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Lecture 1: Economic Environment
Size of the market The international marketer must determine market size not only for present markets but also for potential markets. Market size for any given product is a function of particular variables. However, certain relevant indicators are relevant for many goods. I) Population 1) Population Size The larger the population in a country, the better the market, however, population figures themselves are not usually a sufficient guide to market size. 2) Population Growth Rate The international marketer must be concerned with population trends as well as the current population in a market. This is because many marketing decisions will be affected by future developments. Average population growth rate in developed countries = 2% Average population growth rate in developing countries = 2.2% Average population growth rate in oil exporting countries =3.3% Average population growth rate in Egypt = 1.7% 3) Distribution of Population Understanding population figures involves more than counting heads. It makes a difference what kind of heads one is counting. The population figures should be classifies according by age group, sex, education or occupation. Age: people in different stages of life have different needs and present different marketing opportunities. Each country has somewhat different profile as to age groupings. Density: the concentration of population is important to the marketer in evaluating distributing and communicating problems. II) Income It is necessary to examine various income measures in a country to go along with a population analysis. 1) Distribution of Income One way of understanding the size of a market is to look at the distribution of income within it. Few nations have a very equal distribution of income among their people, but the highincome economies are somewhat better than the other country categories. Most countries have an uneven distribution of income among their people. An extreme example is Brazil, where the lowest 20 percent of the population receives just over 2 percent of the income and the highest 20 percent receives over 65 percent. India and Mexico are examples of countries with sizable groups of wealthy consumers alongside the majority of the population living in poverty. Italy is an example of a European country with a dual economy, that is, the poor group (south) must be studied separately from the wealthy group (north).
2) Per Capita Income This figure is used as a shorthand expression for a country's level of economic development. The per capita income figures vary widely among countries. There are limitations to using per capita income: Purchasing Power Not Reflected Per capita income comparisons are expressed in a common currency (usually US dollars) through an exchange rate conversion. The dollar figure of a country is derived by dividing its per capita income figure in national currency by its rate of exchange against the US dollar. The resulting dollar statistic for a country's per capita income is accurate only if the exchange rate reflects the relative domestic purchasing power of the two currencies. There is often reason for doubting that it does. Lack of Comparability a) Many goods entering into the national income totals of the developed economies are partially included in the national income totals in the less developed countries. For example, a large part of North America's budget, goes for food, clothing, and shelter. In many less developed nations, these items may be largely self-provided and therefore not included in national income totals. b) Many goods that figure in the national income of developed nations do not figure in the national incomes of poorer countries. For example, a significant amount of US national income is derived from such items as snow removal, heating buildings, and pollution control. Many less developed nations are in tropical areas and their citizens are not necessarily poorer for not having the above mentioned items of consumption. However, their national income figure is lower because of the absence of these items. Sales Not Reflected in Per Capita Income The sales of many goods show correlation with per capita income, but: a) Many consumer goods sales correlate more closely with population or household figures than with per capita income. b) Industrial goods and capital equipment sales generally correlate better with the industrial structure or total national income than with per capita income. c) Where government runs health and education programs, per capita income is not necessarily a useful guide to the national potential of goods supplied to the health and education industries. 3) Gross National Product GNP GNP measures the total domestic and foreign value added claimed by residents. For certain goods, GNP is a better indicator of market potential than is per capita income. For example, Iceland’s per capita income in 1996 was $26,580 and India’s was $380. Judging from these figures, Iceland is more than 60 times as attractive economically as India. However India’s GNP was 50 times as large as that of Iceland and its population over 1,000 times as large.
Nature of the economy I) Physical endowments of nations 1) Natural resources A nation’s natural resources include its actual and potential forms of wealth supplied by nature. For example, minerals and water power as well as its land area. The international marketer needs to understand the economic geography of a nation in relation to the marketing task there. Local natural resources can be important to the international marketer in evaluating the country as a resource of raw materials for local production, or to evaluate its future economic prospects. Some countries that today have relatively weak markets might develop more rapidly than others because of their richer resource endowment. 2) Topography The surface features of country’s land, including rivers, lakes, forests, deserts and mountains are its topography. These features interest the international marketer for they indicate possible physical distribution problems. The international marketer analyzes the topography, population, and transportation situation to anticipate marketing and logistical problems. For example: a) Flat country generally means easy transportation by road or rail. b) Mountains are always a barrier that raises transportation costs. c) Mountains can divide a nation into two or more distinct market. d) Landlocked countries such as Zambia are most costly to reach than neighboring countries with sea ports. 3) Climate Climate includes temperature, wind, rain, snow, dryness, and humidity. Climate is an important determinant of the firm’s product offerings. Climate affects a whole range of consumer goods from food to clothing and from housing to recreational supplies. Even medical needs in the tropics are different from those in temperate zones. II) Nature of economic activity 1) Rostow's view According to Rostow, all the nations of the world are in one of the following levels of economic development a) The traditional society b) The preconditions for take off c) The take off d) The drive to maturity e) The age of high mass consumption Each level represents a different type of economy, that is, differing production and marketing systems. The marketing opportunities and problems encountered by the international firm vary according to the host country’s stage of economic growth. 2) Farm or factory One way to determine the kind of market a country offers is to look at the origin of its national product. Is the economy agricultural or industrial? What is the nature of its agricultural, manufacturing, and service industries? Such an analysis is especially useful to industrial marketers. However even consumer goods marketers find that consumer demands and mentality are related to the nature of economic activities in the country. For example, there are invariably differences in the consumption patters of the farmer compared with those of a factory worker.
distributive organizations. Firms accustomed to strong supporting services at home often find great differences in foreign markets. the marketer will find that power is available only in the cities. The poorer the country. 2) Transportation Transportation capabilities. suppliers and customers. III) Infrastructure A manufacturing firm generally divides its activities into two major categories: production and marketing. not in the villages or countryside. Communications with those outside the firm depend on the communications infrastructure of the country. where most of the population may live. marketing research companies and credit and banking facilities. The more adequate these services in a country. 4) Commercial Infrastructure Commercial infrastructure is the availability and quality of such supporting services as banks and financial institutions. Energy production per capita is probably the best single indicator as to the adequacy of a country’s overall infrastructure. distributing channels. which affect cost and effectiveness. the more it depends on agriculture and the less income it generates in manufacturing industry. This kind of data is useful for marketing because the nature of the market and the marketing task follow the nature of the economy. the firm must make adjustments in its operations. The commercial and the financial infra structure includes such things as advertising agencies and media. IV) Urbanization One of the most significant characteristics of an economy is the extent to which it is urbanized or the degree of urbanization. 1) Energy Marketers of electrical machinery and equipment and consumer durables are concerned about the extent of electrification throughout the market. These operations depend on supporting facilities and services outside the firm. In countries with low energy consumption. They include paved roads. advertising agencies. These external facilities and services are called the infrastructure of an economy. the firm must adapt its operations.There is a very strong inverse correlation between the size of a nation’s agricultural sector and its level of development and income. 4 . Those differences are reflected in the attitudes of the people. and marketing research organizations. the international marketer needs to be aware of the situation particular to each market. Because those differences are important determines of consumer behavior. the better the firm can perform its production and marketing tasks there. railroads. 3) Communication A firm must be able to communicate with its various audiences. Numerous cultural and economic differences exist between people in cities and those in villages or rural areas. In general. variations in communications infrastructure follow variations in the level of economic development. or perhaps avoid the market all together. Wherever the commercial infrastructure is weak. and modes vary significantly from country to country depending on the topography and level of economic development. infrastructure. Energy production is closely related to the overall industrialization of the economy and thus is correlated to the market for industrial goods there. energy supplies and other communication and transport services. especially workers. Where these facilities and services are not adequate.
Several factors may favor the urban markets: income. Conversely. consumption patterns. it may restrict the sector of the economy where private companies may be engaged. and communications possibilities. High rates of inflation complicate cost control and pricing. an economy which has many international companies operating in it indicates an open market but one that may be very competitive. in other cases. Cities are places in an economy where communications media are most developed. Because city dwellers deal in a commercial industrial framework. skills and attitudes of their inhabitants. distribution facilities. This is especially true in less developed countries that lack strong private sector to provide the capital. therefore. Inflation means further a complication for operating in foreign markets. governments have regulations restricting their operations. 3) Foreign investment in the economy When consider operations in a foreign economy. For some products in some countries. the international marketer is interested to know what other international firms are operating there. international companies may have the government as a partner in a joint venture. That a country has few or more international companies operating in it could indicate a good opportunity for one to enter or it could indicate that the environment is inhospitable. Urbanites.Farm or City Several reasons exist for the contrasting behavior of urban and rural populations: Urbanites tend to be dependent of all their material needs. who are often unaware of the technical and economic complexities of modern society. In a number of countries. Country Developed Countries Developing Countries Country side 25% 75% Cities 75% 25% V) Other dimensions of foreign economies 1) Inflation Each country has its more monetary system and monetary policy. urban and rural populations are distant segments. 2) Role of government The business environment and the nature of business operations in an economy are very dependent on the role government plays in that economy. This information gives clues as to the government attitude towards foreign companies. Where international companies are allowed to operate. City dwellers must meet their needs through money payments to others. tend to be less conservative and tradition oriented than rural dwellers. which affect the literacy. 5 . Cities are centers of industry and commerce. The result is differing financial environment and rates of inflation among countries. whereas rural dwellers often supply much of their food. It helps to determine something about the competitive environment the firm will encounter. information contributes to the city dwellers sophistication. Differential rates of inflation also influence how the firm moves funds and goods among its various markets. they become more sophisticated consumers than rural dwellers. Cities also offer more possibilities for formal and informal education. If government has strong social leanings. Such a partnership provides its own constraints to the international company. clothing and shelter through their own efforts. there is no difference. The international marketer must study the relation of urbanization consumption of the firm’s product.
4) It is dynamic and not static Culture changes over time Contextual background of various countries: High Context (Implicit) Japanese Arabian Latin American Spanish Italian English French North American Scandinavian German Swiss Low Context (Explicit) In high context countries: A word may have many meanings according to the situation (implicit) Interpretation of messages heavily rests on contextual cues: -Nature of relationship between sender and receiver -Time and site of communication In low context countries: A word has only one clear meaning (explicit) Emphasis put on the written or spoken word What is meant is what is said The context. Focuses on individual's development The Us is an example 6 . It can be called the man-made part of our environment. It is not a collection of random behaviors. art. It depends on environment not heredity. morals. but behaviors that are related and integrated. 3) It is shared Culture is behavior that is shared by a group of people. or a society. beliefs. It can be considered as the distinctive way of life of people. Focuses on group development Japan and Saudi Arabia are examples Low Context Countries Most of the information is contained explicitly in words. Characteristics of Culture: 1) It is learned Culture is not biologically transmitted. custom and any other capabilities and habits acquired by individuals as members of a society. 2) It is integrated Culture is a total pattern of behavior that is consistent and compatible in its components. Culture is that complex whole which includes knowledge. within which messages are communicated. What is not being said can carry more meaning than what is said.Lecture 2: Cultural Environment Culture: Culture is the integrated sum total of learned behavioral traits that are shared by members of a society. laws. What is said is more important to what is not said. is largely discounted High Context Countries Context is at least important as what is actually said.
Mexico. For monochronic cultures such as the American culture. Under this system time is scheduled.Culture and Time: Chronemics is the study of the use of time in nonverbal communication. and Philippines. time is tangible and viewed as a commodity where (time is money) or (time is wasted). their culture is more focused on relationships. months. hours. willingness to wait. daily agendas. Across cultures. days. time is a precious resource not to be wasted or taken lightly. Instead. because the relationship is what really matters. and even their favorite TV shows. America is considered a monochronic society. Polychronic Time System: is a system where several things can be done at once. Canada Switzerland. Latin American and Arabic cultures use the polychronic system of time. The arbitrary divisions of the clock face have little saliency in cultures grounded in the cycle of the seasons. These cultures are committed to regimented schedules and may view those who do not subscribe to the same perception of time as disrespectful. It is one of the keys to success in international operations. work schedules that start and end at certain times. Self Reference Criterion: Self reference criterion is the unconscious reference to one's own culture values and is the root of most international business problems. cultures that use the polychronic time system often schedule multiple appointments simultaneously so keeping on schedule is impossibility. Unlike Americans and most northern and western European cultures. Germany. and the calendar of religious festivities. that start and end at a certain time. spend time and make time. place a paramount value on schedules. Polychronic cultures are deeply steeped in tradition rather than in tasks. Examples of monochronic cultures are: United States. save time. As a result. Egypt. rather than watching the clock. These cultures are much less focused on the preciseness of accounting for each and every moment. and interactions. The way we perceive time. Examples of polychronic cultures are: Saudi Arabia. Acculturation: It is the process of adjusting and adapting to a specific culture other than one's own. minutes. Time perceptions include punctuality. Rather. classes that start and end at certain times. speed of speech. and Scandinavia. They have schedules that they must follow: appointments that they must go to at a certain time. time perception plays a large role in the nonverbal communication process. They have no problem being late for an event if they are with family or friends. The result of this perspective is that Americans and other monochronic cultures such as the German and Swiss. For Americans. They buy time. movements and how long people are willing to listen. and a more fluid approach is taken to scheduling time. seconds and even milliseconds. They are not ruled by precise calendars and schedules. small units. arranged and managed. tasks and getting the job done. They use time to structure both their daily lives and events that they are planning for the future. structure our time and react to time is a powerful communication tool. and helps set the stage for the communication process. polychronic cultures have a much less formal perception of time. Traditional societies have all the time in the world. The use of time can affect lifestyles. the invariant pattern of rural life. Monochronic Time System: means that things are done one at a time and time is segmented into precise. It is the process of becoming adapted to a new or different culture with more or less advanced patterns. 7 . Time can be broken down into years.
about religion and food) and structured circumstances. Japan is considered by Hofstede to be the most masculine culture. Sweden the most feminine. Large Power Distance is the extent to which the less powerful members of institutions and organizations expect and accept that power is distributed unequally. whereas feminine cultures place more value on relationships and quality of life. Masculine cultures value competitiveness. Latin American cultures rank among the lowest in this category. 4) Masculinity/Femininity Index (MAS) Masculinity vs.g. These cultural differences describe averages or tendencies and not characteristics of individuals.S. Subordinates acknowledge the power of others simply based on where they are situated in certain formal. People relate to one another more as equals regardless of formal positions.g. Denmark) expect and accept power relations that are more consultative or democratic. Austria.Cultural values four dimensions: Hofstede's Framework for Assessing Culture 1) Individualism/collectivism Index (IDV) Individualism is contrasted with collectivism. Power Distance tends to be lower in Northern countries and higher in Southern and Eastern parts. Cultures that scored high in uncertainty avoidance prefer rules (e. a country's scores should not be interpreted as deterministic. hierarchical positions. Subordinates are more comfortable with and demand the right to contribute to and critique the decision making of those in power. ambition. and employees tend to remain longer with their present employer. There seems to be an admittedly disputable correlation with predominant religion. and refers to the extent to which people are expected to stand up for themselves and to choose their own affiliations. A Japanese person for example can have a very low uncertainty avoidance compared to a Philippino. 2) Power Distance Index (PDI) Small vs. Mediterranean cultures and Japan rank the highest in this category. Small power distance (e. femininity refers to the value placed on traditionally male or female values. 3) Uncertainty Avoidance Index (UAI) Uncertainty avoidance reflects the extent to which members of a society attempt to cope with anxiety by minimizing uncertainty. Consequently.g.A. In Europe. In large power distance countries (e. and the accumulation of wealth and material possessions. China) less powerful accept power relations that are more autocratic and paternalistic. even though their national cultures point strongly in a different direction. or alternatively act predominantly as a member of a life-long group or organization. while the U. As such the Power Distance Index Hofstede defines does not reflect an objective difference in power distribution but rather the way people perceive power differences. is one of the most individualistic cultures. assertiveness. 8 .
Canada's situation is similar to Belgium's. sometimes called body language. object communication includes clothing. packaging. In advertising the firm can rely on local advertising agency. and business agreements 2) Material Life "Material Culture" Technology and Material Culture Material culture includes the tools and artifacts . In England. Many include the space we use around us. symbols and features of speech such as intonation and stress and other paralinguistic features of speech such as voice quality. and use things. they say "lorry – petrol – biscuits". If a country has several spoken languages. and marketing research. but in the United States. For example. gestures. personal selling. and posture. any person assigned to a foreign operation for a period of a year or more should learn the local language. with both French and English languages and cultural groups. the distributor may act as the bridge between the firm and its local market. However cultural bridges are available in many markets. 9 . gaze. friendship. Messages can be communicated through facial expressions. the spoken language sets the difference. Belgium has two national languages French in the South and Flemish in the North. in countries where the firm is operating through a distributor. Technology and material culture are related to the way a society organizes its economic activities.the material or physical things . It is true that. adornment. branding. financial and marketing infra structure for the international business in a market. Language defines culture Learning a language well means learning the culture because the words of the language are merely concepts reflecting the culture. Language is the most visible element of culture. Language is the mirror of culture.Elements of Culture: 1) Language Language is the most obvious difference between cultures. Non verbal Language Is the process of transmitting messages without spoken words. to be effective. design. hairstyles. Material culture is manifested in the availability and adequacy of the basic economic. Technology refers to techniques or methods of making and using those things.in a society excluding those physical things found in nature unless they undergo some technological procedure. it has several cultures. emotion and speaking style. If management is not speaking the same language as its various audiences. social. material Possessions. For example. they say "truck – gasoline – cookies" Language as a problem In advertising. Language reflects the nature and values of culture. shoes. Non verbal language may be reflected in time. or even architecture. marketing is highly dependant on communication. and so is an orchard. it is not going to enjoy much success. a tree per se is not part of a culture but a Christmas tree is. When the same language is used in different countries. The term technology gap refers to differences in two societies' ability to create.
In fact. Kodak is a famous example. For example. 10 . Music tastes also tend to be regional rather than national. while red and black are negative in several African countries. Likewise. Music There are also cultural differences in music. These inputs may be from local marketing research. packages. In the United States for instance. lie some implications for international business. or package. Color The significance of different colors can also vary from culture to culture. patriotic. they use colors to identify emotional reactions. as expressed in the arts – music. however. The aesthetics of a culture influence a firm's marketing there. The U. For any market the right choice of colors will be related to aesthetics sense of the buyer's culture rather than that of the marketer's culture. embassy in India received praise both for its beauty as a building and for the way it blended in with the Indian architecture. with modern communications. pleasing to local taste. the firm should be sensitive to local aesthetics preferences. however. in the design of its plant. Black signifies grief in Western countries. drama. embassy in London. Nevertheless. but the firm must be aware of the positive and negative aspects of its designs. The beauty of India's Taj Mahal is different of the of the Notre Dame in Paris or the Lever Building in New York Design The aesthetics of a culture probably do not have a major impact on economic activities. International differences are plenty in aesthetics. and dance – and the appreciation of color and form. the best brand name is one in the local language. and local advertising agency or distributor. and advertising. Brand Names The choice of brand names is also affected by aesthetics. Frequently. product. Africa. they "see red" they are "green with envy" or they "feel blue". The U. This may run counter for the desire for international uniformity. many countries enjoy the same classical and popular music. In the west. including the size of the sculpted American eagle on top of the building.S. government faces a problem in designing its embassies. whereas white is often the color of grief in Eastern nations. This leads to multiplicity of brand names. there are obvious differences between Western music and that of the Middle East. the dance styles of African tribal groups or the Balinese are quite removed from Western dance styles. or aesthetics reasons. or India. The firm needs local inputs to avoid ineffective or damaging use of aesthetics. which some firms try to avoid by searching out a non sense word that is pronounceable everywhere but has no specific meaning anywhere.S. art. An understanding of these differences is critical in creating advertising messages that use music. often in ways that marketers are unaware of until they have made mistakes. but they tend to be regional rather than national. In aesthetics.3) Aesthetics "sense of beauty" Aesthetics refers to the ideas in a culture concerning beauty and good taste. popular music has become truly international.S. The marketer needs to know the significance of colors in a culture in planning products. local nationals working for the firm. has received more than its share of criticism for various things. The U. Green is popular in Muslim countries. Certain colors have particular meanings because of religious.
although the international company is primarily interested in knowing how people behave as consumers or workers. or as respondents in marketing study. it is the religion of a culture that provides the best insights into this behavior. 5) Religion Generally. Instead. Fish on Friday for Catholics used to be a classical example. important or desirable. Attitudes and values: Our attitudes and values help determine what we think is right. Proctor & Gamble's products are mainly used by women. One function of education is the transmission of the existing culture and traditions to the new generation. These differences can require major adjustments in the approach of a management conditioned in the U. marketing activities are likely to be neglected and underdeveloped. it used the husbands and brothers of the women for the focus group. appropriate. the entire month of Ramadan is a religious holiday for practical purposes. can often block the introduction of new products or techniques if it sees the innovation as a threat. not only from Christian to Muslim. the international firm must be sensitive to religious differences in its foreign markets and willing to make adaptations. the same product or technique can be more effectively introduced if the religious organization sees it as a benefit. International firms need to understand the varying emphases on particular skills and the overall label of education provided. In general. management's task will be aided by an understanding of why people behave as they do. The church.4) Education Education includes the process of transmitting skills. ideas. as well as training in particular disciplines. Therefore. In the Muslim world.S. The economic role of women varies from culture to culture. and is greatly affected by religious beliefs. as workers. Taboos against beef for Hindus or pork for Muslims and Jews are other examples. In countries where marketing is rated very low. Religious institutes can play a very important role in economic matters. 11 . or any organized religious group. The firm must see that local work schedules and marketing programs are related to local holidays. On the other hand. Consumption patterns may be affected by religious requirements or taboos. market. While the US has been called "The Affluent Society" "The Achieving Society" and "The acquisition Society" other societies focuses on spiritual values where nirvana or wantlessness is more acceptable. Clearly. When the company wanted to conduct a focus group in Saudi Arabia. just as American firms plan for a big season at Christmas. Education either formal or informal plays a major role in the passing on and sharing of culture. Sundays are a religious holiday where Christianity is an important religion. Women may be restricted in their capacity as consumers. Education can also be used for cultural change. Religion and the Economy Religion may affect the economy through the following: Religious holidays vary greatly among countries. however it could not induce women to participate. and attitudes. however. but even from one Christian country to another.
To try to ensure desirable behavior by foreign firms and to prevent undesirable behavior. governments use a variety of tools 1) Entry restrictions If allowed to enter the country. The political environment involves three dimensions. 2) National security Countries wish to protect their national security. For example. international managers are especially concerned with nationalism and dealing with governments in host country. the Indian government decided that soap and matches could be made by cottage industry. For example. which in inflationary economies can severely limit profitability. individually or collectively may be perceived as a threat to that sovereignty. A) Host country national interests One way to get the feeling of the situation in a foreign market is to see how compatible the firm's activities are with the interests of the host country. the foreign firm may encounter a variety of restrictions. Foreign firms. Governments generally prohibit foreign firms from involvement in sensitive industries such as defense.Legal Environment The Political Environment The political environment of international marketing includes any national or international political factor that can affect its operations. They establish national airlines and try to send winning teams to the Olympics as ways of gaining international recognition. communication and perhaps energy and natural resources. It may not be allowed 100 percent ownership but may be required to enter a joint venture with a national firm. B) Host country controls Host countries don't depend entirely on the goodwill of the foreign firm to help them achieve their national goals. Foreign firms may be prevented from entering those industries or from acquiring a national firm in a certain industry. Although the foreign firm is not a military threat as such it may be considered as potentially harmful to national security. 12 . Gerber left Venezuela because a decade of price controls prevented a profitable operation. I) Host country political environment The international firm is a guest. they may foster certain industries for the same reason. 3) National prestige Countries are also concerned about their national prestige. This naturally affected the operations of Unilever and Swedish Match in India.Lecture 3: Political . the firm may be restricted as to the industries it may enter. Other regulations may affect advertising or other marketing practices of the firm. One of the most common is price controls. Economically. The larger and more numerous the foreign firms. a foreigner in all of its markets abroad. the more likely they are to be perceived as a threat. Therefore. It may be prohibited from acquiring a national firm. 2) Price controls Once in the country. A factor is political when it derives from government sector. It may be restricted as to the products it sells. 1) National sovereignty All countries wish to maintain their national sovereignty.
13 . in 1998. the United States special restrictions on trade with Iran and Iraq. For example. If a nation has particular friends or enemies among other nations. expropriation is the ultimate tool for controlling foreign firms. The international firm almost unavoidably becomes somewhat involved with the host country's international relations. independent institutes provide ranking to countries around the world based on some criteria. 4) Exchange control Many countries run chronic deficits in their balance of payments and are short of foreign exchange. forcing a higher level of local procurement that it may want. A second critical element affecting the political environment is the host country's relations with other nations. It can limit the countries that the international firm may enter. One aspect of a country's international relations is its relationship with the firm's home country. C) Political risk assessment To evaluate the level of political and economic risk in the host country.3) Quotas and tariffs The country's quotas and tariffs may limit the firm's ability to import equipment. II) Home country political environment The firm's home country political environment can constrain its international operations as well as its domestic operations. Foreign firms may be low on that priority list and have difficulty getting foreign exchange for needed imports or profit repatriation.S. Major institutes include: 1) Transparency International: provides information on the level of corruption in different countries 2) The Heritage Foundation: provides information on the level of economic freedom. For example. Another clue to nation's behavior is its membership in international organizations. They ration its use according to their priorities. III) International political environment The international political environment involves political relations between two or more countries. If a country is a member of a regional group such as the EU. Arab countries have boycotted companies dealing with Israel. that fact influences the firm's evaluation of a country. For example. membership in WTO reduces the likelihood that a country will impose new trade barriers. sanctions on India because of nuclear tests led to Coca Cola and Pepsi trucks being destroyed by mobs in New Delhi. components and products. This drastic action is fortunately occurring less often as developing countries begin to see foreign direct investment as desirable. no matter how neutral it may try to be. 5) Expropriation Defined as official seizure of foreign property. the firm must modify its international logistics to comply with how that market is supplied and to whom it can sell. For example. U.
The Legal Environment The legal environment is the nation’s laws and regulations pertaining to business. business abroad have some repercussions on the U.S. but it has more than most countries. So the U. Nature of the product Many products are exported without restrictions under the monitoring eye of the department of commerce. These controls are imposed to protect U. c) When it makes some overseas marketing agreements with another firm These laws also affect the international marketing by foreign firms in the United States. missile technology and nuclear technology. b) When it engages in a joint venture with a foreign firm Joint venturing with foreign firms either in the United States or abroad can lead to government intervention because competition in the U.S. such as Cuba. At the same time. however. or even prohibitions. and foreign firm. Action is more probable if the acquired firm were in the same product line as the |U. the firm must know the political environment because it determines how the laws are enforced.S. firms from engaging in these types of practices abroad. The ban also prohibits the sale of components that go into a foreign firm’s products that are intended for one of the prohibited markets. market will be reduced by a particular marriage of a U. either controls.S. firm acquires a foreign firm When the U. A firm must know the legal environment in each market because the laws constitute the rules of the game.S.S. government passed the foreign corrupt practices act. the justice department is concerned about the possible impact on competition in the United States.S. they can hurt the firm in two ways: a) Administrative time and expense b) Lost sales 2) Antitrust Controls (U. Laws) Like other countries. Examples are terrorism equipment.S.S. However.S. 14 .S. For products having national security or foreign policy significance. 3) Foreign Corrupt Practices Act In 1970s the practice by U. courts. company. and Libya. domestic market especially in the following three situations: a) When a U. it influences the operations of a foreign firm. to prohibit U. exist. it falls within the jurisdiction of the U. Iraq. the publicity created a scandal in the United States. the United States has a variety of controls on export trade.S. firm expands abroad by acquiring a foreign company. security and foreign policy. Although bribery has been a longstanding practice by firms in all countries. These are usually goods easily obtainable elsewhere and not considered significant for national security. I) Home country legal environment There are numerous laws relevant for international marketing and related to exporting. Many activities of U. It may take action which prohibits certain corporate amalgamations that could reduce competition.S. 1) Export Controls (U.S. firms to bribe foreign officials received much publicity. antitrust and organization and ownership arrangements. Laws) The U.S. if the act produces consequences within the |United States. justice department thinks that even if an act is committed abroad. Country destination There are absolute prohibitions or severe restrictions on exports to several countries.
As to warranty. 15 . Labeling items covered include: a) The name of the product b) The name of the producer or distributor c) A description of the ingredients or use of the product d) The weight either net or gross e) The country of origin. That ensures a measure of international uniformity. and ISO. The international marketer will find many regulations affecting the product. Trademark conventions: Trade marks or brands must go through a national registration process to be protected. the marketer has relative freedom to formulate a warranty in all countries. Common law is tradition oriented. The physical and the chemical aspects of the product are affected by laws designed to protect national consumers with respect to its purity. (WTO). safety. the force of law. There are two major international trade marks conventions a) Paris Union It allows six-month protection period in the case of trade marks and one-year for patents. usually a previous colonial tie.II) Host country legal environment Basic legal systems that underline individual national law: a) Common Law Common Law is English in origin and is found in the United States and 26 other countries that have a strong English influence. Brand names and trade marks also face different national requirements. Most of the larger nations are members of the Paris Union or some other trademark convention. b) Civil or Code Law Civil or code law is based on extensive and comprehensive set of laws organized by subject matter into a code. III) International legal environment The collection of treaties. b) Madrid Arrangements It permits a registration in just one member country to qualify as registration in all other member countries with appropriate payments. that is. conventions. common law requires a court decision. c) Islamic Law: About 27 countries follow Islamic law in varying degrees usually mixed with civil. Examples are: IMF. Foreign laws and the marketing mix: How foreign laws influence the four P's of marketing: 1) Product Product is everything that consumers receive when making a purchase. The intention in civil law 70 countries is to spell out the law on all possible legal questions rather than to rely on precedent or court interpretation. Labeling is subject to more legal requirements than packaging. That is registration of a trade mark in one member country give the firm six months in which to register in any other member countries before it loses it protection in those countries. the interpretation of what the law means on a given subject is heavily influenced by previous court decisions as well as by usage and custom. If there is no specific legal precedent or statute. and agreements between nations that have. more or less. or performance. common or native law.
In Germany for example. Peru once implemented an 8 percent tax on outdoor advertising. Generally price controls are limited to essential goods such as foodstuffs. 4) Promotion. In fact the strongest legal constraint doesn't apply to firms managing their own distribution in foreign markets but rather to exporters who are selling through distributors or agents. For example. Advertising is one of the more controversial elements of marketing and is subject to more control than some of the others.2) Price Price controls are pervasive in the world economy. b) Another form of restriction relates to control over the advertising of certain products. 3) Place (Distribution) Distribution is an area with a relatively few constraints on the international marketer. a) One pertains to the message and its truthfulness. c) Another restriction is through the taxation of advertising. deals. Control here sometimes takes the form of controlling profit margins. Britain allows no cigarette or liquor advertising on television. For example. it is difficult to use comparative advertising on television. The pharmaceutical industry is one of the most frequently controlled. 16 . Advertising regulations takes several forms. Sales promotion techniques such as contests. The firm has a high degree of freedom in choosing distribution channels from among those available in the market. and premiums encounter greater restriction in some markets than in the United States.
while globalization should be used to denote the global integration and coordination of strategy. What exactly is globalization? A truly global company looks at the whole world as one market. Japanese were converted to eating donuts with the same recipe as the American donuts. homogenization of wants is driven by new technology. including the home region. mass communication and travel. "internationalization" should only be used to indicate the geographic expansion of the firm's activities. and each function including research and development. tourism. manufacturing. conducts research. It manufactures. raises capital and buys suppliers. resulting in the emergence of global markets for standardized consumer products on a previously unimagined scale. or technologies. Sony televisions and Levi's jeans are sold everywhere and welcomed by everyone. For a growing population of firms that serve global markets and face global competition. urged primarily by travel. and a management philosophy of constant improvement across competing and contradictory needs. (Ohmae in The Borderless World 1990) Technology is a powerful force which is driving the world towards a single converging demand. 17 . and marketing. Nissan. global customers. sourcing. Ex Coca Cola. Leading companies like Toyota. and no national economies (Reich in The World of Nations 1991). a pluralism of values. Forces driving companies to globalize 1) Common customers needs Japanese car manufacturers have been particularly successful at developing common needs when they first entered world car markets. And more American fast food chains are adding Japanese teriyaki and other oriental dishes to their menu. wherever it can do the job best. (Ohmae in The Borderless World 1990). A stage of development in a firm's strategy. and Honda chose to focus on primary needs such as reliability and economy. rather than to focus on secondary needs like styling. Japanese camera manufacturers brought new products to develop common customer's needs and promoted them vigorously and cleverly worldwide. In only few years. Even in food and beverages. The truly global company will have multiple headquarters. non-national globalized managers. Revlon cosmetics. the speed of change in eating habits has been one of the most dramatic events of the postwar period. Accordingly. mass communication and immigration. is assumed a prior to be the primary base for any functional area. structure and culture. (Levitt The Globalization of Markets 1983) In a "global village". Similarly. and culture. structure.Lecture 4: Global Marketing Strategy The shift towards globalization: There are no national products. nationality is disappearing. is performed in the location(s) around the world most suitable for that function. where by it allocates resources with global objectives in mind to assess the desired market with the highest quality products and lowest cost. (Levitt). where national taste seems dominant. no national industries. In a truly global enterprise. no geographic area. no national corporations.
Such competitor will gain market share by accepting low prices and profits or even loses for a while. Such concentration of innovation may rise from the concentration of innovative competitors or of demanding consumers or both. 18 . Japan. cards. This happened when products where the Japanese home market was still not developed or too small. 4) Competition It is argued that a global competitor who is strong and unchallenged in its home market can undercut its competitors in their strong markets by deliberately channeling resources into these markets. When business's competitors use global strategies to exploit industry globalization potential. before entering US and European markets. petrochemicals. In that case it becomes critical for global competitors to participate in the "leading" markets in order to be exposed to the sources of innovation. and a resource just as much as raw materials or skilled labor. Worldwide competition is intense enough that firms must plan on obtaining significant market positions in all major developed-country markets. and Germany. and cameras. 3) Global technology markets Technology is a critical element of the firm's activities.2) Global markets Certain markets are highly innovative "lead" markets. Dimensions of global strategy 1) Building global market participation Studies of Japanese companies show some distinct patterns of overseas market expansion. where Japan expands into markets similar to United States. In such industries. Product innovation or breakthroughs in manufacturing processes may tend to occur in just one or few key markets. A slightly different pattern emerges in high technology industries. where technology has become so widely diffused that all developed countries are capable of doing everything. These moves such as expansion into or within key markets. Japan is a leading country for consumer electronics. For example. A third expansion path was to start directly with developed countries. consumer electronics. A global presence is argued to help firms plan for both offensive and defensive strategic response as circumstances warrant. it is critical for all competitors with global ambitions to establish presence in these key markets. the business needs to match these competitors. Japanese typically begin with establishing themselves in neighboring developing countries before moving into advanced developed countries like United States. place pressure on the industry as a whole to globalize. Such threats can be countered only by similar tactics from a similar global position. such pattern has marked Japanese expansion in steel. the leading markets are the USA. In many industries. such as computers. Germany for industrial control equipment. such as Australia. and the USA for computer software. or being the first to introduce a universal product or the first to use a uniform marketing program. A presence in these markets helps firm refine their products and services and learn lessons that can be transferred to other markets.
19 . capital. For example. but local units decide issues about marketing and advertising. these companies producing such products derive much of their revenues from globally standardized products. subassembly in United States. However. People are remarkably alike in their need to be loved. A country will typically have a comparative advantage in activities that use large amounts of its readily available factor of production. raw material processing in Mexico. and so on.When foreign operations become more complex. Examples are Gillette Razor blades. product standardization is probably necessary to retain his or her loyalty. for consumer products and services that the consumer might purchase when traveling abroad as well as in his or her home country. and research. Nevertheless. and a Muslim ban on alcohol. 2) Designing global products and services The most commonly identified feature with globalization is the marketing of globally standardized products or global products. Coca Cola’s president once commented that when he thinks of Indonesia. development in United Kingdom. and Kodak films. the desire to be beautiful and healthy. a country with large quantities of low cost unskilled labor might be an appropriate site for manufacture of products that use this factor. Arguably. constitute critical choices in global strategy. There are some universal derives that companies pursuing a global strategy can use to homogenize demand worldwide. a country on the equator with 180 million people. Japanese companies do not have a choice but to adopt an approach known as Network Development Approach (NDA) which involves four stages: Establishing a sales subsidiary in a developed country Establishing a sales subsidiary in developing country Setting up a production operation in the developing country Setting up a production operation in the developed country Japanese firms avoid going global at once that’s why the Japanese companies’ market expansion is divided into the following five stages: Exporting Direct sales and marketing Direct production Full autonomy Global integration Glocalization Global decisions are made for strategic issues about products. “I Feel I know what heaven looks like”. A business pursuing a global strategy of activity location. Not surprisingly. such as garment or shoe. final assembly in Ireland. a median age of 18. Marlboro cigarettes. and the desire to demonstrate their cosmopolitan outlook. 3) Locating global activities Where to locate a business activities and how to coordinate them. might locate research in Germany. Coca Cola beverages. A company that understands this very well and employs it successfully to its strength is Benetton with its “United Colors of Benetton” concept. these global drives are most commonly shared by the youth segment. the idea of a fully standardized global product that is identical all over the world is very rare and hard to find. Principles of comparative advantage come into play in deciding which activities are most appropriately carried out in which country.
Strategic elements like product positioning are more easily standardized than tactical elements like sales promotion. which is the same or similar brand names. Also critical is the development of communication media with multinational reach. since the same transmission is received around the world. most effective when used to retaliate in the home country of the attacker. 4) Creating global marketing A company uses global marketing to its advantage when it takes the same or similar approach for one or more elements in the marketing mix. in these cases. To make cross-patrolling effective. b) Centralized coordination can exploit a company's best ideas. or across-country subsidization. and it can undercut its competitors in their strong markets by deliberately channeling resources into theses markets. For any product or service. needs to be located in globally strategic locations. the competitor faces a reduced level of competition. packaging. One key element to making global competitive moves is being willing and able to using profits from one country in which a business participates to subsidize competitive actions in another country. advertising. such as simultaneous transmission around the world of the Olympic Games or World Cup football. 5) Making global competitive moves Making global competitive moves means integrating competitive moves across countries rather than making moves one country at a time. In applying global marketing strategies. Using global marketing can yield impressive advantages: a) Standardized products can lower operating costs. Having favorable logistics is crucial for global manufacturing to succeed. A global strategy for activity location can achieve major benefits which include: a) Cost reduction and improved quality b) Reduce the duplication of activities by eliminating and phasing out identical activities from many country locations into one or two globally centralized location. whose buyers travel a lot or get exposed to multicountry media. knowledge. firms benefit if the brands featured in the transmission are familiar to the world audience. Another important aspect of global competitive moves is cross-patrolling or responding to competitors attack in one country by counter attacking in another country.Two activities in particular R&D. If no one challenges a global competitor in its home market. A firm might market the same product under different brand names in different countries or market the same brands using different product formulas. Such a uniform approach reinforces customer's awareness. The success of global brands depends on the extent the consumer tastes convergence and the coordination of the global advertising and promotion. Shipping costs must not be too high to offset the cost savings from centralization. is essential. whether communicated through the brand name. its profits rises. and so on in different countries. and attitude towards the product or services. and making it work. a uniform marketing message. and production. the appropriate degree of standardization varies from one element in the marketing mix to another. flexibility is essential. For most products. a business needs a large enough global presence in key countries to provide base of the attack. 20 . Building global brands is inherent in using a global marketing strategy. or advertising.
Subsidiaries need autonomy in order to adapt to their local environment. packaging.e. Several factors determine the company’s ability to formulate and implement the global strategy. production and sourcing would possibly work better in a single global system than in a group of autonomous national units. and human resource management deal with people’s perceptions and can thus be categorized as areas where subtle local variations are likely to be beneficial. companies strive to achieve a globally integrated organization that retains the capability for local flexibility and responsiveness. research and development. A firm’s global strategy is “stretch and leverage”. needs integration to implement global strategy. An urgent drive to beat the competition encompasses focusing the organization’s attention to the essence winning. In the areas it is possible to derive synergies from global coordination and integration. Key issues in global organization include how to achieve balance between autonomy and integration. Perhaps one of the key elements that affect this ability is the corporate culture that is the vales and unwritten rules that guide the behavior in a corporation. raising capital. Certain aspects of operations benefit from integration on a global basis. creating a climate that leaves room for individual and group contributions and communicating the value of the target to the members of the organization. The essential element of the new strategy is an aspiration to get the most from the least. i. Act Global 21 . the single most important element of the firm’s strategy as “stretch and leverage” is an aspiration or great ambition to encircle or replace the market leader. The business as a whole however. New Product Development Raising Capital Research & Development Production Sourcing Pricing Packaging Promotion Human Resource Management Global Integration Local Variation Balance Think Global. Pricing. Developing new products. Global integration and local adaptation of corporate functions To successfully compete globally.European and American firms develop a strong and urgent drive in the organization that envisions a direct leadership position. It is vital for companies to be selective and flexible in deciding on global strategy implementation. promotion.
more culturally diverse population. In such case firms may experience real gains from selling the standardized product as sold in their home markets. phone penetration and so on. Managerial complexity is reduced. 4) Predominant use in urban areas Products targeted to urban markets in developing countries required only minimal changes from those marketed in developed countries. 6) Centralized management of international operations If a firm markets overseas principally through exports. degree of urbanization. 7) Strong country of origin effect and image Items considered to be typical US product might advantageously retain their US character in foreign markets. with the creation of the European Union and the Euro creating a single large market with growing similarity of tastes and income. Products targeted to semi-urban markets required more changes. 3) Convergence & similar tastes in diverse country markets As countries obtain similar income levels and develop economically at the same pace. 5) Marketing to predominantly similar countries Firms can market standardized products in such groups of similar countries. Given the cost of adaptation. the changes are likely to be minor. It can result in lower costs and economies of scale in manufacturing product development. and could include variables such as income. such firms might choose export markets that are more likely to accept standardized products. 2) Primarily industrialized products Products in which technical specifications are critical tend to be uniform internationally. The dimensions to group countries will vary depending on the product.Lecture 5: International Product Strategy Standardization vs. and products targeted for national markets in developing countries needed even further adaptation to accommodate the requirements of the poorer. and export marketing is facilitated when the same product is exported to several countries. In general industrial goods are more standardized than consumer goods. language. Coca-Cola and Levi's are examples. Differences significant in international business are "people differences". Adaptation The main factors that influence a firm to pursue standardization or adaptation strategies when introducing products into new international markets. and marketing. 1) High cost of adaptation Low volume markets and the specific nature of the adaptation contemplated can contribute to an increase in the overall manufacturing costs that make it difficult to sell the product at a reasonable price (that covers cost) and yet be attractive enough to gain market share and ultimately render profits. while a customer orientation sways them toward product adaptation. Wrigley's chewing gum. The goals of reducing costs and complexity lead companies to consider standardization. Europe is a good example of this trend. their consumption patterns are likely to converge. Even when industrial goods are modified. Factors favoring product standardization: The attractions of standardization are obvious. it is likely to sell standardized products. 22 .
economies of scale are possible with standardized products. Variations in national habits of wearing and washing clothes may necessitate different kinds of washing machines or soaps and detergents. 2) Primarily consumer and personal use products. they will be much more similar when the product is uniform than when it must be adapted for each national market. pressure toward product uniformity decreases. and advertising may vary somewhat from country to country. Less research needs to be directed toward the individual desires of national markets. allowing efforts to be focused on developing the next generation product. as the optimum size of a plant becomes smaller proportion of world demand. clothing. 9) Standardized products marketed by competitors Factors favoring product adaptation The greatest argument for adapting products is that by doing so the firm can realize higher profits. and entertainment cater to highly individual tastes and hence must adapt to the differing needs of local population 3) Variations in consumer needs and differing use conditions Although a given product fulfills a similar functional need in various countries. there are restrictions on the sale of beef from cows treated with growth hormones. Modifying products for national or regional markets may raise revenues by more than the cost of adaptation. Although sales literature. When a promotional carryover from one market to another occurs because of common language and media spillover. Similarly. As the company multiplies production facilities around the world. Products such as food. this advantage decreases. Firms must meet technical standards in order to sell in different national markets. sales-force training. 23 . Specific factors encouraging adaptation include: 1) Difference in technical standards. it gets more mileage out of its research and development efforts.8) Scale of economies in production. marketing and R&D a) Economies of scale in production Standardizing a product at a production site allows the firm to gain scale of economies in manufacturing. it is not a wasted carryover but an extra return on advertising. In Europe. for instance. b) Economies of scale in research and development If the firm offers identical products around the world. Climate. has an effect on products sensitive to temperature or humidity. Products sold to consumers and for personal use are likely to meet with market success when adapted to local markets. Service requirements and parts inventories are easier with a standardized product. c) Economies of scale in marketing Even when marketing is done on an international basis. 4) Variations in ability to buy-difference in income levels Product feature may have to be adapted to make the product affordable for lower income levels. the conditions under which the product is used may vary greatly from country to country. making it necessary to modify these products for tropical markets. Standardized products thus yield an advantage in product development costs and may shorten the time to develop new products.
6) Strong culture differences. 24 . language affecting purchase Cultural differences affect tastes. they may require that the product be manufactured locally. Because they are interested in profits. the marketing manager has to decide what brand image to project across markets. 7) Local environment induced adaptation Nations may forbid certain goods to be imported or manufactured in their country.5) Fragmentation with independent national subsidiaries National subsidiaries can exert pressure on the parent firm to localize products. not imported. cars. The rise of regional groupings provides a modifying influence. However. 8) Adaptation strategy successfully used by competitors. especially in foods and drugs. The firm that has production facilities in several countries can adapt products more easily than does the firm that must rely on exports from domestic plants. In developing global brands. The main question is whether to promote local country specific brands or to establish global and regional with appeal across countries. namely how a brand creates and reinforces buyer's self image in products such as designer clothing brands. Government's taxation policy can affect the nature of the products offered in their markets. Its success depends on growing convergence of customer taste and the coordination of global advertising and promotion. Introducing food products into foreign markets when the food itself is unknown to the population can be challenging. and so on. A Perspective on Branding If the company uses its own brands in the same market to target different customer segments (though this results in higher cost). Building a global brand is inherent in using a standardized product. they seek the product that will sell best in their market. and labeling are an important cause of product variation among countries. brand personality is also relevant. Conversely. Also important is the development of the communications media with multinational reach. In consumer products. so gradually refining consumer taste is a possibility. but the differences do not disappear rapidly as long as national producers find governments regulations such an effective form of protection against foreign firms. packaging. and consumption habits. The advantages of global branding include economies of scale in advertising. shoes. Food is an area in which cultural differences dominate. we can see that US consumers have embraced Chinese and Thai foods and Mexican hot sauces. To consider successful firms to understand what they did and how their success was related to their strategic choices. Product adaptation may be required by local market regulations. they try to be as national as possible. Demands for local production or high degree of "local content" in the product often lead the international firm to modify it. and because they want to prevent having their functions taking over by a headquarters office. the acceptance of products. Government regulations on products. Firms benefit if the brands featured in the transmission are familiar to the world audience.
Local identification.. Quick market penetration by acquiring local brands Variations of quantity and quality across markets allowed Advantages of Worldwide Brands Maximum marketing efficiency. Advantage for culture-free products. Elimination of brand confusion. Possibility of negative connotation. Disadvantages of Local Brands Higher marketing costs. Imitation Levis Guessy Sonya Golgate Original Levi's Guess Sony Colgate Faking An identical copy to the original Preemptation A person registers in his or her name a large number of well known brand names and sells them to those interested. Reduction of advertising costs. Disadvantages of Worldwide Brands Market homogeneity assumed. The reduced sales and the cash flow in turn reduce investment in innovation. 25 . Diffused image.Advantages of Local Brands Meaningful names. Consumers may ultimately suffer from a lack of new high technology and innovative products. Country of Origin Effect The country of origin effect is when consumers evaluate a product not only by its quality and brand name but also by the country in which it was produced. If a firm is producing a product in a country that does not have a favorable image for that product. Quality and quantity consistency required. it will have a hard task marketing it. LDC’s opposition and resentment Uniform worldwide image Easy identification recognition for internationa brand. Higher inventory costs Loss of economies of scale. Uniform worldwide image Brand Piracy Imitation The lack of protection can result is sales lost to the imitator who are seen as competing unfairly.
Even in the few cases where the product and its advertising appeals are universal. For example. but the firm’s advertising must communicate to these languages. 26 . Developing countries are concerned about the ad budgets of drug firms. Taiwan. The international advertiser does not know all the languages of all markets. alcohol. c) Advertising messages have a variety of restrictions. India attacked the ad budgets of foreign companies there. US marketers will often find foreign countries more restrictive of advertising than their home market. Important elements of the international environment: 1) Language The managers of international advertising feel a constraint when facing the diversity of languages in world markets. Agency availability. ad outlays in many overseas markets are growing much faster than in the United States. which were considered too large. Language 2. For example. d) The budget can draw government attention. Regulations on advertising and media as well as other cultural factors. and drugs are special targets. Role of advertising in society 3.Lecture Six: International Promotion Strategy Constraints on International Advertising 1. Media availability. and Thailand. cigarette advertising is partially or totally banned in most western European countries. 4. the message. The following are specific limitations: a) Tobacco. one posed by the international situation of the company and the other by the international environment. 3) Government controls A problem for marketers everywhere is government regulation of advertising. Many countries have limits on comparative advertising. Government controls. the language will not be. Technical accuracy or perfect translation are not sufficient. and about 25 countries require preclearance of certain commercials. b) Due to government regulation some media are not available or are very limited for commercial use. e) Some countries restrict ownership of advertising agencies. 2) Role of advertising in a society While the United States leads all countries in relative advertising expenditures. the budget. there are many more languages than countries. and Britain made a similar attack on the ad budgets of Unilever and Proctor & Gamble. The level of economic development is only one factor in advertising spending. Korea. Although some languages are used in more than one country. persuasive messages must speak the language of the heart. Spain. 5. Competition Decoded Message International Marketer Coded Message International Customer The international advertising program of a company is determined by two sets of constraints. intimate local knowledge is required. and the agency ownership. 6. and for this. Forty countries regulate the languages that can be used. Government regulation can affect the media. are also important.
which may limit commercials on radio or TV. As another example. Sound advertising strategy in one market is not necessarily sound in another market with a different situation. A number of countries have only two agencies. If the firm needs these services. and much of Western Europe to 1 to 30 in India. Because this criterion is not easy to determine. Furthermore. Jordan. with over 500 agencies each. In others. in addition to advertising. 6) Competition In some markets. 27 . Advertising Decisions Facing the International Marketer The international advertiser must ensure appropriate campaigns for each market and also try to get coordination among the various national programs. Some countries have only one agency. the approach of the international company provokes different reactions. Selection Criteria Naturally the firm should choose the agency or agencies that will best help it achieve its goals. TV set ownership ranges from more than 1 set per 2 persons in the United States. At the other extreme are the United States and the United Kingdom. the firm almost always relies on expertise from the advertising agency. so the service may be better than the numbers would suggest. it is helpful to identify subsidiary criteria that can aid in the choice. The internal communications systems of this agency network would facilitate communication for the international marketer. each agency should be evaluated using the following criteria: Market coverage Does the particular agency or package of agencies cover all the relevant markets? Quality of coverage How good a job does this package of agencies do in each market? Marketing research. Agency selection is usually the first advertising decision the marketer has to make. the competition is purely national. Frequently the two agencies are affiliates of the large international agencies. the agency alternatives should be identified. newspaper availability ranges from 1 daily paper per 2 persons in Japan and 1 per 4 persons in the United States to a range of 1 to between 10 and 20 in Latin America. public relations and other services. Japan. One is the government regulation. it is inclined to hire the domestic agency that has overseas offices. for example. With advertising. First. 1 to 200 in Bangladesh and 1 to 500 in some African countries. For example. Iceland and Syria. for example. 5) Agency availability Another constraint on the international advertiser is the availability of ad agencies in different countries. Proctor & Gamble’s entry into Western Europe caused national competitors to increase their advertising. Another variable is the communications infra structure. and extreme cases such as 1 to 200 persons in such countries as Bangladesh and most of Africa. Ghana. Two factors are at work here. an international company competes against other international companies. and Morocco. The quality of agency service in a country corresponds roughly to its economic development and the size of its economy.4) Media availability Some of the media used by advertisers in the United States may not be available abroad. how do the different agencies compare on their offerings? Communication and control If the firm wants frequent communication with agencies in foreign markets. There are seven decision areas in international advertising: 1) Selecting the agency or (agencies) Many marketing functions are performed within the company. In some countries the international company causes national competitors to follow its course of action. For example. Second.
which takes a standardized approach in its advertising appeals. these firms require less of an agency than do companies that rely on it for almost everything relating to advertising. Austrian consumers sought Radion in Austrian stores. suggests that the product meets similar consumer desires everywhere. Company organization Companies that are very decentralized. Selling through distributors also reduces the control of the international company. the international firms shares decision making. Market considerations Several factors influence the ability of the firm to use similar appeals from market to market. Relative role of company advertising department and agency Some firms have a large staff that does much of the work of preparing advertising campaigns. 2) Choosing the advertising message Localized or standardized Localized and standardized refer to the two extremes of the international advertising spectrum. Language overlap One world language would obviously facilitate uniform international advertising. Neither extreme is usually practiced. Level of involvement In joint venture arrangements. A small volume multiplied by a number of markets could interest an international agency even if it is of no interest to an agency in any one market. The international success of Coca-Cola. Completely standardized advertising is identical in all markets. 28 . the less there is to be divided among different agencies. The issue for the firm is the degree to which it should move toward one or the other end of the spectrum. Thus. Size of company's international business The smaller the firm’s international advertising expenditures. Image Does the firm want national or international image? If it wants local identification. Because several German media overlap into Austria. advertising is largely in the hands of the licensee. similar appeals are more feasible. a weak company advertising department needs a strong agency. among them: Similarity of buying needs If the product is used in the same way and meets the same needs from country to country. Where the firm has a cooperative program with its distributors. it may have some voice in agency selection. which could be the the decisive factor. Generally. with national profit centers. might wish to leave agency selection to the local subsidiary. international marketers can choose only the agencies for the advertising paid for by their firms. Unilever introduced its Radion detergent into Germany with heavy ad campaign. it might choose a local agency rather than an international one. Completely localized advertising has only accidental similarity with that done in other countries.International coordination Does the firm wish to have advertising tailor-made to each market? Or does it desire coordination of national advertising with that done in other markets? One of the major differences among agency groups is their ability to aid the international coordination. The firm’s advertising volume may determine agency choice to ensure some minimum level of service. In licensing agreements. The national partner may have the experience with a national agency. Unilever lost the benefit of the free advertising carryover. Because Radion had not yet been introduced into Austrian.
the youth market. Although this is true for commission payments. S campaign prepared for TV probably would not be identical to one prepared for radio or print media. introducing them simultaneously (or sequentially) in the region or the world.International market segments Certain markets within a nation often have counterparts in a number of other nations. For example. The concerns of college students on all continents seem remarkably similar. If the same media were available every where. Small markets have small agencies and small budgets for doing creative work. and as firms Europeanize campaigns. One can not take a successful media configuration from domestic operations and apply it abroad because the same facilities are often not available. The maze of government regulations makes it difficult to create a universal advertising campaign. The fact that this situation does not exist hampers an internationally similar approach. there is more motivation to create advertising that is as international as the rest of the marketing program. children’s products. however. and pharmaceuticals. international campaigns would benefit greatly. has been sidelined altogether by stiff regulations in Britain. the creative work will probably vary greatly form country to country.S. One trend. Even apart from global product introduction. for example. The reason was heroic figures in cigarettes advertisements might have special appeal and encourage people to start smoking. If the company use a national approach to advertising. which probably includes two segments: the adolescent group and the college age group. Media development The availability of media also affects the development of an international campaign. Similarity in international media conditions is increasing steadily. Commercial TV and radio are coming to more and more countries. Economies As long as agencies are paid on the commission basis. The target markets (the purchase decision influencers) are not always the same individuals or groups as in the domestic markets. these markets resemble their counterparts in other countries more than they do other markets in their own country. 29 . As product development becomes more international. no savings would seem to result from a uniform international message because the payment would be the same whether an international agency or separate national agencies were used. Therefore. bringing to the whole world such events as the Olympic Games or the World Cup. Such similarities among age groups can provide a truly international market. Global product introductions Companies are going to more uniform campaigns as they develop products to a regional or global markets. U. liquor. Satellite TV is becoming a truly international medium. industrial marketers are generally more able to implement international campaigns. has been restricting advertisements of cigarettes. The Marlboro cowboy. In many ways. Print media are going international also. gains could still come in other areas. 3) Selecting the media The desirable media in every country are those that reach the target markets efficiently. global campaigns are increasing. not to mention the shortage in skilled personnel Industrial products The industrial market is more homogeneous internationally than the consumer market. European print media are going more Europe wide and also beyond Europe Government regulations Government restrictions are a fact of life as countries regulate the content of advertising. magazines and newspapers have international coverage. International media selection is complicated by the international differences in media availability.
the percentage of sales approach is very attractive. When a firm is entering a foreign market. Despite its attraction. These advantages and limitations have to be evaluated in terms of the market of the firm. good quality reproduction of advertisements. Because of the difficulty in determining the optimum advertising budget. Yet because the international advertiser must try to find an optimum outlay for a number of markets. The drawbacks of international magazines are that they usually have only English. and Swedish. Magazines International magazines can offer advantages to the marketer where they correspond to target markets. but this method perversely makes the volume of sales determine the amount of advertising. The purpose of advertising is to cause sales. When sales are declining. when media availability differs from market t o market. CNN is the leader reaching homes in more than 150 countries. although longrange considerations might suggest that advertising should be stepped up. however. the clown speaks a dozen of languages. As firms expand. Japanese. they introduce more products into their markets.Media diversity Diversity means adaptation. regional market coverage for marketing to specific areas. For the firm that centralizes control over international advertising. Besides its convenience. French. 4) Determining the international advertising budget Among the controversial aspects of advertising is determining the proper method for setting the advertising budget. this approach has limitations. it may need a disproportionate amount of advertising to break in. the BBC also has its world service channel. including Chinese. Dutch. Portuguese. advertising declines. companies have developed more practical guidelines: Percentage of sales method An easy method for setting the advertising appropriation in a country is based on percentage of sales. German. The advertising budgets for these introductions should relate to the introductory needs rather than to some percentage of sales applied to existing products. and give only partial coverage of any national market. French. Because managers can not follow the media patterns used elsewhere. the problem is more complex on the international level. audited circulation and audience data. and the lending of magazine’s prestige to products advertised. Television Commercial TV for international advertising is an area of growth. Other international media Ronald McDonald. International newspapers The Financial Times cover Europe and the United States Radio Although broadcast media traditionally have played a smaller international role than print media. The same is true in the introduction of new products into a market. they must find the local media that reach their markets effectively. This is a problem domestically as it is internationally. or to the same products being sold in other countries. limiting the advertising to the same percentage of sales figure used elsewhere would be undesirable during the firm's first years in the market. and influential audience. international marketers have to decentralize media selection and adapt to local possibilities. or Spanish editions. their growing commercialization is increasing their importance. Among these advantages are. 30 . this method has the advantage of relating advertising to the volume of sales in a country and thus keeping advertising from getting out of hand.
Other factor differentiating the firm's situation from country to country is variations in the media availability and the firm's level of involvement. In the United States. or other characteristics. its relationship with customers may differ from that of national companies. The fact that different competitors may employ different promotional mixes also hampers the use of this approach. the firm does not have intimate knowledge of the market. If anything. One country could serve as a test market for its group. Since it is a foreigner in the market. As a practical matter. This technique can be useful for the advertiser who has a large number of markets. although it may offer the firm a feeling that it is not losing ground to its competitors. however. Its product line and marketing program are also likely to differ from those of national competitors. Objective-and-task method Objective-and-tasks method begins by determining the advertising objectives. and finally estimating the costs of performing these tasks. media situation. It logically seeks to relate the advertising budget in a country to the firm's situation and goals there. For these reasons it is improbable that matching competitor's outlays would prove to be a sound strategy. The objectives-and-task method is as relevant for markets abroad as it is at home. the firm must have good knowledge of the local market to set appropriate objectives. In countries where the firm has its own subsidiaries. If this approach includes a cost-benefit analysis relating the objectives to the cost of reaching them. 31 . the ad budget usually is determined differently from the way it is in countries where it has a licensee or distributor. In fact. Another danger in following the practice of the competitor is that they are not necessarily right. the international firm sets the standard for national competitors to follow rather than the reverse. for example. To use it satisfactory. whereas Avon relies more on personal selling. the firm may be well established with no strong competitors. for instance. it is a desirable method.The major weakness in applying a standard percentage of sales figures for advertising in foreign markets is that this method does not relate to the firm's situation in each market. This was evident in Proctor & Gamble's entry into Europe. Differences in media possibilities might mean that the firm will spend more on personal selling or other promotional tools and less on advertising. Different budgeting methods or percentages could be tried for each group. brand awareness. except where it has local subsidiaries. Revlon is a heavy advertiser. the international firm is almost always a heavier advertiser than national firms in the same industry. Categories might be based on size. Unfortunately. or something else. and it is specially to be challenged in international marketing. Who should follow whom? A final limitation to the competitive parity approach in foreign markets is the difference in the situation of the international firm. In some countries. Comparative-analysis method Markets are grouped into categories according to characteristics relevant to advertising. This would be reflected in its promotion. expressed in terms of sales. the merit of this approach is doubtful in domestic operations. and then ascertaining the tasks needed to attain these objectives. whereas in others it may have difficulty to get a consumer franchise. in most markets the firm is not able to determine advertising figures of competitors. so setting specific objectives and defining the task of advertising may be difficult. Advertising needs are different in these two instances. Competitive-parity method Matching competitor's advertising outlay.
c) The distance and communication gap between the market and the international marketers. and when market and media conditions are similar from market to market. c) The firm believes that local decision making gives a more national image. Consequently. 6) Organizing for international advertising The firm has basically three organizational alternatives: It can centralize all decision making for advertising a headquarters(Centralization) Complete centralization of international advertising implies that campaign preparation. control at headquarters of international advertising is seldom complete. in most markets marketers have to rely primarily on their own capabilities. On the personnel side. One reason is that the markets are smaller and therefore budgets are smaller. Decentralized control is likely to be associated with national rather than international advertising campaigns and with the employment of independent local agencies in each market. This might be necessary if the firm’s international business is small or if it is confident to dealing with distributors or licensees. when the firm has standardized international advertising.5) Evaluation of international advertising effectiveness Testing advertising effectiveness is even more difficult in international markets than in the home market. It can decentralize the decision making to foreign markets (Decentralization) With complete decentralization of international advertising. failure to adapt to local needs. which can lead to a morale problem in the subsidiary. As a result. and budgeting are all done at headquarters. Thus. media and agency selection. b) Lack of facilities. Because they have less contact with foreign markets. Economies of scale in staffing and in administration are arguments for centralization. We use the term centralized to the situation where the headquarters plays a major coordination role. their ability to investigate advertising effectiveness is limited. Communications must be adequate for controlling the actual placement of the advertising in each market. three factors restrict the measurement of advertising’s effectiveness in world markets: a) Small size of the market. When this method is a company policy. A more important reason is that few markets have experience in this work. b) The communications problems between home and field render a centralized approach impossible. Complete centralization is less likely when the firm operates through foreign subsidiaries. Centralized control of advertising is more feasible when the firm works with one international agency that have branches covering all of its markets. d) The firm believes that nationals know the local scene best and will be more highly motivated if given this responsibility. 32 . It requires more expertise and personnel at the subsidiary. in most cases. It might be possible to rely on international agency for help. The potential dangers are rigidity. The centralized approach creates demands for advertising personnel at headquarters but minimal demands for them at the subsidiary level. In reality. it may result from several considerations: a) The volume of international business and advertising is too small to warrant attention at headquarters. many firms use sales results as the measure of advertising effectiveness. and stifling of local initiative. each market would make its own advertising decisions. centralized control implies that the staff at headquarters knows foreign markets and media well enough to make appropriate decisions.
Also. Many firms chose the alternative of developing their foreign advertising programs in cooperation with their local distributors. In markets where the distributor is well known. being more equal to the national operations. The advantages of decentralization are the motivations given to the national operation and the possibilities given of getting more effective tailor made advertising programs. 33 . especially in smaller markets. The exporter’s partial payment of the cost provides for some control. If the advertising is poor. The distributor through knowledge of the local market and media. Headquarters also works with the coordinator from the international agency is used. the cooperative program itself may motivate the distributor to do more promotion. it has a good chance with a cooperative program. it could be a waste. A compromise approach should entail finding the appropriate division of labor between headquarters and company operations. Still another way to combat the problem of uncooperative distribution is to establish agreed upon guidelines. If the firm can implement these steps. it is difficult to ascertain whether distributors actually spend their advertising allowance on advertising. One problem with cooperative advertising is that advertising quality is uneven from country to country. headquarters usually plays the more important role. Several advantages are claimed for the cooperative approach. A related difficulty is that distributors sometimes emphasize their own business rather than the exporter’s. The problems of cooperative advertising need not prevent its being used. can help chose the advertising that best fit the local situation. It can use some blend of these two alternatives (A compromise approach) Between the extremes of complete centralization and complete decentralization are programs that use elements of both approaches. the exporter can trade on the distributor’s reputation. either through a greater amount of advertising or through the same amount done on a shared basis rather than solely by the exporter. performance depends on the advertising skills and interest of the firm’s licensee or distributor.In markets where the firm does not have subsidiaries. The distributor may also get better media rates as national. Furthermore. with each making contribution according to its comparative advantage. They do so in an attempt to obtain the advantages claimed for coordinated decentralization – the appropriate division of labor and a contribution from each party to its comparative advantage. 7) Deciding whether to engage in cooperative advertising abroad A firm that sells through licensees or distributors can chose one of three ways to advertise in its foreign markets a) It can handle such advertising itself b) It can cooperate with local distributor c) It can try to encourage the distributor or licensee to do such advertising by itself. In a compromise approach. Development of prototype advertising helps standardize the quality. The basic creative work and selection of overall themes and appeals are generally centralized. The dangers are duplication of effort and ineffective advertising. Working with an agency with good foreign market coverage can help to control distributor placement of ads. The manager can minimize the problems. The central advertising manager is responsible for international advertising policy and guidelines. exporter hopes to get more advertising for the money. For one.
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