elements of the firm’s marketing mix, i.e. product and
distribution. In this module we will consider pricing – the third element of the marketing mix that the firm
will seek to implement in the targeted foreign country. As the textbook notes, the firm’s pricing strategy is
a key driver of revenue. Setting global prices is complicated but must be done correctly if the firm is to
achieve its financial objectives. Note that the firm is not free to set any price it chooses. The global
marketing firm faces a number of constraints in terms of establishing a price for its products in the global
market. Demand will act as a ceiling above which the firm is unable to price while cost will serve a floor
below which the firm is unable to price. The extent of competition in the market will determine where
between the floor and ceiling the firm will eventually price its products. In addition host government
regulations also have a bearing on the prices firms may charge in foreign markets. In the case of
multinational firms with several overseas subsidiaries the coordination of pricing strategies across these
entities is a critical consideration as is the issue of intra-corporate pricing. These and other topics, i.e.,
non-price payment options, export financing and the management of foreign exchange risk are
discussed in the module.

1. Discuss the various pricing options open to the multinational firm.
2. Define the term “transfer pricing”, discuss alternative methods of calculation and the implications
for multinational companies.
3. Describe the alternative terms of sale and payment options available to the multinational
company.
4. Discuss alternative approaches to the management of foreign exchange risk.
5. Describe the financing options available to firms engaged in global marketing.
6. Define the term "dumping” and discuss the implications of the practice for global marketers.
7. Discuss non-price options available to consummate international marketing transactions and when
they should be used.
Readings
Reading
Setting Global Prices
In setting global prices the marketing

manager must be cognizant of a number of factors. The first
consideration is
the company’s overall objectives in the foreign market. The firm’s pricing
strategy must
be supportive of its overall goals in the marketplace – whether
this is to create awareness of the brand in
a new market or perhaps to drive
out local competitors or build market share. Secondly, the firm’s
approach to
pricing must ensure that both fixed and variable costs are covered – at least
in the long run.
There is little point in continuing to operate in a foreign
market in the face of sustained losses.
Click-n-Reveal:
In some situations the price charged to the foreign consumer may be
substantially higher than the price set in the manufacturer’s home
country. What is this phenomenon called?
Do you believe that dumping, i.e., the sale of a product in a foreign market below its cost of
production, should be considered illegal? Why or why not?
As noted in the textbook, demand conditions also influence the price that the firm can charge for its
products on international markets. Price elasticity of demand, price-quality associations and the
influence of reference prices are important in this respect.
Research has shown that in the case of nondurable products Southeast Asians tend to associate
high prices with high quality. This is not the case for consumers from Western European countries.
What factor(s) could explain this difference?
Also important is the competitive environment. The structure of the market has a bearing on the pricing
power of industry participants. As noted above, competition will determine where, between the ceiling
and the floor, the firm is able to establish its price. Intense competition will, of course, tend to drive prices
closer to the floor while less competitive markets are likely to exhibit higher prices. The global marketing
manager must also be aware of government regulations with respect to the setting of prices.
Pause and Reflect

Should governments intervene in the setting of prices charged by foreign firms for basic products?
Why or why not?
Basic Pricing Strategies

The firm has a number of basic pricing approaches to choose from. These include skimming, penetration
pricing, market pricing, cost plus pricing and demand oriented pricing. These strategies may be applied
to both domestic and foreign markets and are discussed in detail in most introductory marketing texts.
Click-n-Reveal:
The global marketing manager may estimate sales volumes at
different price levels in order to determine the price that maximizes
overall profit. What is that pricing strategy called?
Click-n-Reveal:
What is the difference between cost plus pricing and marginal cost
pricing when setting prices in foreign markets?
Subsidiary Coordination
When the multinational firm operates a number of subsidiaries around the world the issue of
coordinating pricing strategies becomes important. As the textbook notes, three approaches are possible
– polycentric pricing, geocentric pricing and ethnocentric pricing. With these approaches there will be a
tradeoff between responsiveness to market conditions and the potential for price arbitrage.
Click-n-Reveal:
Which subsidiary pricing strategy is least likely to result in price
arbitrage?
Approaches
Global pricing decisions are not only important in the context of third party customers. The global
marketer must also consider how prices will be set when sales are made to members of the firm’s
corporate family. In setting these transfer prices the firm is able to accomplish other corporate objectives
such as minimizing its global tax burden, motivating subsidiary managers and enhancing the price
competitiveness of specific foreign subsidiaries.
Several approaches are possible when setting transfer prices, i.e., cost plus, negotiated and arm’s
length.
Click-n-Reveal:
Which transfer pricing strategy is least likely to result in a government
audit?
Do you believe that manipulating transfer prices is the best way to motivate managers in foreign
subsidiaries? Why or why not?
Sales and Payment Options

In setting payment options the firm must be cognizant of international rules with respect to the
assumption of risk and change of title. It is also imperative that the firm negotiate suitable terms of
payment as the various alternatives carry different levels of risk for the buyer and seller.
INCOTERMS
International Commerce Terms (INCOTERMS) specify the responsibility of exporter and importer as the
product makes its way along the global supply chain. As noted in the textbook, some of these rules
apply specifically to sea and inland waterway transportation while others are applicable to any mode of
transportation.
Click-n-Reveal:
In an EXW transaction is it the responsibility of the buyer or the seller
to arrange transportation from the seller’s facilities?
Terms of Payment
In international transactions various terms of payment are possible. These options may favour either the
buyer or the seller and range from consignment sales to cash in advance.
Click-n-Reveal:
Which of the terms of payment is most advantageous to the importer
in an international transaction?
Foreign Exchange Risk

In many international transactions, buyers and sellers do not share the same currency. As a result it is
often necessary to convert from one country’s currency to another, which opens up either the exporter or
the importer to foreign exchange risk.
As described in the textbook, forward contracts, currency options and futures contracts may be used to
mitigate the risk posed by currency fluctuations.
Click-n-Reveal:
In arranging international payments which provides more flexibility, a
forward contract or a currency option?
Financing Options
Firms need access to financing in order to engage in international transactions. In an export transaction
the firm may often have major financial outlays for product modifications, development of new marketing
materials and redesigned packaging. This investment must be made prior to the receipt of any sales
revenue from the export transaction. While some firms may be able to fund these expenditures from
internal resources, many others will need to seek export financing.
The firm has a number of export financing options available such as the establishment of a loan facility
with a commercial bank or the use of forfaiting and factoring. Commercial bank lines of credit may be
more difficult to access for smaller, less well-established firms while factoring may not be an option in
some high risk countries.
Click-n-Reveal:
Which payment option, forfaiting or factoring, involves a commercial
bank guarantee?
Dumping
As noted in the text, companies may intentionally or unintentionally sell products in foreign markets at
prices below the cost of production or at prices below what the products command in the manufacturer’s
home country. Referred to as "dumping", the practice may well attract countervailing duties from foreign
governments seeking to level the playing field for their own manufacturers.
Should governments seek to impose countervailing duties if dumping can be proven to be
unintentional?
Non-price Options
In some instances companies may be unable to raise the foreign currency required to consummate an
export transaction. In order to correct macroeconomic imbalances, governments may have to resort to
imposing restrictions on the quantum of foreign currency available to importers. As a result of these
restrictions an otherwise suitable buyer may be locked out of a potentially lucrative export transaction. In
order to facilitate the transaction, exporters may opt to consider non-price payment options, i.e.,
countertrade.
Click-n-Reveal:
The form of countertrade in which one party to the transaction
provides earth moving machinery to a mining operation in a
developing country and is paid with minerals extracted from the mine
is referred to as:
Click-n-Reveal:
What distinguishes barter from a compensation deal?
Summary
This module has examined global pricing. The issues involved in setting global pricing, the coordination
of multinational pricing options and transfer pricing were among the topics presented. Also highlighted
were the need for the global marketer to consider terms of sale, the management of foreign exchange
risk and alternative payment options when engaging in cross-border transactions.

Assignments

Sixth simulation decision due (Friday 11:59 pm EST).
CountryManager

Fourth quiz – short answer/multiple choice/case study questions covering Modules 7, 8 & 9
Introduction
The final element of the global marketing mix is communication and this is the subject of Module 10. In
this module we will discuss the basic communication model and then move to consider how culture
impacts the process of communication. The issues involved in the development of a global
communication strategy are also discussed in this module, as are the tools of communication. Module
10 also deals with the formulation and implementation of a global sales strategy.

1. Describe the basic communication model.
2. Discuss the impact of culture on global communication.
3. Describe the process of formulating a global communication strategy.
4. Discuss the merits and demerits of the various tools of global communication.
5. Identify and discuss the key issues involved in the management of an international sales force.
Readings
Reading
Fastoso, F., & Whitelock, J. (2012). The implementation of international advertising strategies:
An exploratory study in Latin America. International Marketing Review, 29 (3), 313-335.


Basic Communication Model

The basic communication model should already be familiar to you from previous introductory courses in
marketing. The model is discussed briefly in the textbook and involves sender, receiver, channel and
message. Two mental processes, encoding and decoding, are also involved in communication and as
the textbook points out, noise can influence the efficiency with which messages are conveyed.
Which of the following would be considered noise in international communication?

a. An accent that is unfamiliar to the receiver
b. Poor translation of advertising copy
c. Both (a) and (b)
d. None of the answers
Verify Answer

Western and Collectivist Societies

The basic communication model discussed above does not consider the impact of culture. As noted in
the textbook, however, culture does have implications for how messages are presented and received.
You should take note of the basic hierarchy of effects model that describes how communication attempts
to transport the receiver through various states from awareness to adoption.
The purpose of communication differs in Western and collectivist societies. The stated purpose of the
communication (e.g., to persuade or change attitudes) will inform the approach used. Attempts to
communicate with prospective foreign customers using an incorrect approach are likely to lead to
disastrous results.
1. In collectivist societies the main purpose of communication is likely to persuade, change

attitudes and convince prospective customers to purchase our products.
a. True
b. False
Verify Answer
2. While others are important, the individualism-collectivism dimensions of culture are thought to
have the most significant impact on global communication.
a. True
b. False
Verify Answer
Activity
Review any American television commercial for a consumer product. Do you see evidence of a hard
sell approach such as frequent mentions of the company’s brand and attempts to persuade the
viewer by focusing on the merits of the product?
Formulating a Global Communication Strategy

The text outlines a seven step process in the development of a global communication strategy. The
process begins with the identification of the target audience for the communication campaign and
concludes with the measurement of overall advertising effectiveness. In terms of the target audience, it
should be noted that this could not only be external customers but also internal employees or members
of the investment community. Communication objectives may also be similarly quite broad – from
merely creating awareness of the firm’s products to repairing the company’s image following a crisis
event. Further, given that companies do not have unlimited resources the global marketing manager
must establish a realistic budget for achieving the objectives specified.
Click-n-Reveal:
What are two major limitations of the percentage of sales and
percentage of future sales approaches to developing a communication
budget?
Click-n-Reveal:
Identify any three problems with the use of competitive parity as an
approach to developing a communication budget.
As part of the process of developing a global communication strategy, the firm must also select a media
strategy based on factors such as availability, the nature of the product and the media habits of the
target audience. It is also important to craft a communication message that resonates with the target
audience and to manage the communication process. Finally the global marketing manager must
measure the effectiveness of the communication campaign in order to determine if the company’s
resources were well allocated.
Should all countries ban advertisements of military toys targeted at children? Please support your
position.
In Canada it is legal to advertise alcoholic beverages but it is not legal to show anyone drinking
alcohol in television commercials. Do you agree with this regulation? Please support your position.
Click-n-Reveal:
One approach to measuring advertising effectiveness is to ask

respondents who watched television last night what ads they
remember seeing. This is referred to as _________
Tools of Global Communication

The global marketing manager has a number of tools available when seeking to communicate with
various stakeholders. These range from non-personal one-way approaches such as advertising to
personal selling which is more interactive and allows for a two-way dialogue.
Click-n-Reveal:
What is the major drawback in the use of radio as a global
communication tool?
Click-n-Reveal:
Companies that adapt their advertising message and creative
execution to specific countries and said to be following a
____________ strategy.
Should multinational companies sponsor events such as gay pride marches that may be polarizing in
some societies? Provide a rationale for your answer.
Sales Force Management

It is imperative that the global marketing manager
develop an effective sales plan for the enterprise and
have a clear strategy
with respect to the management of the international sales force. Clear sales
objectives need to be established for the firm’s international operations which
must be consistent with its
overall corporate strategy. The global marketing
manager must also consider how the sales force will be
organized and how its
effectiveness will be evaluated over time.
Consider
a North American manufacturer of consumer products seeking to penetrate
the Chinese
market. Would it be more effective to use expatriate sales professionals, Chinese nationals or sales
professionals from a third country? Provide a rationale for your answer.
In measuring the performance of sales professionals in Russia would it be more appropriate to use
activity metrics (e.g., number of sales calls per month) or results metrics (e.g., number of completed
sales per month)? Provide a rationale for your answer.
Summary
This module has examined the global communication strategy of the firm. We began with a review of the
basic communication model and then proceeded to consider the impact of culture on the global
communication process. The steps involved in the formulation of a global communication strategy were
also discussed which led to a consideration of the various communication tools available to the global
manager. The module concluded with a discussion of global sales force management.
Assignments
Seventh simulation decision due (Friday 11:59 pm EST).

CountryManager
Students should be working on their group reports and presentations.
Introduction
Having completed our examination of the global marketing mix we now turn our attention to the
development of an integrated global marketing strategy. The importance of a consistent and coherent
global marketing strategy cannot be overemphasized. Such a strategy is extremely important if the firm
is to be responsive to the needs of its foreign customers while staying ahead of international
competitors. In this module we will consider the steps involved in global strategy planning and the
management of global accounts. We will also discuss the strategies that can be used by local firms
when threatened by global competitors in their own home markets. Finally we will examine the strategies
of an interesting and unique category of firm – emerging market multinationals – and their rise to world
class status.

The purpose of this module is to review content related to global strategy planning, global account
management systems, strategies of local firms and strategies of emerging market multinationals.
1. Describe the process of formulating a global strategic plan.
2. Discuss global account management systems – their benefits and implementation challenges.
3. Discuss alternative strategies that may be used by local firms under attack by foreign
multinationals.
4. Define the terms “emerging market” and “emerging market multinationals”.
5. Discuss the rise of emerging market multinationals and their sources of competitive advantage.
6. Discuss the marketing strategies used by emerging market multinationals.
Readings
Reading
Farrell, C. (2015). Global Marketing. Sage Publications. Chapters 13 and 14
da Rocha, A., Cotta de Mello, R., Pacheco, H.,& de Abreu Farias, I. (2012). The international
commitment of late-internationalizing Brazilian entrepreneurial firms. International Marketing
Review, 29 (3), 228-252.
Process of Global Strategy Planning

The textbook outlines a four-step process for the development of a global strategic plan. The process
begins with establishing a clear understanding of the business that the firm is actually in. While this may
seem obvious, company executives often lose sight of the nature of the business in which they are
actually competing. As noted in the textbook, strategic planning is typically undertaken at the level of the
strategic business unit.
Click-n-Reveal:
What is meant by the term strategic business unit?
The second step in the process is the formulation of the firm’s business strategy. One way to think about
this step is in terms of Porter’s generic strategies which are described in the textbook.
Click-n-Reveal:
According to Porter, firms may pursue a cost focus strategy. What
does this mean?
Click-n-Reveal:
According to Porter, firms may pursue a differentiation strategy. What
does this mean?
Consider Nike Inc., the manufacturer of athletic footwear and apparel. Does this company’s business
strategy fit neatly into any one of Porter’s generic strategies? Provide a rationale for your answer.
Click-n-Reveal:
In terms of the 7S framework what tactics may be used to disrupt the
competition?
The third step in the process of strategic planning is the formulation of the company’s global marketing
strategy. Formulation of a global marketing strategy, as the textbook points out, involves consideration of
three key perspectives – standardization, configuration & coordination and integration.
Click-n-Reveal:
Which of the three perspectives on global marketing strategy would
address the issue of where after-sales service expertise is
concentrated?
The fourth step in the development of a global strategic plan is the implementation of the firm’s global
marketing strategy. Successful implementation does require that the firm’s executives be committed to
the global market and be prepared to deal with the inevitable obstacles they will face. It also requires
that they select an appropriate organizational structure that will provide the highest chance of success in
international markets.
1. In implementing a global marketing strategy it is always best to use a geographic organization

structure.
a. True
b. False
Verify Answer
Click-n-Reveal:
In terms of staffing international positions what are the two skills most
demanded of individuals deployed to work in a foreign country?
Given that spouses may not be able to work in the foreign country and this may contribute to
expatriate failure, should married executives be screened out in selecting individuals for overseas
assignments? Provide a
rationale for your position.
Global Account Management

Implementation of a global account management (GAM) system may facilitate the company’s
interactions with its global customers. A GAM offers a number of advantages to the global marketing
firm. For example, a GAM system could streamline the selling and marketing function across the firm’s
geographies and provide major customers with a single point of contact within the company. It may also
improve efficiency and provide for better control.
Given the advantages of a GAM system, should the authority of the GAM executives supersede the
authority of the country-based sales professionals? Why or why not?
Should country-based sales professionals be involved in establishing the
mission and goals of the
GAM or should these decisions be left up to head office personnel? Provide a rationale for your
position.
Strategies for Local Firms

In some instances firms need to consider not only strategies for penetrating new foreign markets but
also strategies for defending their domestic markets. Local firms may come under attack by foreign
multinationals seeking to steal market share and essentially force them out of business. A number of
strategies may be employed, depending on the following two factors: the extent of globalization of the
firm’s industry and the transferability of its assets.
Click-n-Reveal:
Other things being equal, what strategy should a local firm employ to
defend against foreign competition if there is considerable pressure to
globalize in its industry and its assets are transferable to abroad?
Click-n-Reveal:
defend against foreign competition if there is little pressure to
globalize in its industry and its assets are customized to its home
market?
Definition
Below we consider a class of multinational enterprise that has received relatively little attention in the
literature – emerging market multinationals (EMNEs).
Following Luo and Tung (2007) EMNEs may be defined as companies originating from emerging
markets and which are engaged in outward foreign direct investments where they exercise control over
assets and engage in value-added activities in foreign countries. These companies originate from
emerging markets such as India, China and Brazil and despite the limitations imposed by their home
country environment, go on to become dominant players in global markets.
Click-n-Reveal:
Are companies that engage in round-tripping investments included in
the definition of EMNEs?
Sources of Competitive Advantage

It is important to recognize that EMNEs rise to global prominence despite not having traditional
competitive advantages enjoyed by MNEs from the developed world. EMNEs do, however, have a
number of non-traditional competitive advantages that are not well accounted for by traditional models
and theories.
Test Yourself
1. The ability to operate in institutionally immature host country environments is a non-

traditional competitive advantage of EMNEs.
a. True
b. False
Verify Answer
2. EMNEs usually have strong global brands and this provides them with a major competitive
advantage when entering foreign markets.
a. True
b. False
Verify Answer
3. Some EMNEs have access to considerable state resources and this depth of financial
resources is often seen as a competitive advantage.
a. True
b. False
Verify Answer
Can EMNEs sustain their non-traditional competitive advantages over the
long term or will MNEs
from the developed world quickly learn how to compete with them? Provide a rationale for your
position.
EMNE Marketing Strategies

The marketing strategies employed by EMNEs may be classified based on the competence levered in
addressing the market and the nature of the market that is targeted.
Click-n-Reveal:
EMNEs that utilize mechanistic extension targeted at emerging

markets that are similar to their own are referred to as
________________.
Click-n-Reveal:
EMNEs that utilize dynamic evolution targeted at developed country
markets that are dissimilar to their own are referred to as
_______________.
Summary
This module has examined the process of developing a global strategic plan. The point was made that
such a plan is essential if the firm is to compete successfully in the global marketplace. The merits and
demerits of a global account management system were also examined along with strategies that may be
used by local firms to defend their home markets from foreign rivals. The discussion next turned to
EMNEs, their sources of competitive advantage and their marketing strategies.
Assignments

Fifth quiz – short answer/multiple/choice/case study questions covering Modules 10 & 11
Introduction
One of the most important factors that
differentiates global from domestic marketing is the impact of
culture. The
culture of the host country is an uncontrollable variable but one which has a
profound
impact on the success of a firm’s global marketing strategy. A
consumer’s approach to the buying
process, for example, is influenced by
his/her culture and in a business context, culture will have a
significant
impact on the approach used in negotiations. In this module we will focus on
culture and how
it impacts global marketing strategy.

In this module we will define what is meant
by “culture”. We’ll then proceed to consider cultural literacy
and
ethnocentrism; cultural analytics; cross cultural management and the role of
culture in ethical
decision making.
Upon completion of this module, you will
be able to:
1. Define
the term “culture” and explain its importance in global marketing.
2. Discuss
the various elements of culture.
3. Discuss
key approaches to classifying and analyzing cultures.
4. Identify
the main issues involved in managing across cultures.
5. Discuss
the impact of culture on ethical decision making.
Readings
Reading
Shimp, T.A., & Sharma, S. (1987). Consumer Ethnocentrism: Construction and
Validation of the
CETSCALE. Journal of Marketing Research, Vol. XXIV (August),
280-9.

Culture Defined
There are literally hundreds of definitions
of the term “culture”. In essence the term refers to an all-
encompassing system
of learned behaviour patterns that serve to distinguish members of a particular
society. It is important to recognize that culture is learned and that it is
transmitted from one generation
to another. A society’s culture is fairly
stable over time and changes only slowly in response to outside
influences.
Pause and Reflect

While culture is stable, can you think of
three outside influences that can cause a society’s culture to
change over
time?
Individuals have little difficulty learning

their own culture. The process is quite natural and seamless as
one is exposed
to influences from family members, religious organizations, social groups, etc.
This
process is referred to as enculturation.
Problems are, however, more likely to occur when an individual
is transplanted
into a foreign culture and is required to make the necessary adjustments, i.e.,
to become
acculturated. This is
often the case when a multinational company sends its executives to live and
work
in a foreign country for an extended period of time. Adjustments may come
easily for some but may be
extremely traumatic for others. As global marketing
managers we should strive to become culturally
literate, i.e., possess an in-depth understanding of the foreign culture
which allows us to function
effectively in the new environment. The opposite is ethnocentricity or a belief that one’s
culture is
superior to others. This is a perspective that could easily blind us
to opportunities in global markets.
The Elements of Culture

Culture is a multi-dimensional construct and
while there is agreement that the concept is multi-faceted,
there is no
agreement on the constituent elements. Various authors list slightly different
elements. The
eight identified in Figure 2.1 below are, however, fairly representative.
Figure 2.1: The

Elements of Culture
Source: Adapted
from Farrell,
C. (2015). Global Marketing. Sage Publications.
Language
Mastery of the host country language gives
the global marketer the ability to independently analyze and
interpret events
taking place in the society. Note that we make a distinction between verbal and non-
verbal (or silent) language. In cross-cultural communication it
is often necessary to translate the
company’s tagline and advertising messages
from one language to another. This often poses difficulties
for the firm and
may lead to serious reputational damage if errors are made. It is also
important to note
that the global marketer must also pay attention to the five
aspects of non-verbal language (time, space,
material possessions, friendship
patterns and business agreements).
Click-n-Reveal:
When translating marketing material from one language to another
what technique should a company use to minimize the potential for
errors that may seriously damage its reputation?
Religion
Many individuals believe in the existence of
a higher power and this belief can act as an anchor and give
individuals a sense of
purpose in their lives. Christianity, Islam, Hinduism and Judaism are some well-
known religions, but it is important to be informed about the various religions that might be practiced in
the countries with which you have dealings.
Is an understanding
of a host country’s predominant religions important to success in marketing to
consumers in
that country? Why or why not?
Values and Attitudes

Our values and attitudes guide what we see
as being right or desirable. You should note the concept of
consumer ethnocentricity that guides
some people to believe that the purchase of foreign products is
somehow morally
wrong.

Click-n-Reveal:
As a researcher, what instrument would you use to measure the
degree of consumer ethnocentricity in a society?
Manners and Customs

It is important to be aware of the manners
and customs of the host countries in which we do business.
These vary from one
country to another and touch various aspects of the business relationship from
gift
giving to business negotiations and how products should be packaged. Note
the issue of cultural
superstitions and the fact that these may override
economic rationality in some societies.
Can you
think of a situation when it is not appropriate to adjust to the manners and customs of the
host country where you are
doing business? Provide a concrete example.
Aesthetics
Societies vary in terms of what is
considered to be in good taste. These differences have a bearing on
how
business should be conducted with individuals from those societies. Again
aesthetics touch many
aspects of the business relationships from how products
are packaged and presented to what gifts are
considered appropriate. Colour
associations are extremely important in this context. Colours have
special
meaning in all societies (e.g., green is the colour of Islam) and, therefore,
great care must be
exercised in the design of global advertising campaigns.
Click-n-Reveal:
____________ is the traditional colour of mourning in China.
Click-n-Reveal:
In some African countries ________ is associated with witchcraft.
Click-n-Reveal:
In Japan black is associated with _______________.
Education
Education is an important vehicle of
cultural change in society. Traditional educational institutions such
as
schools and universities have a role to play in the transmission of established
cultural values but also
in exposing members of the society to new ideas and
approaches which may eventually lead to cultural
change.
Pause and Reflect

Should the
type of education emphasized by a society (math/science versus the arts) have
any
bearing on the global marketing strategy that firms develop? Why or why not?

Social Institutions
Social institutions are also an important
element of culture. In some societies households may include
three generations
of the family residing under the same roof with each having a voice in major
purchase
decisions. The global marketing manager must be aware of who the
decision makers are in these
situations and what their primary motivations might be. Issues
of social stratification also need
to be
considered as these can have a bearing on how business is conducted.
Pause and Reflect

The caste
system in India is one form of social organization. What is the caste system
and is it still
relevant to doing business in India today?
The Material
In some societies material possessions are
important signs of progress and well-being and individuals
are encouraged to
focus on their acquisition. Other societies place much less of an emphasis on the
material and focus instead on individuals' spiritual development.
Identify
one society for whom the material is not heavily emphasized. For a North American
multinational company,
how will its marketing strategy have to change when targeting individuals
from
that society?
Cultural Analytics
There are several
approaches to classifying cultures. These are clearly extremely useful to the
global
marketer in her efforts to penetrate and build market share in foreign
countries. Cultural analytical
frameworks range from the simple and intuitive
(e.g., simply classifying countries as high
context or
low context to Gannon’s
Metaphors) and more sophisticated approaches (e.g., Hofstede’s
Framework which is widely used by both academics and
practitioners).
High vs. Low Context

In high context societies it is important to
“read between the lines” because the entire message is not
conveyed in the
words used. In contrast, in low context societies words are used explicitly and
communication is more direct.
Activity
Consider the Context
Continuum presented in the text. Redraw the graph to show where Russians
and
Chinese would likely fall.
Gannon’s Metaphors
These figures of speech are essentially
words or phrases which when heard or read create a mental
image of the culture
of a particular society. For example, Gannon used American football to
characterize
the United States and the classical symphony to characterize
Germany.
Pause and Reflect

Think of a suitable
metaphor that would adequately reflect the cultures of the three countries
listed
below:
Jamaica
Canada
UK
Hofstede’s Framework
Hofstede measured culture on four
dimensions: masculinity vs. femininity; uncertainty avoidance; power
distance;
and individualism vs. collectivism. Hofstede subsequently added a fifth
dimension, time, to
reflect society’s long (or short) term orientation.
Activity
Visit The Hofstede Centre. Where does your country of birth fall on the
major dimensions? Select a
foreign country that you have visited or read about.
How do the two countries compare? Would
culture present a barrier for
individuals from your home country doing business in the foreign country
you
selected?
Managing Across Cultures

As noted above global marketers must strive
for cultural literacy. Becoming thoroughly at home in a new
cultural
environment is, however, a long process as illustrated by the model proposed by
Shapiro,
Ozanne and Saatcioglu (2008) and found in the textbook. The Romantic Sojourner has little more than
a passion for travel and a desire to learn more about foreign cultures. The Foreign Worker, on the other
hand, has
a much more realistic view of foreign cultures and has developed a deeper
understanding of
the local business environment. Skilled Workers have an even deeper level of understanding of the
local environment and have begun to develop the requisite diplomatic and
negotiating skills to function
effectively. Skilled Workers who continue to
function in the foreign society become truly embedded and
eventually attain the
status of Partner. Partners have a high level of cultural
sensitivity and a deep
appreciation of the nuances of the particular culture.
Figure 2.2: The Development of Cultural Knowledge

Source: Adapted from Farrell, C. (2015). Global Marketing. Sage Publications.
Click-n-Reveal:
At what stage in the model proposed by Shapiro, Ozanne and
Saatcioglu (2008) is there the greatest reliance on declarative
knowledge?
Culture and Ethical Decision Making

Ethics and culture are closely related. Cultural
values provide individuals with a frame of reference to
determine whether a
particular decision falls in the moral domain and when ethical reasoning is
appropriate. Societies will, therefore,
differ on which issues fall in this domain and on the approach used
to arrive
at an ethical decision.
Given that
culture and ethical reasoning are closely related, should global marketers be
governed
more by the ethics of their home country or those of the host country?
Summary
This module has
examined a number of issues related to culture. The concept was first defined and its
constituent elements discussed. A number of approaches to classification were also
presented and the
module concluded with a discussion of cross cultural
management and the relationship between culture
and ethical decision making
Assignments
sure to reply to

You should complete your group formation this week.
Note: Make sure you have purchased a license for
the CountryManager Simulation.
First quiz – short answer/multiple choice/case study questions covering Modules 1 & 2
Introduction
An understanding of the economic environment is central to the successful implementation of a firm’s
global marketing strategy. Economic variables such as exchange rates, inflation, income, levels of
unemployment and the pace of economic growth are key drivers of a firm’s decisions to enter or exit
particular country markets. This module will demonstrate how economic variables impact the decisions
of the global marketer bearing in mind that the factors that define the economic health of the target
country are completely beyond the control of the firm.

This module will focus on three key areas. First we will examine the importance of economic and
financial variables in assessing foreign markets. Note that these variables provide support not only for
market entry decisions but also guide the global marketer in her decisions to exit particular country
markets. Second we will address the issue of economic integration, or the trend observed in which
countries form themselves into blocs or economic groupings. Finally we will address the need for firms to
examine issues related to marketing to consumers at the base of the economic pyramid.
1. Discuss the importance of economic variables such as inflation, income and employment in
assessing potential foreign markets.
2. Explain the challenges and opportunities presented by marketing to low income consumers at the
base of the economic pyramid.
3. Discuss the various forms of economic integration.
Readings
Reading
Prahalad, C.K., & Hammond, A. (2002). Serving the World’s Poor Profitably. Harvard
Business Review, September.
Karnani, A. (2007). The Mirage of Marketing to the Bottom of the Pyramid: How the Private
Sector can Help Alleviate Poverty. California Management Review, 9 (4).
Simanis, E. (2012). Reality Check at the Bottom of the Pyramid. Harvard Business Review,
June.
Income and Income Distribution

Several economic variables are important in assessing foreign markets. The most important of these are
identified in the next few pages.
The ability of consumers to purchase foreign goods and services is driven by income. Income (in
addition to savings rates, access to credit and debt levels), define consumers’ ability to purchase foreign
products and, therefore, the relative attractiveness of the target market. As we will discuss later in this
module, low income per capita does not necessarily mean that global marketers should ignore such
consumers but it does mean that product and pricing strategies will have to be adjusted. As noted in the
textbook, a country’s income level is measured in terms of gross domestic product (GDP) or gross
national product (GNP) and these are usually expressed on a per capita basis when making
comparisons across countries. GNP is often referred to as gross national income or GNI.
Pause and Reflect

China recently overtook Japan to become the second largest economy in the world. Given this
performance should the World Bank continue to classify China as a “developing country”?
In assessing foreign markets it should be recognized that it is not only

the absolute level of income that
is important but the distribution of that income. Income distribution in the target country has major
implications for the implementation of the firm’s global marketing strategy.
Click-n-Reveal:
Income distribution is important to the assessment of foreign markets.
What metric would you use to assess the degree of income inequality
in a country of interest?
Market Size
The overall size of the foreign market is governed to a large extent by the income level of consumers.
However, the number of consumers is also an important determinant. Populous countries such as India
and China may be relatively more attractive to some marketers despite their low incomes per capita. As
noted in the textbook, the global marketing executive also needs to pay attention to trends in population
growth rates as these provide clues as to the long run viability of particular country markets. There are
many examples of firms having to make major strategic adjustments in the face of traditional markets
with stagnant or declining populations.
Exchange Rates
An exchange rate is simply the price of one country’s currency expressed in terms of some other
country’s currency. Currencies which are weak (say relative to the US dollar) provide a major impetus to
the country’s exporters making their products more price competitive on international markets. By the
same token, however, consumers are penalized as they must now surrender more of their local currency
in order to purchase imported products.
In August of 2019 the Trump Administration charged China with being a currency manipulator. In its
trade war with the United States the Peoples' Bank of China allowed the yuan to depreciate beyond
the psychologically important 7 yuan to 1 US Dollar level. Do you believe China is manipulating its
currency to circumvent the tariffs imposed by the United States? Why?/Why not?
As noted in the textbook, when comparing countries the use of nominal exchange rates may lead to poor
decisions. If one is comparing, say, income across two countries it is better to use purchasing power
parity exchange rates in the calculations.
Debt Levels
As noted above, consumers’ ability to purchase foreign goods and services is dictated not only by
income but also by debt. Excessive levels of consumer debt will dampen consumers’ incentive (and
ability) to consummate new purchases and will reduce the overall attractiveness of the foreign market.
Of course, the global marketing executive is also concerned about levels of government debt in the
target host countries. Highly indebted host country governments may, for example, be forced to reduce
spending on infrastructure projects that support the ongoing marketing operations of the firm, e.g., port
facilities and highways. Further, public sector workers may be laid off which reduces their demand for
both domestic as well as imported products. The global marketer is well advised to consider debt levels
in assessing the merits of prospective host countries.
Proponents of the Strategy

As the textbook notes, there are over 4 billion people in the world who are forced to live on less than
$2/day. A key question for the global marketer is whether these individuals present an attractive market
opportunity or not.
Scholars such as the late C. K. Prahalad argue that marketing to consumers at the base of the income
pyramid (BoP) is potentially quite lucrative for global firms even though individually these consumers
have little money. He argues that even in the slums of Mumbai and Rio de Janeiro these poor
communities may have combined purchasing power measured in the millions of dollars. Proponents of
the strategy also suggest that poor consumers may be an attractive market even for more expensive,
branded products such as washing machines and mixers. In most instances, however, these products
will have to be modified in some way in order to achieve a more realistic price point.
Opponents of the Strategy

Opponents of the base of the pyramid strategy include writers such as Karnani and Simanis. These
scholars argue that the market size estimate of 4 billion is exaggerated as is the propensity of poor
consumers to purchase luxury items. They argue that in accordance with Engel’s law the bulk of the
income of poor consumers will be devoted to meeting their basic need for food with little left over to
purchase items such as washing machines and mixers. They also argue that the poor are culturally
heterogeneous and geographically dispersed making them difficult and expensive to reach. Further, the
global marketing firm will have to achieve an exceedingly high penetration rate for the strategy to be
successful. Marketing to consumers at the base of the pyramid is essentially a low price-low margin-high
volume business which is not suitable for all companies.
The Customer at the Bottom of the Pyramid Stuart Hart from Cornell [4:04]
Why is the notion of the poor as producers so important to the success of base of the pyramid
marketing?
Are you convinced that there is a market at the base of the economic pyramid? Why or why
not?
Forms of Economic Integration

Countries form themselves into economic groupings or trading blocs in order to make more efficient use
of their national resources. The process, known as economic integration, has resulted in the creation of
such groupings as the European Union and the North American Free Trade Association (NAFTA).
The major forms of economic integration are described in the textbook and range from free trade areas
in which there is merely the elimination of tariffs and duties between members to economic unions which
involve a single currency and the harmonization of economic policies between member states (see
Figure 3.1).
Figure 3.1: Major Forms of Economic Integration

Source: Adapted from Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 3.

Free Trade
No trade restrictions on the movement of goods among members.
Each member maintains its own policies towards non-members.
Customs Union
Free movement of goods and services among members.
Common trade policy towards non-members.
Common Market
Free trade in goods and services among members.
Factors of production are mobile across member countries.
Economic Union
Free trade in goods and services.
Mobility of factors of production.
Harmonization of economic policies among member countries.
Benefits and Costs

As noted in the textbook, economic integration allows member nations to achieve a number of benefits
that would be difficult to achieve acting alone, such as:
Trade Creation
One of the benefits of economic integration is trade creation. Countries substitute imports
from beneficiary countries within the bloc for their own domestic production. In essence
countries are able to rely on their more efficient trading partners and, therefore, provide their
citizens with products at more competitive prices.
Greater Consensus
Countries are able to make decisions more effectively in smaller groups and arrive more
quickly at mutually beneficial trading decisions.
Trade Negotiations
Economic integration gives countries, particularly smaller trade dependent countries, a bigger
voice in multilateral trade negotiations.
Economic integration may also impose certain costs on member countries. These include:
Trade diversion in which a country diverts imports from more efficient non-beneficiary outside the
bloc to less efficient preferred countries within the bloc.
Shifts in production to low wage countries that are part of the bloc. This, of course, results in job
losses in other member countries with higher wage rates.
Membership in an economic bloc does require that the members give up some national
sovereignty in the interest of the group as a whole. This may prove to be quite difficult for some
nations.
On assuming office as president, Donald Trump withdrew the United States from the proposed
Trans-Pacific Partnership (TPP). What are the implications of this action for the US economy? What
are the implications for China?
Summary
This module has examined the economic environment within which global marketers implement their
strategies. It has examined the economic factors that are important to the assessment of foreign market
opportunities such as income, debt levels and exchange rates. Also discussed were the challenges and
opportunities presented by consumers at the base of the income pyramid. The module concluded with
an examination of the concept of economic integration – its forms, benefits and limitations.
Assignments
Students should play through a practice round of the CountryManager simulation to become
familiar with the decisions required. No group member changes after the first round decision.
However, should some team members drop the course the instructor may allow the
remaining member(s) to join other groups.
Introduction
This module introduces another element of the uncontrollable environment within which global marketing
decisions are made. Developments in the political environment are well outside the ability of the global
marketing manager to control yet can have important ramifications for the success of the firm’s
strategies in international markets. Note that the global marketing firm must contend not only with the
political actions of host country governments but also those of its own home country government.

The purpose of this module is to discuss the various ways in which political decisions, both at home and
abroad, can impact the design and execution of global marketing strategy. The module also presents
approaches available to the global marketing manager to mitigate, to the extent possible, the impacts of
such adverse political decisions.
1. Discuss the various forms of political organization.
2. Discuss the impact of the political/legal environments in the home country on the design and
3. Discuss the impact of the political/legal environments in the host country on the design and
4. Define the term “political risk”.
5. Discuss the various forms of political risk and how they may be mitigated.
6. Discuss the measurement of political risk.
7. Explain differences in the legal systems and how they impact the design and execution of global
marketing strategy.
Readings
Reading
Cuervo-Cazurra, A. (2008). The Effectiveness of Laws Against Bribery Abroad. Journal of
International Business Studies 39, 634–651.
Bremmer, I. (2005). Managing Risk in an Unstable World. Harvard Business Review, June,
51–60.
Czinkota, M., Knight, G., Liesch P.W., & Steen, J. (2010). Terrorism and International Business:
A Research Agenda. Journal of International Business Studies, 41 (50), 826–843.
Dictatorship
The global marketer will likely do business in countries which have a very different form of government
organization when compared to what exists in her home country. It is important to have at least a basic
understanding of these differences in forms of government organization and the implications for the
global firm.
In a dictatorship, political and military power is concentrated in the hands of a single individual. There is
no sharing of political power and citizens are denied the right to elect their leaders or debate the
decisions made by the dictator. Military force and imprisonment are often used to enforce the dictator’s
will.
From your perspective, would North Korea meet the criteria to be classified as a “dictatorship”?
Identify three challenges that would be faced by multinational companies when doing business in
North Korea.
Oligarchy
In some instances political power is in the hands of not a single individual, but a small group of
individuals. These may, for example, be members of the same family. As with a dictatorship citizens
have no say in the choice of their leaders and there are no term limits, i.e., oligarchs rule for as long as
they choose or until they are deposed.
Democracy
Dictatorships and oligarchies are relatively rare in the real world. As noted in the text most countries
subscribe to a democratic form of political organization.
Pause and Reflect

Identify two important characteristics of democratic governments.
Embargoes and Sanctions

As noted in the text political decisions made by a firm’s home country government may have a profound
impact on its ability to do business around the world. The firm is never the target of these decisions but
may be hurt by them merely because it operates globally.
The multinational firm’s home government may be obliged to impose sanctions on a target country in
order to fulfill its obligations under Chapter VII of the United Nations Security Council Charter.
Unfortunately the target may be a country with which the firm does business – either as a supplier of raw
materials and inputs or as a consumer of its finished products. All business relations with firms from the
target country will be disrupted by these sanctions (with the exception of the purely humanitarian).
Click-n-Reveal:
What is the ultimate goal of multilateral sanctions imposed by the

United Nations?
Sanctions have been imposed on North Korea since 2006 when that country tested it's first nuclear
device. The latest sanctions imposed in 2017 include limiting oil exports to the country and banning
imports of its textile products. China and Russia have gone along with these limited sanctions. Do
you believe that sanctions will force North Korea to behave responsibly or will the United States and
other Western countries be forced to take military action?
Export Controls
The global marketer’s home country government may also impose export controls in order to deny a
target country access to certain products. As noted in the text such products may include dual use
materials such as uranium that may be used for both peaceful (e.g., energy generation) as well as
adversarial (e.g., weapons development) purposes. The multinational firm may be hurt if it is a major
supplier of such products to the target country.
Import Controls
Similar to export control, the firm’s home country government may also impose import control which will
prevent the importation of certain products from a target country. The imposition of import control may
have a negative impact on the multinational company if supplies from the target country were important
inputs into its manufacturing operation. Import control may force the firm to seek out alternative sources
of the product which may prove to be more expensive or of lower quality.
Boycotts
The global marketing firm may also have to contend with boycotts sanctioned by their own home country
government. In this case the firm is prohibited from doing business with companies headquartered in the
country under boycott. Consumers may also refuse to purchase the products of firms based in the
country under boycott. As noted in the textbook, the Arab League has discouraged Arab companies from
doing business with Israeli companies since the late 1940s and Japanese products have been boycotted
in China due to tensions between these two nations that date back to the 1930s.
Click-n-Reveal:
The belief that it is morally wrong to purchase foreign products is
termed _____.
As stated in the textbook, the US government has in place anti-boycott legislation designed to
discourage American companies from complying with the Arab boycott of Israeli firms. Do you think it
is appropriate for the United States to become involved in this long standing dispute? Why or why
not?
Bribery and Corruption

In doing business around the world the global marketer will be forced to deal with issues of bribery and
corruption. While the payment of government officials for the performance of their duties is tolerated or
even expected in some countries, it is generally frowned upon in developed Western nations such as the
United States and Canada.
Should Western governments impose high ethical standards on their companies when conducting
business abroad even though these standards may put them at a competitive disadvantage relative
to firms from other countries?
Click-n-Reveal:
What measure could be used to measure the propensity of executives
from one country to offer a bribe when doing business in some other
country?
As stated in the textbook, bribery and corruption may discourage foreign direct investment and force
companies to alter the way in which they enter foreign markets. It is also important to note the OECD
tips to strengthen the firm’s internal control and procedures for dealing with corruption.
Click-n-Reveal:
What measure could be used to measure the level of corruption that
exists in a country?
Political Risk
The global marketer must consider not only the impact of political decisions made by their home country
but must also be alert to the political actions of governments in the host countries in which they operate.
Host country political decisions may in fact have a much more profound impact on the firm’s strategic
decisions.
Firms face varying degrees of political risk when operating in foreign countries. As noted in the textbook,
political risk refers to the risk of loss due to changes in the host country’s political structure, policies,
regulations or laws.
Click-n-Reveal:
What are the major types of political risk that firms face when
conducting business in foreign countries?
Other Host Country Interventions

Apart from political actions which may impact the firm’s ability to operate in the host country, its ability to
transfer assets outside of the host country or result in a change in ownership, the global marketing
manager must also be cognizant of other types of political interference. As noted in the textbook, host
country governments may also impose price controls on foreign firms, mandate local content
requirements or impose import restrictions. Although they are not usually state sponsored, the global
marketer must also consider the possibility of terrorist actions that may disrupt its normal operations in
the host country and more importantly lead to significant loss of life.
Click-n-Reveal:
Identify the indirect effects of terrorist actions that the multinational
firm should be aware of.
Measurement of Political Risk

It is important for the global marketer to have a handle on the extent of political risk that exists in the
various foreign countries in which it has an interest. As noted in the textbook, political risk can be
measured. One measure that the firm may find useful is the Profit Opportunity Recommendation Index
(POR). The POR classifies countries as low risk, moderate risk, high risk or prohibitive risk (see Table
4.1).
Click-n-Reveal:
Which sub-index of the POR would be of most interest to the global
marketer concerned about getting funds out of a foreign country in
which it is conducting business?
Table 4.1: POR Scores, Selected Countries
POR
Country Score
(2012)
Low Risk (POR: 70-100):

“Political changes will not lead to conditions seriously adverse to business. No
major sociopolitical disturbances are expected”.
POR
Country Score
(2012)
Switzerland 76
Singapore 78
Norway 73
Moderate Risk (POR: 55-69)

“Political changes seriously adverse to business have occurred in the past, but
governments in power during the forecast period have a low probability of
introducing such changes. Some demonstrations and strikes have a high probability
of occurring”.
Canada 63
US 58
UK 62
France 55
China 57
Australia 55
Germany 68
Japan 56
High Risk (POR: 40-54)

“Political developments seriously adverse to business exist or could occur during the
forecast period. Major sociopolitical disturbances, including sustained rioting, have
a high probability of occurring periodically”.
Chile 54
India 42
Russia 48
Brazil 41
Colombia 41
Indonesia 43
Italy 42
POR
Country Score
(2012)
Prohibitive Risks (POR: 0-39)

“Political conditions severely restrict business operations. Loss of assets from rioting
and insurgencies is possible. Disturbances are part of daily life”.
Iran 36
Mexico 35
Venezuela 38
Greece 27
Argentina 39
Source: Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 4.
Mitigating Political Risk

As mentioned in the textbook, the firm has a number of options available to mitigate the political risks it
faces when doing business in foreign countries. These include the purchase of political risk insurance,
lobbying, building strong ties with local communities in the foreign country or choosing a form of market
entry that does not directly expose it to the vagaries of the host country government.
Consider lobbying and licensing. For a North American firm which is likely to be more effective in
mitigating political risk when doing business in Russia?
Host Country Legal Environment

The global marketing firm must also consider the legal environment of the host country when designing
and implementing its marketing strategies. As the textbook notes, common law and code law govern
most international business transactions but Shari’ah law will be encountered when doing business in
Muslim countries.
Click-n-Reveal:
Shari’ah law forbids investment in certain industries such as alcoholic
beverages, pork, tobacco and gambling. These industries are
considered ________________ or impermissible.
Should Western companies modify their business practices, e.g., the charging of interest, when
operating in Muslim countries? Why or why not?
Summary
This module has examined the impact of political decisions, both at home and abroad, on the design and
execution of the firm's global marketing strategy. The point was made that the global marketer has no
control over political decisions made by its own home government or the governments in those countries
in which it does business. Despite this the firm may be greatly impacted by these decisions. Sanctions,
boycotts, import and export controls, price controls and local content requirements were discussed as
were the various forms of political risk. The measurement of political risk as well as strategies that may
be employed to mitigate those risks were also discussed.
Assignments

First simulation decision due (Friday 11:59 pm EST). No group member changes after this
first decision is submitted.
As a reminder failure to register for and purchase the simulation license will result in a grade
of zero for the competitive component of the simulation.
Second quiz – short answer/multiple choice/case study questions covering Modules 3 & 4

Introduction
This module is focused on international trade and protectionism. As with the economic and political
environments or the culture of the host country, the international trade environment is an uncontrollable
variable for the global marketer. Governments establish their international trade policies, and while these
policies may impact the firm’s global marketing strategy there is little the firm can do to influence them. A
key aspect of trade policy is protectionism which, as will be discussed in this module, may make foreign
market entry extremely difficult or, in some cases, impossible.

In order to better understand the international trade environment and the implications for global
marketing it is necessary to consider why countries engage in trade. There are several theories which
attempt to explain the benefits of international trade and these are explored below. Also discussed are
the mechanisms by which trade between nations is governed. The point is made that these governance
mechanisms operate at both the national and supranational levels. As noted previously, protectionism is
also an important consideration and we examine below the various motivations for governments to be
protectionist and the forms these restrictions on trade may take.
1. Discuss the major theories used to explain the pattern of international trade and investment flows.
2. Define the term “protectionism” and discuss the various arguments used by national governments
for implementing protectionist policies.
3. Discuss the various ways in which national governments may be protectionist and the impact on
global trade and investment.
4. Discuss the various ways in which governments may promote exports.
5. Discuss the role of major transnational organizations involved in the regulation of global trade and
investment.
Readings
Reading
Early Trade Theories

While countries vary in their reliance on international trade, no country produces all the goods consumed
by their citizens. Countries such as China and Canada are heavily dependent on trade with other nations
while others such as the United States are much less dependent. A number of theories have been put
forward over the years to explain why countries engage in international trade.
As noted in the textbook, the mercantilists used a rudimentary model of the economy consisting of a
manufacturing sector, agricultural sector and the colonies to argue that countries could advance
economically by aggressively expanding exports while severely discouraging imports. International trade
was seen as a zero sum game. The mercantilist doctrine was refuted by Adam Smith in his theory of
absolute advantage. Smith argued that trade was not a zero sum game and that it was possible for two
countries engaged in trade to both benefit from the exchange. Countries must, however, have an
absolute advantage in the production of a traded product. Building on the work of Adam Smith, David
Ricardo would later prove that countries needed only a comparative advantage in order to benefit from
Click-n-Reveal:
According to the theory of comparative advantage trade is a
_____________ sum game, i.e., it is possible for both countries to
benefit simultaneously.
Later Trade Theories

Following from the work of the mercantilists Smith and Ricardo, a number of scholars proposed
alternative trade models. These include the Swedish economists Elie Heckscher and Bertil Ohlin as well
as Raymond Vernon. The Heckscher-Ohlin theory examined the role of factor endowments and factor
intensities while Vernon’s model attempted to explain trade flows based on the life cycle of an
internationally traded product.
Click-n-Reveal:
Vernon’s product cycle theory argues that firms responsible for
product innovation are based in developing countries. True or false?
Click-n-Reveal:
The Heckscher-Ohlin model argues that countries will import those
products that use most intensively their least abundant factor of
production, while they will export those products that use most
intensively their most abundant factor of production. True or false?
As noted in the text most of the theories of international trade focus on the supply side. One exception is
the Linder (or Country Similarity) theory which attempts to explain trade flows by examining the pattern
of demand. The key point here is that a country will tend to trade with other countries with similar levels
of income and patterns of demand. Note that empirical support for this model has been mixed and that
geographic and cultural proximity may well influence the results observed.
It should also be noted that all of the models discussed up to this point implicitly assume that we are
dealing with a homogeneous product. However, the New Trade Theory proposed by Paul Krugman
relaxes this assumption and allows for product differentiation. In order to better our understanding of
international trade, the work of Michael Porter should also be reviewed. His diamond of competitive
advantage has been used extensively to analyze the competitive advantage of nations and industries.
Do developing countries benefit more from free trade than advanced countries?
Investment Theories
Countries are concerned not only about trade flows but also about the flow of investments. Theories
proposed to explain international trade flows include transactions cost analysis, Dunning's OLI model
and the Springboard perspective. The latter is particularly useful in explaining the investment behaviour
of multinational companies from emerging markets such as China. Dunning’s OLI model, on the other
hand, was developed to explain the investment activity of multinationals from developed countries. As
noted in the textbook, the OLI model argues that the foreign investment decisions of the firm are driven
by Ownership, Location and Internalization (OLI) advantages. In the absence of these advantages the
firm would opt to remain domestically focused. The Springboard model argues that emerging market
multinationals expand abroad in order to overcome the “institutional voids” that exist in their home
countries and do so by making a series of aggressive and recursive moves to acquire assets in foreign
markets. Transactions cost analysis, on the other hand, argues that firms seek to minimize overall
transactions costs when expanding into foreign markets.
What aspects of Dunning’s OLI model make it difficult to apply in the context of multinational
companies from emerging markets?
Click-n-Reveal:
According to transactions cost analysis what are the three types of
costs firms attempt to minimize when expanding into foreign markets?
Definition and Arguments

Nations often impose measures that may unduly restrict trade and investment. As noted in the text these
measures are designed to protect domestic firms and industries from foreign competition and have little
to do with safeguarding the health and well-being of the country’s citizens. Countries may attempt to
justify the implementation of protectionist measures by appealing to one of several arguments.
Government policy makers may argue in support of protectionism by claiming that particular industries
need to be shielded from direct global competition if they are to develop and themselves become global
competitors. While the infant industry argument does have some appeal it requires governments to inter
alia pick winners and decide when protection should be withdrawn. Government policymakers may opt
to implement protectionist measures for other reasons such as national security, i.e., ensuring that
assets do not fall into the hands of terrorist organizations or rogue states. In some instances industries
may be protected by governments because they employ substantial numbers of people. Job losses that
result from international competition will have not only economic consequences (e.g., reduced tax
revenues and increased social assistance costs), but may also have political consequences for the
government.
Given the theoretical arguments for free trade do you believe that the implementation of protectionist
measures by a national government, e.g. the imposition of tariffs on steel and aluminum by the
Trump administration, is ever justified? Why or why not?
Forms of Protectionism
Governments have a number of tools at their disposal to protect domestic industries. Tariffs, or taxes on
traded products, may be used by national governments to increase the price of imported products and
make them less competitive (relative to domestically produced goods). Quotas, or quantitative
restrictions, may also be used to reduce the availability of imported products on the domestic market
thereby providing domestic suppliers with a larger share of the market. As the textbook notes, tariff rate
quotas combine elements of both tariffs and quotas and may also be used to restrict trade flows and
provide domestic producers with a competitive advantage. In some cases it is not the importing country
that takes action to limit trade but the exporting country. This is seen, for example, in the case of
voluntary export restraints which require the exporting country to place curbs on its own exporters (or
face retaliatory action by the importing country).
Click-n-Reveal:
A tariff that combines both specific and ad valorem components is
referred to as a ___________ tariff.
National governments have other tools at their disposal to restrict trade including limiting the availability
of foreign exchange or maintaining a dual exchange rate system which penalizes importers but favours
exporters. Governments may also implement policies which restrict access to local distribution, impose
unrealistic quality standards on imported products, or simply turn a blind eye to protecting the intellectual
property of foreign firms conducting business in the country.
It should be noted that national governments may also wish to restrict foreign investment in certain
industries deemed to be sensitive. Various countries may define these sensitive sectors differently but
may include telecommunications, banking and financial services, as well as natural resources.
Should national governments designate certain sectors/industries as off-limits to foreign investment?
Why or why not?
Forms of Export Promotion

In contrast to the various measures national governments may adopt to restrict trade they often engage
in activities specifically designed to boast the competitiveness of their own exporters. These export
promotion measures are designed to mitigate risk and enhance the probability of success in international
markets.
The various forms of export promotion are described in the textbook and include the provision of market
intelligence, export subsidies, export financing and the establishment of foreign trade zones. While all of
these approaches may be useful in promoting exports, some such as the provision of export subsidies
may fly in the face of multilateral trade agreements.
Do you believe that foreign trade zones contribute to the development of
the countries in which they
are located or merely give multinational firms an opportunity to exploit cheap labour and raw
materials?
Governance of International Trade and Investment

National governments are, of course, important in the design and implementation of international trade
policy. The governance of international trade and investment does, however, also involve a number of
transnational organizations.
Trade Institutions
As described in the textbook, the World Trade Organization (WTO) has been central in the reduction of
tariffs since its creation in the 1940s. The organization has also played a pivotal role in the resolution of
international trade disputes between member countries. The Bretton Woods institutions – The World
Bank and International Monetary Fund – are also important in the governance of international trade and
investment. The former plays a key role in loan and equity financing of projects around the world while
the latter has a mandate to provide exchange rate stability, which is critical to the proper functioning of
Summary
This module has examined international trade and investment. A number of models were discussed
which attempt to explain the pattern of international trade and investment between nations. The issue of
protectionism was also taken up with a discussion of the arguments for protectionism and the specific
measures that may be used by national governments to protect domestic industries. The module
concluded with a brief review of the role of transnational institutions in the regulation of international
trade and investment
Activity
Video
Watch the following video. Do you believe that the criticism leveled against the Bretton Woods
institutions is justified? Why or why not?
A Short Introduction to the Bretton Woods System [4:59]
Assignments
Answer one or more of the discussion questions found throughout the course content. Make sure
to reply to your peers about their answers.
Second simulation decision due (Friday 11:59 pm EST)

CountryManager
Introduction
Having examined the external environment within which global marketing decisions are made, the focus
now shifts to the selection and penetration of foreign markets. With approximately 200 countries in the
world it is unrealistic to expect that any company, even a large multinational, would have a presence in
every country. With finite resources all companies must make decisions with respect to which countries
to focus on and which to ignore. As noted in the text it is important to adopt a systematic approach to
country selection – one which includes a detailed analysis of several prospective target countries and an
objective assessment of the capabilities of the firm. Having selected a target country the global marketer
must next decide how the firm will enter the foreign market being targeted. Both of these decisions are
the subject of this module.

As noted in earlier modules, countries differ in terms of their national culture, stage of economic
development and political structures. Also, as discussed in Module 5, countries differ in terms of their
commitment to the principles of free trade with many countries adopting protectionist policy measures
designed to frustrate the efforts of foreign firms. Given these differences the selection of a target country
represents a critical decision for the firm. The approach used by the firm to enter foreign markets also
requires some consideration as these vary in terms of their level of risk and the potential for reward.
Indeed a firm may use a series of different approaches to market entry as it becomes more comfortable
with the inherent risks involved in doing business in various countries.
1. Define the term “internationalization”.
2. Discuss the various motives that drive firms to internationalize.
3. Explain the various theories of internationalization.
4. Outline a step-by-step approach to selecting foreign markets.
5. Define the term “entry modes”.
6. Discuss the pros and cons of the alternative entry mode choices available to the firm.
Readings
Reading
Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 7 & 8
Johanson, J., & Vahlne, J.K. (2009). The Uppsala Internationalization Process Model Revisited:
From Liability of Foreignness to Liability of Outsidership. Journal of International Business
Studies 40, 1411-1431.
Luo, Y., & Tung, R. (2007). International Expansion of Emerging Market Enterprises: A
Springboard Perspective. Journal of International Business Studies, 38 (4), 481-498.
Ellis, P. (2008). Does Psychic Distance Moderate the Market Size-Entry Sequence
Relationship? Journal of International Business Studies, 39 (3), 351-369.
Dunning, J.H. (2003). Some Antecedents of Internalization Theory. Journal of International

Business Studies, 34, 108-115.
Chiao, Y.C, Lo, F.Y., & Yu, C.M. (2010). Choosing between wholly-owned subsidiaries and joint
ventures of MNCs from an emerging market. International Marketing Review, 27 (3), pp.
338-365.
Internationalization Defined
Internationalization may be defined as the process by which firms become increasingly more engaged in
global markets. As noted in the textbook, as companies become more comfortable operating in a foreign
country they may gradually increase their commitment, moving from indirect/direct exporting to foreign
production (see Figure 6.1). As will be noted later in this module, indirect/direct exporting and licensing
represent very low levels of commitment to the foreign country whereas foreign production involves a
substantial commitment of the firm’s resources. Firms may move sequentially through each stage of the
process, but there is empirical evidence to suggest that firms may also leapfrog, i.e., skip directly from
low commitment approaches such as exporting to much higher commitment approaches such as foreign
production – bypassing intermediate steps. Firms may also transition smoothly thorough the various
stages only to exit the country altogether but re-enter later using a lower commitment approach.
Click-n-Reveal:
What is the last stage in the process of internationalization?
Figure 6.1: The Process of Internationalization


The process of internationalization is shown
in a downward cascading arrangement of the following
items: Indirect Exporting/Licensing, Direct Exporting, Foreign Sales Subsidiary, Local Assembly, and
Foreign Production. Different possible pathways from certain elements to others are shown:
Indirect Exporting/Licensing can lead to Foreign Sales Subsidiary, Local Assembly, and Foreign
Production.
Direct Exporting can lead to Local Assembly and Foreign Production.
Foreign Sales Subsidiary can lead to Foreign Production.
Motivation
As noted in the textbook, there are two general motives for internationalization. Firms internationalize
because they want to (i.e., they are proactive) or because they have no other choice (i.e., they are
reactive). Companies with superior technologies or aggressive management may be driven to exploit
profit opportunities in foreign markets and would be proactive in their approach to internationalization.
Some companies, on the other hand, may be faced with mature and stagnant markets at home or with
declining sales and market share as a result of foreign competition. The survival of such firms may be in
question without foreign market expansion. They are forced to react to business conditions by seeking
out new markets abroad.
Theories of Internationalization
As noted in the textbook, various theories have been espoused to explain the internationalization
behaviour of the firm (see also Module 5). Dunning’s OLI model posits that firms expand abroad to take
advantage of ownership, location and internationalization opportunities. This so-called eclectic paradigm
argues that ownership of foreign assets confer advantages on firms that operate abroad – advantages
that are not enjoyed by firms that do not have a physical presence in the foreign country. Similarly firms
may derive location advantages by operating in a foreign country, i.e., they may be able to benefit from
host government incentives used to attract foreign firms, or a more stable industrial relations climate or
even access to strategic natural resources. Dunning also argued that firms would venture abroad if it
was cheaper for them to perform the foreign market functions themselves, thereby internalizing the
benefits, as opposed to some other institutional arrangement.
Also discussed in the text is the Uppsala or “U” model which focuses on the psychic distance between
home and host countries. The basic premise of this model is that firms will expand into psychically close
markets before venturing further afield. With each market expansion the firm gains experience and host
country knowledge which can be applied to subsequent moves.
Do you think that the Uppsala model would apply to a high technology company such as Apple Inc.?
Why or why not?
Click-n-Reveal:
What is the name given to companies that internationalize quickly,
operating in a number of foreign countries almost from inception?
Both the Uppsala and OLI models were developed to explain the internationalization behaviour of firms
from the developed world. As noted in the textbook, the Springboard perspective provides a more
convincing explanation of the internationalization approach of firms from emerging markets. These firms
do not take a gradualist approach to foreign market expansion, as suggested by the Uppsala model, and
do not possess the types of firm-specific advantages, e.g., strong brands, suggested by the eclectic
paradigm.
Selecting Foreign Markets

Companies are encouraged to adopt a systematic, logical, step-by-step approach to selecting foreign
markets. A systematic approach reduces the potential for costly and demoralizing errors. When the
wrong country is selected the firm will eventually be forced to admit the error and exit the market having
wasted considerable resources. One approach to foreign market selection is outlined in the textbook and
argues in favour of a four step process – macro-segmentation, fine grain screening, secondary
screening and finally country selection.
Click-n-Reveal:
At what stage in the country selection process does the firm consider
its own resources and capabilities?
In essence the process is one of subjecting a group of countries to a series of screens to reduce their
number. Screening criteria, as noted in the textbook, may include commitment to democratic
governance, GDP growth rate, income level, etc. The end result is the selection of 1 or 2 countries that
represent the best options for the firm.
Amazon plans to build a second head-office (HQ2) which will involve an investment of $5 billion and
create 50,000 high paying jobs. The company received 238 bids from jurisdictions across the US and
Canada as well as Mexico and Puerto Rico. Twenty cities were short-listed. Toronto is the only non-
US city on the short list. What factors should Amazon consider in making its final selection?
Optional Activity
Consider the case of a Canadian cosmetics company evaluating the Chinese
market. As a
consultant, make a generic list of the types of individuals/organizations you would meet with in
conducting a site visit
on behalf of this company.
Entry Modes Definition

Having selected a country for market entry, the firm’s next decision is the selection of an appropriate
entry mode.
Entry modes are defined as institutional arrangements used by firms to penetrate international markets
(Farrell, 2015). These are usually classified as being of three types – export modes, intermediate modes
and hierarchical modes (see Figure 6.2). As illustrated, export modes are essentially low risk, but also
low return, while intermediate modes involve the sharing of risks and rewards while hierarchical modes
give the firm full control of the foreign operation but with all of the risks this would entail.
As noted in Figure 6.3, each entry mode has its own risk vs. reward profile. Firms need to understand,
for example, that hierarchical entry modes such as a greenfield investment may provide the firm with
superior profit potential and full control, but comes with considerably more risk.
Entry Mode Types
Figure 6.2: Entry Mode Types


Three types of entry modes:
1. Export modes, which includes direct exporting, and indirect exporting.
2. Intermediate modes (risk and reward shared), which includes Licensing, IJVs, and Strategic
Alliances.
3. Hierarchical modes, (full control but all the risks), which includes
Wholly Owned Foreign
Subsidiary, Cross Border Acquisition and Greenfield.
Figure 6.3: Risk-Reward Profile

Alternative Entry Modes

There are a number of entry mode options available to the global marketer. Exporting, or the
manufacture of a product in one country with its sale in a foreign country, is perhaps the easiest way to
enter a foreign market. This mode of entry requires minimal managerial expertise but offers little in terms
of control and profit potential (relative to hierarchical modes).
Click-n-Reveal:
What is the major difference between direct and indirect exporting?
The firm also has the option of licensing its technology in order to gain access to the foreign market.
Here one company, the licensor, allows another firm, the licensee, to use its intellectual property in the
foreign market in exchange for a royalty. As noted in the textbook, the intellectual property in question
may be include patents, copyrights or some form of technical know-how.
One of the problems inherent in licensing a technology to another firm in the host country is the
potential to create a new competitor at the end of the licensing and non-compete agreements. How
can a firm mitigate this risk?
Franchising is very similar to licensing but typically involves the use of one company’s (the franchisor)
business model and operating procedures by another (the franchisee). This entry mode is quite common
in industries such as fast foods, hotel accommodation and car rentals.
Pause and Reflect

From the perspective of the licensor what are the key advantages of entering a licensing agreement
with a licensee based in a foreign market?
Consider the case of Tim Hortons. How does its acquisition by Burger King
impact its chances of
successfully expanding into the US market?
From the perspective of the licensee, what are the key advantages of entering a licensing agreement
with a licensor with superior technology and who is based in a foreign country?
With exporting and licensing the firm does not need to establish a physical presence in the host country.
On the other hand, the establishment of a foreign sales subsidiary represents a deeper level of
commitment on the part of the firm. With this entry mode the firm recruits its own dedicated team of
sales professionals in the host country. While R&D and manufacturing may still be undertaken in the
home country the firm does maintain an ongoing physical presence in the host country with a sales force
dedicated to serving only the firm’s customers.
Click-n-Reveal:
Sales professionals who travel between the parent company’s home
country and the foreign country to generate sales and take orders are
referred to as _______________.
Foreign direct investment (FDI) represents the highest level of commitment to a foreign market. Here the
firm establishes a long term relationship with the host country – maintaining manufacturing facilities,
recruiting local workers and operating as a “local” company subject to the laws and regulations of the
host country government. Despite the high costs and long term nature of FDI several factors may drive a
firm to pursue this mode of entry. As noted in the text these may be classified as market related, trade
related, cost related or customer related.
American companies such as Chesapeake Bay Candle and Peerless AV have been reducing their
presence in China and other low wage countries and returning manufacturing jobs to the USA. What
actions (if any) could the
Chinese government take to stem this exodus of manufacturing/export
jobs?
What would you consider to be the major advantages of an international joint venture over a
greenfield investment?
Optional Activity
From a reading of articles in the business press identify the key reasons that Target was forced to
exit the Canadian market.
Summary
This module has examined two related issues – how the company should go about the selection of
countries for foreign market expansion and the mode of entry that should be used. A systematic process
for market selection was outlined to allow the company to narrow down its country prospects and select
a country that best matches its capabilities and that offers the best prospects for success. Various entry
modes were also presented ranging from low commitment approaches such as exporting to approaches
that represent costly long term commitments. Before these topics we discussed, however, the module
examined the concept of internationalization and the various theories that have been used to explain the
phenomenon.
Assignments

Third simulation decision due (Friday at 11.59 pm).
Third quiz – short answer/multiple choice/case study questions covering Modules 5 & 6
Introduction
To this point we have examined the environment within which global marketing decisions take place. We
have considered culture, the economic environment, political environment and issues associated with
international trade and protectionism. In Module 6 we focused on country selection and the various entry
mode strategies available to a firm. In this and the next three modules we turn our attention to the
implementation of product, place, price and promotion strategies in the host country. Module 7 is
concerned with global product strategies.

In many instances products which are destined for sale in international markets must be modified in
some way to meet the expectations of foreign customers or regulators. While standardization has its
advantages the firm may well be required to make product modifications. In this module we consider the
standardization versus adaptation decision of the global marketing firm. It should also be recognized that
firms seldom have one brand but more likely market a portfolio of local and global brands. The issue of
global brand management is, therefore, an important consideration for the firm. In this module the point
is also made that in a competitive global environment firms are under some pressure to continuously
innovate and bring new products to market. Given this pressure this module will also examine the
process of global product development. Finally, firms which market products in foreign jurisdictions put
their intellectual property at risk. Issues surrounding counterfeit production have major implications for
the global marketer and are also discussed in this module.
1. Discuss the merits and demerits of standardization versus adaptation.
2. Discuss the drivers of adaptation.
3. Outline strategies for transferring brand names and meanings across borders.
4. Describe and explain alternative brand changeover strategies.
5. Describe the process of new product development.
6. Discuss the implications of counterfeit production for the global marketing firm.
Readings
Reading
Townsend, J.D., Yeniyurt, S., & Talay, M.B. (2009). Getting to global: An evolutionary
perspective of brand expansion in international markets. Journal of International Business
Studies 40, 539-558.
Bian, X., & Moutinho, L. (2011). The role of brand image, product involvement, and knowledge
in explaining consumer purchase behaviour of counterfeits: Direct and indirect effects.
European Journal of Marketing, 45 (1/2), 191-216.
Keller, K.L., & Lehmann, D.R. (2003). How Do Brands Create Value? Marketing
Management, 12 (3), 26.
Standardization versus Adaptation

In most instances in order to be sold in a foreign market the firm will be obliged to make some changes
to products which it markets at home. As noted in the textbook, the firm has a number of strategic
options available which depend on whether homogeneous or heterogeneous market segments are
being targeted. The textbook also points out the key distinction between adaptation and localization. The
latter relates to product changes that need to be made to have the product included in the customer's
consideration set while the former relates to changes that are designed to ensure a better fit with the
tastes and preferences of the foreign target market.
The firm is subject to a number of factors that may necessitate that it modifies the products it markets in
foreign countries. These may range from the impact of culture to the need to benchmark against
competing firms and the product's stage in the product life cycle. In some cases the changes undertaken
are mandatory as is the case with the bilingual labeling of food products in Canada. Firms have little
choice but to make the adjustments if they want to conduct business in the country.
Click-n-Reveal:
What product adaptation strategies should be used if the firm's target
markets are heterogeneous?
Drivers of Adaptation
As the text notes firms are driven by several factors to adapt their products to foreign markets. Some of
these drivers may be within the control of the firm and serve to give the company a competitive
advantage in the new market while others may be mandated by the host country government giving the
company little choice if it wishes to do business in the country.
Click-n-Reveal:
According to the textbook, the drivers of adaptation may be grouped
into three categories. What are they?
In some instances the firm may need to engage in backward innovation before the product is
introduced to markets in countries at a lower level of economic development. What factors should the
firm consider before making such a decision?
Economics of Adaptation
The extent to which firms are able to customize their product offerings to the needs of specific foreign
consumers is heavily dependent on the costs involved. Product modifications may be costly for the firm
and the global marketing manager must consider not only manufacturing costs but also the cost of lost
sales.
Click-n-Reveal:
Why would you expect that a company’s cost of lost sales will
increase as it moves from a highly customized product to one which is
Click-n-Reveal:
Why would you expect that a company’s manufacturing costs will
decline as it moves from a highly customized product to one which is
Transferring Brand Names and Meanings Across

Borders
Successful brand names have a number of characteristics as pointed out in the textbook. These include
having a consistent pronunciation across all languages and being simple enough that consumers in the
host country will be able to spell the name when they hear it and pronounce it when they see it.
Transferring a brand name across national borders is not a simple task. Firms do have a number of
options as stated in the text, i.e., translation, transliteration and transparency.
Distinguish between translation, transliteration and transparency. Which
approach is likely to be most
effective in allowing the firm to transfer its brand name to countries around the world? Provide a
rationale for your answer.
Optional Activity
Research one example (not included in the textbook) in which translation failed to capture the
essence of the firm’s message when used in a foreign country.
Brand Changeover Strategies

Firms may, of course, have a number of brands on the market. These may constitute a portfolio of local
brands, acquired through M&A activity over the years, as well as a number of global brands. In the
interest of cost and efficiency, the firm may be motivated to replace its local brands with global brands.
While this may improve the firm’s operational and financial performance, it does present risks to the firm
as these local brands may have a dedicated following of loyal customers. The firm has a number of
options when considering the changeover from local to global brands. Strategies such as fade in-fade
out and forewarning present the least risk of a strong consumer backlash while summary axing exposes
the firm to consumer resentment and reduced sales.
Given
the potential for consumer dissatisfaction are there ever any situations where summary axing
may be the preferred brand changeover strategy employed by the firm?
Optional Activity
Research one example (not included in the text) of a brand changeover strategy used by a
multinational consumer products company. Was the approach used successful?
New Product Development

New products are the lifeblood of the global firm. The continuous introduction of high quality and
innovative products are one of the keys to success in international markets. The process of new product
development is described in the textbook and is central to the firm’s long term success in global markets.
The process begins with idea generation and ends with the global launch of the new product.
Intermediate steps require that the firm test the concept, develop sales forecasts and eventually launch
the product in a limited number of test markets.
Click-n-Reveal:
Why is the development of new global products described as a stage
gate process?
In the context of developing new global products why is it important to listen to the voice of the
customer? Given that it is impossible to solicit feedback from prospective consumers in every
country, what strategy should the firm use to ensure that it has a solid understanding
of what the
market needs and wants?
Do you believe that an understanding of the Kano model would benefit the
firm in the concept testing
stage of the global product development process? Why or why not?
Pause and Reflect

Consider the launch of the new Apple watch. Do you believe this product reflects an understanding of
the needs of prospective global customers? Why or why not?
Counterfeit Production
A firm may invest millions of dollars in research and development only to find that its intellectual property
is compromised when products are introduced into certain markets. Counterfeit production is a serious
problem for the global marketer as it may result in a tarnished brand image, lost sales and increased
costs as firms attempt to monitor and enforce their intellectual property rights.
Click-n-Reveal:
The size of the global counterfeit market has been estimated to be as
high as $650 billion. What two factors are the most important in
explaining the size of this illegal market?
Some consumers may knowingly purchase counterfeit products. What would motivate consumers to
do this and what are the implications for manufacturers of the genuine product?
Summary
This module has examined a number of issues related to global product strategy. The standardization
versus adaptation decision was considered as well as issues associated with the management of global
brands. The module concluded with a brief discussion of counterfeit production and the implications for
the global marketing firm.
Assignments

Fourth simulation decision due (Friday 11:59 pm EST).

Test #1 – Modules 1-6
Test #1 covering the first six modules of the course.
Introduction
This module is focused on global distribution strategy. Having already covered the selection of a target
country, an entry mode strategy and the product that we wish to offer to consumers, our next task is to
decide how we will get that product into the hands of foreign customers. Clearly the firm will not realize
its financial and market share objectives in the host country unless it can make the product available to
prospective customers. The firm must, therefore, design a distribution channel that meets its needs in
the foreign market as well as consider how its channel relationships will be managed as it builds out its
presence in the foreign country. However, despite the firm’s efforts to design and effectively manage its
distribution system, problems may still emerge. One such issue is parallel distribution where the firm
finds its products being sold through unauthorized distributors. It is imperative that the global marketing
manager understand this phenomenon and develop strategies to combat the problem.

1. Define the term "marketing channel" and distinguish between domestic and international marketing
channels.
2. Define the term "channel design" and describe the 11 Cs framework.
3. Discuss the types of international channel intermediaries and their role in global distribution.
4. Discuss the major issues involved in the management of a global distribution channel.
5. Discuss the major issues involved in international logistics management.
6. Define parallel distribution and discuss strategies that may be used by the firm to mitigate its
impact.
Readings
Reading
Farrell, C., & Lin, X. (2010) The evolution and governance of marketing channels in the
People’s Republic of China. In C. Lu Wang (Ed.), Handbook of Contemporary Marketing in
China. Hauppauge, NY: Nova Science Publishers.
Huang, J.H., Lee, B.C.Y., & Ho, S.H. (2004). Consumer attitude toward gray market goods.
International Marketing Review 21 (6), 598-614.
Liu Y., Li Y., Tao, L., & Wang, Y. (2008). Relationship Stability, Trust and Relational Risk in
Marketing Channels: Evidence from China. Industrial Marketing Management 37, 432-446.
Distribution Channels Defined
From introductory marketing courses one should recall that a distribution channel refers to a sequence
of firms/individuals involved in making a product available to a consumer or industrial buyer. Depending
on the number of intermediaries involved, channels may be relatively simple or quite complex. As noted
in the textbook, the firm has a number of options for making its products available to foreign buyers,
including digital delivery in the case of certain product categories such as books or music. In this course
we are concerned with channels that cross international borders, irrespective of the nature of the
product. Our focus is on channels that involve firms and intermediaries in different countries.
Activity
Cross-border distribution channels are inherently more difficult to establish and manage. Write out
three reasons why this is generally the case.
Companies may use wholly owned sales subsidiaries or foreign market intermediaries, e.g.,
distributors to get their products into the hands of prospective customers. Which would you use for
an innovative high technology product such as the recently launched Apple watch? Provide a
rationale.
Channel Design
The term channel design refers to the length and width of the marketing channel. Both aspects need to
be considered if the firm is to construct a channel that meets its needs in the foreign market.
Click-n-Reveal:
Is a short or a long channel more appropriate in the case of perishable
products?
Click-n-Reveal:
In the case of industrial products do distribution channels tend to be
short or long?
The 11 Cs Framework
As noted in the textbook, the 11 Cs framework is useful in ensuring a complete consideration of all
aspects of channel design. By considering each element of this framework the global marketing
manager is unlikely to miss any of the issues that contribute to the design of an effective distribution
channel. Note as well that some elements of the framework are endogenous to the company while
others are completely outside its control.
Click-n-Reveal:
Which of the elements of the 11 Cs framework are exogenous to the
company?
The Japanese keritsu may make it extremely difficult for foreign companies to market to consumers
in Japan. In terms of designing a distribution system do you believe that the keritsu model should be
adopted by companies in other countries? Why or why not?
Channel Intermediaries
In moving products across international marketing channels, the firm has the option of utilizing various
types of channel intermediaries. These include foreign distributors, wholly owned foreign sales
subsidiaries, export management companies and manufacturer’s agents. These are discussed in more
detail in Module 9 but here we consider how they may be selected. The essential point is that the
selection of a foreign market intermediary should be a rational and systematic process and as noted in
the textbook, should begin with a clear understanding of precisely what the firm wishes to accomplish in
the foreign market. Once potential intermediaries have been identified, the textbook outlines a number of
criteria that could be used to screen prospective channel partners.
Click-n-Reveal:
According to the text criteria used to screen foreign market
intermediaries fall into four categories. What are they?
Can a firm be successful in international markets without following a systematic approach to the
selection of foreign market intermediaries? Please justify your answer.
International Channel Management

Several issues are involved in the management of channel relationships. When channels cross
international borders, issues such as cultural differences and differences in approach to business serve
to significantly increase the challenges firms face. Leadership, power and motivation need to be
considered if the channel is to function effectively. The channel leader is usually a dominant
manufacturer with considerable resources and a global reach and is able to exert power over the
intermediaries that comprise its distribution chain. In some cases, however, a dominant retailer (e.g.,
Walmart) may play the role of channel captain.
Click-n-Reveal:
What are the five bases of power in an international channel?
Click-n-Reveal:
What type of channel power is likely to be least effective in motivating
Asian market intermediaries?
Why are financial or psychological incentives necessary to motivate foreign market intermediaries?
Which (financial or psychological) do you believe is likely to be more effective in collectivist cultures?
Once a relationship has been established with a foreign market intermediary, the firm will need to
undertake ongoing monitoring of the intermediary's performance and exercise some level of control over
the agent's activities. Monitoring and control are, of course, much easier if there is an explicit distributor
agreement that specifies performance expectations. As the textbook notes, the need for ongoing
monitoring and control is heavily dependent on the culture of the firm and its intermediaries.
Click-n-Reveal:
What are the two types of trust that are most important in the
management of international channel relationships?
As the textbook notes, however, relationships between the firm and its intermediaries are not always
positive. Conflict is likely in channel relationships and in extreme cases termination of the representation
agreement may be the only viable solution.
International Logistics
The firm endeavors to ensure that there is a smooth flow of products from its manufacturing facility to the
final consumer. This is the area of international logistics and, as discussed in the textbook, it
encompasses both materials management and physical distribution.
Click-n-Reveal:
What area of international logistics is concerned with the movement of
the finished product to the final consumer?
Distribution
The international movement of products is complex. The firm needs to take into account various modes
of transportation, documentation requirements of the foreign country, facilitation, packaging, inventory
management and warehousing. These various functions are described in the textbook and the point is
made that the global marketer is unlikely to be an expert in each of these areas. Distribution is a team
activity involving the services of a number of specialists in several areas.
Click-n-Reveal:
What mode of transportation should not be used if the company’s
finished product is bulky, inexpensive and non-perishable?
Activity
List three functions that are performed by freight forwarders in the movement of international
shipments.
Click-n-Reveal:
What two factors drive the firm’s inventory management decisions?
Parallel Distribution
The firm may sometimes encounter situations where its products enter the market through unauthorized
distributors. Referred to as the gray trade or parallel distribution, the phenomenon can occur with any
type of product – from small consumer items to large industrial equipment. Unlike counterfeit products
discussed in the previous module, parallel distribution is not illegal and gray traders are simply taking
advantage of arbitrage opportunities as they exist in international markets.
Click-n-Reveal:
What three conditions are necessary for the development of a gray
market?
Activity
The manufacturer is paid regardless of the distribution channel by which the product reaches the final
consumer (authorized or unauthorized distributors). List four reasons why the manufacturer should
be concerned about parallel distribution.
Click-n-Reveal:
Click here for a possible answer to the activity.
Do gray traders perform a value added function in the distribution channel? Why or why not?
One strategy used by firms to combat the gray trade is dealer interference in which the manufacturer
visits the unauthorized distribution outlets in the foreign countries and attempts to convince the
importer to discontinue the practice. Is this approach likely to be successful?
Activity
View the following video and reflect on the question below:
Drug companies exploit "Gray Market" [3:45]
Question: The sale of gray market products is not illegal. Do you believe there should be government
regulation of parallel distribution for some products such as prescription drugs?
Summary
This module has examined the issue of global distribution. The design of an effective international
distribution channel was discussed as was the selection of intermediaries and the overall management
of the distribution system. International logistics was briefly highlighted. The module also discussed the
important area of parallel distribution and its consequences for the global marketing firm.
Assignments
Discussion Board Questions Answer one or more of the discussion questions found throughout the
course content. Make sure to reply to your peers about their answers.
CountryManager Simulation. Fifth simulation decision due (Friday 11:59 pm EST).
CountryManager
Introduction
To this point we have considered the first two elements of the firm’s marketing mix, i.e. product and
distribution. In this module we will consider pricing – the third element of the marketing mix that the firm
will seek to implement in the targeted foreign country. As the textbook notes, the firm’s pricing strategy is
a key driver of revenue. Setting global prices is complicated but must be done correctly if the firm is to
achieve its financial objectives. Note that the firm is not free to set any price it chooses. The global
marketing firm faces a number of constraints in terms of establishing a price for its products in the global
market. Demand will act as a ceiling above which the firm is unable to price while cost will serve a floor
below which the firm is unable to price. The extent of competition in the market will determine where
between the floor and ceiling the firm will eventually price its products. In addition host government
regulations also have a bearing on the prices firms may charge in foreign markets. In the case of
multinational firms with several overseas subsidiaries the coordination of pricing strategies across these
entities is a critical consideration as is the issue of intra-corporate pricing. These and other topics, i.e.,
non-price payment options, export financing and the management of foreign exchange risk are
discussed in the module.

1. Discuss the various pricing options open to the multinational firm.
2. Define the term “transfer pricing”, discuss alternative methods of calculation and the implications
for multinational companies.
3. Describe the alternative terms of sale and payment options available to the multinational
company.
4. Discuss alternative approaches to the management of foreign exchange risk.
5. Describe the financing options available to firms engaged in global marketing.
6. Define the term "dumping” and discuss the implications of the practice for global marketers.
7. Discuss non-price options available to consummate international marketing transactions and when
they should be used.
Readings
Reading
Setting Global Prices
In setting global prices the marketing

manager must be cognizant of a number of factors. The first
consideration is
the company’s overall objectives in the foreign market. The firm’s pricing
strategy must
be supportive of its overall goals in the marketplace – whether
this is to create awareness of the brand in
a new market or perhaps to drive
out local competitors or build market share. Secondly, the firm’s
approach to
pricing must ensure that both fixed and variable costs are covered – at least
in the long run.
There is little point in continuing to operate in a foreign
market in the face of sustained losses.
Click-n-Reveal:
In some situations the price charged to the foreign consumer may be
substantially higher than the price set in the manufacturer’s home
country. What is this phenomenon called?
Do you believe that dumping, i.e., the sale of a product in a foreign market below its cost of
production, should be considered illegal? Why or why not?
As noted in the textbook, demand conditions also influence the price that the firm can charge for its
products on international markets. Price elasticity of demand, price-quality associations and the
influence of reference prices are important in this respect.
Research has shown that in the case of nondurable products Southeast Asians tend to associate
high prices with high quality. This is not the case for consumers from Western European countries.
What factor(s) could explain this difference?
Also important is the competitive environment. The structure of the market has a bearing on the pricing
power of industry participants. As noted above, competition will determine where, between the ceiling
and the floor, the firm is able to establish its price. Intense competition will, of course, tend to drive prices
closer to the floor while less competitive markets are likely to exhibit higher prices. The global marketing
manager must also be aware of government regulations with respect to the setting of prices.
Pause and Reflect

Should governments intervene in the setting of prices charged by foreign firms for basic products?
Why or why not?
Basic Pricing Strategies

The firm has a number of basic pricing approaches to choose from. These include skimming, penetration
pricing, market pricing, cost plus pricing and demand oriented pricing. These strategies may be applied
to both domestic and foreign markets and are discussed in detail in most introductory marketing texts.
Click-n-Reveal:
The global marketing manager may estimate sales volumes at
different price levels in order to determine the price that maximizes
overall profit. What is that pricing strategy called?
Click-n-Reveal:
What is the difference between cost plus pricing and marginal cost
pricing when setting prices in foreign markets?
Subsidiary Coordination
When the multinational firm operates a number of subsidiaries around the world the issue of
coordinating pricing strategies becomes important. As the textbook notes, three approaches are possible
– polycentric pricing, geocentric pricing and ethnocentric pricing. With these approaches there will be a
tradeoff between responsiveness to market conditions and the potential for price arbitrage.
Click-n-Reveal:
Which subsidiary pricing strategy is least likely to result in price
arbitrage?
Approaches
Global pricing decisions are not only important in the context of third party customers. The global
marketer must also consider how prices will be set when sales are made to members of the firm’s
corporate family. In setting these transfer prices the firm is able to accomplish other corporate objectives
such as minimizing its global tax burden, motivating subsidiary managers and enhancing the price
competitiveness of specific foreign subsidiaries.
Several approaches are possible when setting transfer prices, i.e., cost plus, negotiated and arm’s
length.
Click-n-Reveal:
Which transfer pricing strategy is least likely to result in a government
audit?
Do you believe that manipulating transfer prices is the best way to motivate managers in foreign
subsidiaries? Why or why not?
Sales and Payment Options

In setting payment options the firm must be cognizant of international rules with respect to the
assumption of risk and change of title. It is also imperative that the firm negotiate suitable terms of
payment as the various alternatives carry different levels of risk for the buyer and seller.
INCOTERMS
International Commerce Terms (INCOTERMS) specify the responsibility of exporter and importer as the
product makes its way along the global supply chain. As noted in the textbook, some of these rules
apply specifically to sea and inland waterway transportation while others are applicable to any mode of
transportation.
Click-n-Reveal:
In an EXW transaction is it the responsibility of the buyer or the seller
to arrange transportation from the seller’s facilities?
Terms of Payment
In international transactions various terms of payment are possible. These options may favour either the
buyer or the seller and range from consignment sales to cash in advance.
Click-n-Reveal:
Which of the terms of payment is most advantageous to the importer
in an international transaction?
Foreign Exchange Risk

In many international transactions, buyers and sellers do not share the same currency. As a result it is
often necessary to convert from one country’s currency to another, which opens up either the exporter or
the importer to foreign exchange risk.
As described in the textbook, forward contracts, currency options and futures contracts may be used to
mitigate the risk posed by currency fluctuations.
Click-n-Reveal:
In arranging international payments which provides more flexibility, a
forward contract or a currency option?
Financing Options
Firms need access to financing in order to engage in international transactions. In an export transaction
the firm may often have major financial outlays for product modifications, development of new marketing
materials and redesigned packaging. This investment must be made prior to the receipt of any sales
revenue from the export transaction. While some firms may be able to fund these expenditures from
internal resources, many others will need to seek export financing.
The firm has a number of export financing options available such as the establishment of a loan facility
with a commercial bank or the use of forfaiting and factoring. Commercial bank lines of credit may be
more difficult to access for smaller, less well-established firms while factoring may not be an option in
some high risk countries.
Click-n-Reveal:
Which payment option, forfaiting or factoring, involves a commercial
bank guarantee?
Dumping
As noted in the text, companies may intentionally or unintentionally sell products in foreign markets at
prices below the cost of production or at prices below what the products command in the manufacturer’s
home country. Referred to as "dumping", the practice may well attract countervailing duties from foreign
governments seeking to level the playing field for their own manufacturers.
Should governments seek to impose countervailing duties if dumping can be proven to be
unintentional?
Non-price Options
In some instances companies may be unable to raise the foreign currency required to consummate an
export transaction. In order to correct macroeconomic imbalances, governments may have to resort to
imposing restrictions on the quantum of foreign currency available to importers. As a result of these
restrictions an otherwise suitable buyer may be locked out of a potentially lucrative export transaction. In
order to facilitate the transaction, exporters may opt to consider non-price payment options, i.e.,
countertrade.
Click-n-Reveal:
The form of countertrade in which one party to the transaction
provides earth moving machinery to a mining operation in a
developing country and is paid with minerals extracted from the mine
is referred to as:
Click-n-Reveal:
What distinguishes barter from a compensation deal?
Summary
This module has examined global pricing. The issues involved in setting global pricing, the coordination
of multinational pricing options and transfer pricing were among the topics presented. Also highlighted
were the need for the global marketer to consider terms of sale, the management of foreign exchange
risk and alternative payment options when engaging in cross-border transactions.

Assignments

Sixth simulation decision due (Friday 11:59 pm EST).
CountryManager

Fourth quiz – short answer/multiple choice/case study questions covering Modules 7, 8 & 9
Introduction
The final element of the global marketing mix is communication and this is the subject of Module 10. In
this module we will discuss the basic communication model and then move to consider how culture
impacts the process of communication. The issues involved in the development of a global
communication strategy are also discussed in this module, as are the tools of communication. Module
10 also deals with the formulation and implementation of a global sales strategy.

1. Describe the basic communication model.
2. Discuss the impact of culture on global communication.
3. Describe the process of formulating a global communication strategy.
4. Discuss the merits and demerits of the various tools of global communication.
5. Identify and discuss the key issues involved in the management of an international sales force.
Readings
Reading
Fastoso, F., & Whitelock, J. (2012). The implementation of international advertising strategies:
An exploratory study in Latin America. International Marketing Review, 29 (3), 313-335.


Basic Communication Model

The basic communication model should already be familiar to you from previous introductory courses in
marketing. The model is discussed briefly in the textbook and involves sender, receiver, channel and
message. Two mental processes, encoding and decoding, are also involved in communication and as
the textbook points out, noise can influence the efficiency with which messages are conveyed.
Which of the following would be considered noise in international communication?

a. An accent that is unfamiliar to the receiver
b. Poor translation of advertising copy
c. Both (a) and (b)
d. None of the answers
Verify Answer

Western and Collectivist Societies

The basic communication model discussed above does not consider the impact of culture. As noted in
the textbook, however, culture does have implications for how messages are presented and received.
You should take note of the basic hierarchy of effects model that describes how communication attempts
to transport the receiver through various states from awareness to adoption.
The purpose of communication differs in Western and collectivist societies. The stated purpose of the
communication (e.g., to persuade or change attitudes) will inform the approach used. Attempts to
communicate with prospective foreign customers using an incorrect approach are likely to lead to
disastrous results.
1. In collectivist societies the main purpose of communication is likely to persuade, change

attitudes and convince prospective customers to purchase our products.
a. True
b. False
Verify Answer
2. While others are important, the individualism-collectivism dimensions of culture are thought to
have the most significant impact on global communication.
a. True
b. False
Verify Answer
Activity
Review any American television commercial for a consumer product. Do you see evidence of a hard
sell approach such as frequent mentions of the company’s brand and attempts to persuade the
viewer by focusing on the merits of the product?
Formulating a Global Communication Strategy

The text outlines a seven step process in the development of a global communication strategy. The
process begins with the identification of the target audience for the communication campaign and
concludes with the measurement of overall advertising effectiveness. In terms of the target audience, it
should be noted that this could not only be external customers but also internal employees or members
of the investment community. Communication objectives may also be similarly quite broad – from
merely creating awareness of the firm’s products to repairing the company’s image following a crisis
event. Further, given that companies do not have unlimited resources the global marketing manager
must establish a realistic budget for achieving the objectives specified.
Click-n-Reveal:
What are two major limitations of the percentage of sales and
percentage of future sales approaches to developing a communication
budget?
Click-n-Reveal:
Identify any three problems with the use of competitive parity as an
approach to developing a communication budget.
As part of the process of developing a global communication strategy, the firm must also select a media
strategy based on factors such as availability, the nature of the product and the media habits of the
target audience. It is also important to craft a communication message that resonates with the target
audience and to manage the communication process. Finally the global marketing manager must
measure the effectiveness of the communication campaign in order to determine if the company’s
resources were well allocated.
Should all countries ban advertisements of military toys targeted at children? Please support your
position.
In Canada it is legal to advertise alcoholic beverages but it is not legal to show anyone drinking
alcohol in television commercials. Do you agree with this regulation? Please support your position.
Click-n-Reveal:
One approach to measuring advertising effectiveness is to ask

respondents who watched television last night what ads they
remember seeing. This is referred to as _________
Tools of Global Communication

The global marketing manager has a number of tools available when seeking to communicate with
various stakeholders. These range from non-personal one-way approaches such as advertising to
personal selling which is more interactive and allows for a two-way dialogue.
Click-n-Reveal:
What is the major drawback in the use of radio as a global
communication tool?
Click-n-Reveal:
Companies that adapt their advertising message and creative
execution to specific countries and said to be following a
____________ strategy.
Should multinational companies sponsor events such as gay pride marches that may be polarizing in
some societies? Provide a rationale for your answer.
Sales Force Management

It is imperative that the global marketing manager
develop an effective sales plan for the enterprise and
have a clear strategy
with respect to the management of the international sales force. Clear sales
objectives need to be established for the firm’s international operations which
must be consistent with its
overall corporate strategy. The global marketing
manager must also consider how the sales force will be
organized and how its
effectiveness will be evaluated over time.
Consider
a North American manufacturer of consumer products seeking to penetrate
the Chinese
market. Would it be more effective to use expatriate sales professionals, Chinese nationals or sales
professionals from a third country? Provide a rationale for your answer.
In measuring the performance of sales professionals in Russia would it be more appropriate to use
activity metrics (e.g., number of sales calls per month) or results metrics (e.g., number of completed
sales per month)? Provide a rationale for your answer.
Summary
This module has examined the global communication strategy of the firm. We began with a review of the
basic communication model and then proceeded to consider the impact of culture on the global
communication process. The steps involved in the formulation of a global communication strategy were
also discussed which led to a consideration of the various communication tools available to the global
manager. The module concluded with a discussion of global sales force management.
Assignments
Seventh simulation decision due (Friday 11:59 pm EST).

CountryManager
Students should be working on their group reports and presentations.
Introduction
Having completed our examination of the global marketing mix we now turn our attention to the
development of an integrated global marketing strategy. The importance of a consistent and coherent
global marketing strategy cannot be overemphasized. Such a strategy is extremely important if the firm
is to be responsive to the needs of its foreign customers while staying ahead of international
competitors. In this module we will consider the steps involved in global strategy planning and the
management of global accounts. We will also discuss the strategies that can be used by local firms
when threatened by global competitors in their own home markets. Finally we will examine the strategies
of an interesting and unique category of firm – emerging market multinationals – and their rise to world
class status.

The purpose of this module is to review content related to global strategy planning, global account
management systems, strategies of local firms and strategies of emerging market multinationals.
1. Describe the process of formulating a global strategic plan.
2. Discuss global account management systems – their benefits and implementation challenges.
3. Discuss alternative strategies that may be used by local firms under attack by foreign
multinationals.
4. Define the terms “emerging market” and “emerging market multinationals”.
5. Discuss the rise of emerging market multinationals and their sources of competitive advantage.
6. Discuss the marketing strategies used by emerging market multinationals.
Readings
Reading
Farrell, C. (2015). Global Marketing. Sage Publications. Chapters 13 and 14
da Rocha, A., Cotta de Mello, R., Pacheco, H.,& de Abreu Farias, I. (2012). The international
commitment of late-internationalizing Brazilian entrepreneurial firms. International Marketing
Review, 29 (3), 228-252.
Process of Global Strategy Planning

The textbook outlines a four-step process for the development of a global strategic plan. The process
begins with establishing a clear understanding of the business that the firm is actually in. While this may
seem obvious, company executives often lose sight of the nature of the business in which they are
actually competing. As noted in the textbook, strategic planning is typically undertaken at the level of the
strategic business unit.
Click-n-Reveal:
What is meant by the term strategic business unit?
The second step in the process is the formulation of the firm’s business strategy. One way to think about
this step is in terms of Porter’s generic strategies which are described in the textbook.
Click-n-Reveal:
According to Porter, firms may pursue a cost focus strategy. What
does this mean?
Click-n-Reveal:
According to Porter, firms may pursue a differentiation strategy. What
does this mean?
Consider Nike Inc., the manufacturer of athletic footwear and apparel. Does this company’s business
strategy fit neatly into any one of Porter’s generic strategies? Provide a rationale for your answer.
Click-n-Reveal:
In terms of the 7S framework what tactics may be used to disrupt the
competition?
The third step in the process of strategic planning is the formulation of the company’s global marketing
strategy. Formulation of a global marketing strategy, as the textbook points out, involves consideration of
three key perspectives – standardization, configuration & coordination and integration.
Click-n-Reveal:
Which of the three perspectives on global marketing strategy would
address the issue of where after-sales service expertise is
concentrated?
The fourth step in the development of a global strategic plan is the implementation of the firm’s global
marketing strategy. Successful implementation does require that the firm’s executives be committed to
the global market and be prepared to deal with the inevitable obstacles they will face. It also requires
that they select an appropriate organizational structure that will provide the highest chance of success in
international markets.
1. In implementing a global marketing strategy it is always best to use a geographic organization

structure.
a. True
b. False
Verify Answer
Click-n-Reveal:
In terms of staffing international positions what are the two skills most
demanded of individuals deployed to work in a foreign country?
Given that spouses may not be able to work in the foreign country and this may contribute to
expatriate failure, should married executives be screened out in selecting individuals for overseas
assignments? Provide a
rationale for your position.
Global Account Management

Implementation of a global account management (GAM) system may facilitate the company’s
interactions with its global customers. A GAM offers a number of advantages to the global marketing
firm. For example, a GAM system could streamline the selling and marketing function across the firm’s
geographies and provide major customers with a single point of contact within the company. It may also
improve efficiency and provide for better control.
Given the advantages of a GAM system, should the authority of the GAM executives supersede the
authority of the country-based sales professionals? Why or why not?
Should country-based sales professionals be involved in establishing the
mission and goals of the
GAM or should these decisions be left up to head office personnel? Provide a rationale for your
position.
Strategies for Local Firms

In some instances firms need to consider not only strategies for penetrating new foreign markets but
also strategies for defending their domestic markets. Local firms may come under attack by foreign
multinationals seeking to steal market share and essentially force them out of business. A number of
strategies may be employed, depending on the following two factors: the extent of globalization of the
firm’s industry and the transferability of its assets.
Click-n-Reveal:
defend against foreign competition if there is considerable pressure to
globalize in its industry and its assets are transferable to abroad?
Click-n-Reveal:
defend against foreign competition if there is little pressure to
globalize in its industry and its assets are customized to its home
market?
Definition
Below we consider a class of multinational enterprise that has received relatively little attention in the
literature – emerging market multinationals (EMNEs).
Following Luo and Tung (2007) EMNEs may be defined as companies originating from emerging
markets and which are engaged in outward foreign direct investments where they exercise control over
assets and engage in value-added activities in foreign countries. These companies originate from
emerging markets such as India, China and Brazil and despite the limitations imposed by their home
country environment, go on to become dominant players in global markets.
Click-n-Reveal:
Are companies that engage in round-tripping investments included in
the definition of EMNEs?
Sources of Competitive Advantage

It is important to recognize that EMNEs rise to global prominence despite not having traditional
competitive advantages enjoyed by MNEs from the developed world. EMNEs do, however, have a
number of non-traditional competitive advantages that are not well accounted for by traditional models
and theories.
Test Yourself
1. The ability to operate in institutionally immature host country environments is a non-

traditional competitive advantage of EMNEs.
a. True
b. False
Verify Answer
2. EMNEs usually have strong global brands and this provides them with a major competitive
advantage when entering foreign markets.
a. True
b. False
Verify Answer
3. Some EMNEs have access to considerable state resources and this depth of financial
resources is often seen as a competitive advantage.
a. True
b. False
Verify Answer
Can EMNEs sustain their non-traditional competitive advantages over the
long term or will MNEs
from the developed world quickly learn how to compete with them? Provide a rationale for your
position.
EMNE Marketing Strategies

The marketing strategies employed by EMNEs may be classified based on the competence levered in
addressing the market and the nature of the market that is targeted.
Click-n-Reveal:
EMNEs that utilize mechanistic extension targeted at emerging

markets that are similar to their own are referred to as
________________.
Click-n-Reveal:
EMNEs that utilize dynamic evolution targeted at developed country
markets that are dissimilar to their own are referred to as
_______________.
Summary
This module has examined the process of developing a global strategic plan. The point was made that
such a plan is essential if the firm is to compete successfully in the global marketplace. The merits and
demerits of a global account management system were also examined along with strategies that may be
used by local firms to defend their home markets from foreign rivals. The discussion next turned to
EMNEs, their sources of competitive advantage and their marketing strategies.
Assignments

Fifth quiz – short answer/multiple/choice/case study questions covering Modules 10 & 11

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Topics and Learning Objectives

engaged in global marketing. Global marketing is significantly

To be considered “global marketing” it is

Evolution of the Concept

firms to cater to unique consumer differences in each of these

Pause and Reflect

Definition, Forms and Drivers

You should also note the two major forms of

You must make use of the Discussion Board to identify potential

Topics and Learning Objectives

[Note: You can retrieve

Pause and Reflect

Individuals have little difficulty learning

The Elements of Culture

Figure 2.1: The

Values and Attitudes

Manners and Customs

Pause and Reflect

Pause and Reflect

High vs. Low Context

Pause and Reflect

Managing Across Cultures

Figure 2.2: The Development of Cultural Knowledge

Culture and Ethical Decision Making

Topics and Learning Objectives

Income and Income Distribution

Pause and Reflect

In assessing foreign markets it should be recognized that it is not only

Proponents of the Strategy

Opponents of the Strategy

Forms of Economic Integration

Figure 3.1: Major Forms of Economic Integration

Long Description - Figure 3.1

Benefits and Costs

Topics and Learning Objectives

Pause and Reflect

Embargoes and Sanctions

What is the ultimate goal of multilateral sanctions imposed by the

Bribery and Corruption

Other Host Country Interventions

Measurement of Political Risk

Table 4.1: POR Scores, Selected Countries

Low Risk (POR: 70-100):

Moderate Risk (POR: 55-69)

High Risk (POR: 40-54)

Prohibitive Risks (POR: 0-39)

Source: Farrell, C. (2015). Global Marketing. Sage Publications. Chapter 4.

Mitigating Political Risk

Host Country Legal Environment

Topics and Learning Objectives

Early Trade Theories

Later Trade Theories

Definition and Arguments

Forms of Export Promotion

Governance of International Trade and Investment

Second simulation decision due (Friday 11:59 pm EST)

Topics and Learning Objectives

Dunning, J.H. (2003). Some Antecedents of Internalization Theory. Journal of International

Figure 6.1: The Process of Internationalization

Long Description - Figure 6.1

Selecting Foreign Markets

Entry Modes Definition