International Marketing

Czinkota & Ronkainen Fall 2009 Web Slides Ch1-5, 8-10

Chapter 1 The Global Marketing Imperative

The World 1.
About 220 countries in all; out of which:
Thirty countries are classified as Developed Countries Also called OECD (Organization for Economic Cooperation and Development) countries. Include U.S., Canada, most of Europe, Japan, Australia, New Zealand, Singapore, Turkey, etc. About 30 are Middle Income Countries: Korea, Taiwan, Malaysia, Mexico, South Africa, Brazil, Israel, Chile, several Eastern/Southern European countries, Russia, etc.

Another 15 or so are Major Oil Exporters : 11 OPEC members like Saudi Arabia, Kuwait, Iran, Iraq, Indonesia, Nigeria, Venezuela, etc. Plus non-members like Mexico, Russia, U.K., and Norway.
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The World 2.
Developing Countries: Most Asian and African countries (A majority of the worlds countries belong
here).

Rapidly Developing Very Large Countries: China, India, Brazil, Russia (BRICs) Poor Countries: Countries stagnant at very low levels of development, e.g., Burma, Bangladesh, Afghanistan, Haiti, Nepal, most sub-Saharan African countries.
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The World 3.
Big Emerging Markets (BEMs): In the next 10-20 years, BEMs such as the Chinese Economic Area (CEA: China + HK+ Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, Russia, and the Association of Southeast Asian Nations (ASEAN: including Indonesia, Brunei, Malaysia, Thailand, the Philippines, and Vietnam) will provide major/dominant opportunities in global business.

Global Marketing Imperative

Saturation of domestic markets: especially, First World markets. Global competition intensifying. Need for global cooperation (Global competition
brings global cooperation).

Internet: The Internet and electronic commerce (e-commerce) revolution Expanding market opportunities.

The Importance of World Trade

World trade in merchandise: from $6.2 trillion in 2000 to over $15.1 trillion in 2008. World trade in services: from $1.5 trillion to $3.3 trillion. Global growth of trade has outperformed the growth of domestic economies in the past few decades. Provides new marketing opportunities such as investment on a global scale, international specialization and cross-sourcing, increased quality and variety of goods, access to otherwise unavailable goods, access to talent, new management knowhow, use of technology to enhance business functioning, etc.

Advantages of International Trade for Consumers.

- More quantity
Better quality Greater variety within product categories More customized products/Services Lower prices Choice of products not available without international trade (silk, diamonds, coffee, bananas,
mica, chromium, and much more.)
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Advantages of International Trade for Firms.

Access to:
Bigger markets Foreign resources New management knowledge New technologies

Experience with selling to diverse markets Chance to deal with different forms of governments Chance to work in different competitive environments Enhanced ability to compete in home market
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Arguments Against Free Trade.

Infant industry Strategic industry Protection of world species (CITES: Convention on
International Trade in Endangered Species)

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Protection of local species, crops, etc Domestic environment & culture protection Domestic politics, jobs etc. Health & safety of domestic residents

Evolution of Global Marketing.

Five stages in the evolution of global marketing
1. 2. 3. 4.
5.

Domestic Marketing Export Marketing International Marketing (markets in many countries; polycentric orientation). Multinational Marketing (many markets; consolidation on regional basis). Global Marketing (global perspective; global products with local variations - Standardized efforts, Coordination across markets, Global integration).

Comparative/Absolute Advantage.
U.S. vs. China Both have 1,000lh resources US: 1lh corn, 5lh microwave China: 5lh corn, 2lh microwave Without Trade: - U.S. 500 corn + 100 microwave - China 100 corn + 250 microwave Total = 600 corn + 350 microwave With trade: - U.S. 1,000 corn, China 500 microwave Total = 1,000 corn + 500 microwave ovens

TM 16

Factors of Comparative Advantage

Sources of Comparative Advantage (Resource Endowment).

(A) Natural Resources (climate, size, location, topography, flora & Fauna, minerals, etc.).

(B) Man-made Resources (technology, infrastructure,

Education & Training, etc.)

(C) Human Resources (number, age distribution, health,

size, etc.)

(D) Managerial Know-how (E) Traditions

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Product Lifecycle Theory 2.

Chapter 3 The Cultural Environment

Culture Defined
Culture - An integrated system of learned behavior patterns that are distinguishing characteristics of the members of any given society. It encompasses a wide variety of elements, from materialistic to the spiritual. Enculturation Absorbing ones own culture Acculturation - Adjusting and adapting to a specific culture other than ones own. Adjusting to cultures is one of the keys to success in international operations.

Elements of Culture
Language Religion Values & Attitudes Manners & Customs Material Elements Aesthetics Education Social Institutions

Cultural universals - Manifestation of the total way of life that are common to all cultures (elements such as body adornments, courtship, etiquette, family, gestures, joking, mealtimes, music, personal names, status differentiation, and trade etc.)

Elements of Culture
Language
Written/Spoken/Body Language Forms of Address Direct/Contextual (high vs. low context) Hierarchy Diversity Etc.

Elements of Culture
Religion provides the basis for transcultural similarities under shared beliefs and behavior. The major religions include: Christianity - Lays stress on frugality and accumulation of wealth from hard work; consists of two significant groups Catholicism and Protestantism. Islam - Plays a pervasive role in the life of its followers; it supports entrepreneurship and discourages exploitation.

Elements of Culture
The major religions
Hinduism - Family is an important element in Hindu society; the extended family structure has an impact on the purchasing power and consumption of Hindu families. Buddhism - Views life as an existence of suffering; emphasizes on spiritual achievement rather than worldly goods. Confucianism - Is characterized by a code of conduct; stresses on loyalty and relationships.

Elements of Culture
Values and attitudes
Values are shared beliefs or group norms that have been internalized by individuals. Attitudes are evaluations of alternatives based on values. Attitudes towards change is positive in industrialized countries, while in tradition bound societies change is viewed with suspicion.

Elements of Culture
Manners and customs
Understanding manners and customs is especially important in negotiations. Potential problem areas for marketers arise from insufficient: Understanding of different ways of thinking. Attention to the necessity of saving face. Recognition of the differences in decision-making process and the role of personal relations. Allocation of time for negotiations.

Elements of Culture
Manners and customs
Concept of Time:
Linear vs. cyclical Times of day Appointments, meetings Industrial discipline

Differences in the ways products are purchased and used. Package sizes and labels must be adapted in many countries to suit the needs of the particular culture.

Elements of Culture
Material culture results from technology and is manifested in the availability and adequacy of the following basic infrastructures. Economic - Consists of transportation, energy, and communications systems. Social - Refers to housing, health, and educational systems. Financial and marketing - Provide the facilitating agencies for the international firms operation in a given market; for example, banks and research firms. Technological advancement also brings about cultural convergence.

Elements of Culture
Aesthetics
Each culture makes a clear statement concerning good taste, as expressed in the arts and in the particular symbolism of colors, form, music, etc. Color is often used as a mechanism for brand identification, feature reinforcement, and differentiation.

Elements of Culture
Education: Levels of Participation Technical, Professional Administrative Vocational Literacy etc.

Elements of Culture
Social institutions
Social organization - determines the way people relate to one another including the roles of managers and subordinates. Kinship or blood relationships - family relations and family obligations. Reference groups - Provide the values and attitudes that become influential in shaping behavior; can be primary or secondary.

Social stratification Differences in the division of a

particular population into classes (higher strata control most of the buying power and decision-making positions).

Cultural Analysis
Hofstedes dimensions of culture:
Individualism Power distance Uncertainty avoidance Masculinity Long-term versus short-term orientation

Cultural Analysis
Self-reference criterion The unconscious reference to ones own cultural values. Recommendations to reduce the influence of ones own cultural values: Define the problem in terms of domestic and foreign cultural traits, habits, or norms. Isolate the self-reference criterion influence in the problem and examine it to see how it complicates the problem. Redefine the problem without the self-reference criterion influence and solve for the optimal situation.

Cultural Analysis
Ethnocentricism - The belief that ones own culture is superior to others. It can be controlled only by acknowledging it and properly adjusting to its possible effects in managerial decision making.

The Training Challenge

The objective of training: foster preparedness, sensitivity, patience, and flexibility in managers and other personnel. Internal cultural sensitivity training programs : Culture specific information Culture general information Self-specific information

Cultural Training
Area studies - Provide factual preparation for a manager to operate in, or work with people from, a particular country. Cultural assimilator - A program in which trainees must respond to scenarios of specific situations in a particular country. Sensitivity training - Focuses on enhancing a managers flexibility in situations that are quite different from those at home. Field experience - Exposes a manager to a different cultural environment for a limited amount of time.

Exhibit 3.9 - Cross-Cultural Training Methods

Making Culture Work for Marketing Success

Embrace local culture. Build relationships. Employ locals to gain cultural knowledge. Help employees understand you. Adapt products and processes to local markets. Coordinate by region.

Chapter 4 The Economic Environment

Exhibit 4.1

- The Global Economy

Market Characteristics
Population Figures classified to show specific characteristics of their respective markets. Age distribution and life expectancy correlate heavily with the level of development of the market. A household describes all the persons, both related and unrelated, who occupy a housing unit. The degree of urbanization dictates the nature of the marketing task the company faces in terms of distribution, market potential, and buying habits.

Market Characteristics
Income
Income-distribution: can be classified as very low family incomes, low, medium, high, and very high family incomes (developed and near-developed countries have mostly medium family incomes). Per capita GDP - often used as a primary indicator for purchasing power. Purchasing power parities (PPP) show how many units of currency are needed in one country to buy the amount of goods and services that one unit of the currency will buy in another country. Income figures are useful in the initial screening of markets; however, in product-specific cases, income may not play a major role. The lack of income in a market may preclude the marketing of a standardized product but, at the same time, provide an opportunity for an adjusted product.

Market Characteristics
Consumption patterns
Engels laws - As a familys income increases, the percentage spent on food will decrease, the percentage spent on housing and household operations will be roughly constant, and the amount saved or spent on other purchases will increase. Product saturation or diffusion provides information on the percentage of households in a market that own a particular product.

Market Characteristics
Infrastructure Transportation networks by land, rail, waterway, or air are essential for distribution. Communication systems for marketing include telephones, computers, broadcast media, print media, internet, and wireless technology. The more extensive the firms international involvement, the more it can rely on its already existing support network of banks, advertising agencies, and distributors to assess new markets.

Impact of the Economic Environment on Social Development

Factors impeding economic growth:
Infrastructure limits Labor shortages Demand for greater political freedom Environmental destruction Urban congestion Spread of drug addiction

Impact of the Economic Environment on Social Development

Physical Quality of Life Index (PQLI)
Is a composite measure of the level of welfare in a country. Is composed of life expectancy, infant mortality, and adult literacy rates.

Impact of the Economic Environment on Social Development

Emotional well-being may be determined by:
Quality of social relationships Enjoyment at work Job stability Overall conditions of the country

Levels of Economic Integration

Removal of Internal Level of Integration Tariffs Free Trade Area Common External Tariffs Free Flow Of Capital and Labor Single Currency Harmonize Economic Policies Coordinate Political Syatems

Customs Union

Common Market

Monetary Union

Economic Union

Political Union

EU Membership History.
1952: Belgium, Netherlands Luxemburg, Germany, France & Italy 1973: Denmark, Ireland, UK 1981: Greece 1986: Portugal, Spain 1995: Austria, Finland, Sweden 2004: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia 2007: Romania, Bulgaria (27 countries)

EUs Governing Bodies.

Council of European Union - Main decision-making body. One minister from each member country. European Parliament (Legislative body)

European Commission (Bureaucracy)

Court of Justice - Ensures that Community laws are uniformly interpreted and applied Court of Auditors - Checks EUs receipts and expenses and manages the budget.
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Other Agreements.
North America: NAFTA: Became effective on January 1, 1994. Is for purely economic reasons. Created the worlds largest free market, with 450 million consumers and a total output of $15.7 trillion. There are no constituencies for political integration. Distinctive features are the two side agreements to correct perceived abuses in labor and the environment in Mexico. Introduction of maquiladoras. Europe: EFTA (European Free Trade Association): Iceland, Norway, Switzerland and Liechtenstein. Africa: Different agreements. ECOWAS (Economic Community of West African States), SACU (South African Customs Union): Botswana, Lesotho, Namibia, South Africa, Swaziland. Latin America: MERCOSUR (Southern Common Market founded in 1991): Argentina, Brazil, Paraguay, Uruguay + 5 Associate members, Mexico is an observer. LAIA (Latin American Integration Association); CENCOM (Central American Common Market); ANCOM (Andean Common Market); CARICOM (Caribbean Community and Common Market) Asia: ASEAN (Association of South East Asian Nations); SAARC (South Asian Association for Regional Cooperation)

Implications of Economic Integration for Marketing.

1. Increased growth for the region
2. Growth in income within the region increased exports for both member and nonmember countries 3. Trade creation and trade diversion 4. Opportunity for direct investments 5. Increased competition within the region 6. New standards of fair competition 7. Support for local industries 8. Greater market segmentation

Strategies for Regional Markets

Europe: Fill gaps in product/market portfolios; Create alliances with strong European firms; Rationalize European organization, production, distribution; Hire senior-level European talent; Establish region-wide government relations Emerging markets: Adjust entry strategy; Manage affordability; Invest in distribution; Build strong brands Developing Markets: Research customers; Create buying power; Tailor local solutions; Improve access; Shape aspirations

Chapter 5
The Political and Legal Environment

International Political Issues.

Nationalism, sovereignty, imperialism, power, ideologies, national interests, political risk...
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Political/Legal Concerns of International Marketers

Home country political and legal circumstances Host country political and legal circumstances host country. Bilateral and multilateral agreements, treaties, and laws governing the relations between host and home countries.
Home country government policies and the legal systems have a major impact on a firms opportunities abroad. Examples: Minimum wage legislation affects the international competitiveness of a firm using highly labor intensive production processes. The cost of domestic environment safety regulations may also significantly affect the pricing policies of firms in their international marketing efforts

Consequences Of Political Actions.

Indigenization/Domestication Nationalization (Acceptable according to international law if it satisfies public

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purpose & includes compensation) Expropriation (prompt, effective, fair compensation) Confiscation (no compensation)

Local content laws Local hiring laws Discriminatory taxes Discriminatory pricing of resources Joint-venture pressure Import/Export controls, embargos, sanctions, etc. Selective boycotts Price controls Terrorism, etc.

Export/Import Controls
Export controls
Designed to deny or delay the acquisition of strategically important goods by the adversaries. The legal basis for export controls varies across nations. Dual use items (goods useful for both military and civilian purposes) are controlled by the Joint List of the European Union. Restricts the flow of materials and helps avoid the proliferation of weapons of mass destruction. Reduces flows of technological knowledge to control the sophistication of armaments used by insurgent groups. Imposes financial controls which inhibit funding for terrorist training.

Export/Import Controls
Problems faced while administering import controls: They exact a huge price from domestic consumers. The social cost of these controls may be damaging to the economy. They bring about downstream change in import composition. They often do not to work. Supply may respond to artificial stimulation and grow far beyond demand.

POLITICAL-RISK INDICATORS.
ECONOMIC - GDP, Inflation, Capital flight - Foreign debt, Food output - Commodity dependence... POLITICAL - Wars or involvement in foreign conflicts... - Relations with neighbors - Degree of authoritarianism (use of coercion to retain power) - Legitimacy of government/Mechanisms for transfer of power - Military or political control - Politically motivated violence SOCIETAL - Urbanization,, - Corruption, nepotism - Social Unrest (ethnic, language, religious fundamentalism) - Xenophobia, Extreme nationalism
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Legal Environment
Home country laws Host country laws International law Two major legal systems popular worldwide are: Common law - Based on tradition and depends less on written statutes and codes than on precedent and custom. Code law - Based on a comprehensive set of written statutes that spell out legal rules explicitly; based on Roman law.

International Law
No enforceable body of international law exists; Treaties and agreements respected by a number of countries influence international business operations. Firms are restricted by both home and host country laws. In case of a conflict in deciding which countrys law to follow, firms can choose either arbitration or litigation. Litigation often involves extensive delays and is very costly. Arbitration procedures should always be included in the original contract.

International Terrorism
Terrorism is the systematic use (or threat) of violence aimed at attaining a political goal and conveying a political message. Terrorists direct their strikes at business more than any other target. Terrorism creates new opportunities for firms in a few industries like construction, security, and information technology.

International Terrorism
Direct effect of terrorism: the immediate cost levied on individual firms. Indirect effect on business activities: the real or perceived decline in per capita income, purchasing power, and stock market values. Chill effect - Uncertainty about the state of a nations economy leads to a sharp reduction in demand for both consumer and industrial goods.

International Terrorism
Physical damage disrupts power supply, communication, transport and other forms of infrastructure, thereby disturbing the supply of inputs, resources and services. Terrorism deteriorates transnational relationships. Regulations imposed by the government to reduce a countrys vulnerability to terrorism may delay the supply of inputs, increase administrative burden and require firms to invest in new procedures.

International Travel Hazards.

Azerbaijan: Air Azerbaijan flights are often overcrowded. Passengers may have to stand in isles. Seatbelts often missing Angola: Airport personnel/health officials may threaten arriving passengers with vaccinations with unsterilized needles if gratuities are not paid. Guatemala: Rumors that foreigners steal children for their organs. Mob violence resulted in the beating of American tourists. Finland: Moose often wander on to major highways at night during mating season Colombia: A policeman approaches a tourist to check their currency for fake bills. Takes the money, gives a fake receipt, and disappears. Spain: Thieves distract victims by squirting mustard/ketchup/mayonnaise, pick their pockets Thailand: Reckless passing in mountainous regions and consumption of stimulants by commercial drivers is common Jordan: Minefields that my not be properly marked and fenced off Mali, India: Unmarked speed bumps on main roads, trucks driving without headlights at night, great variety of slow moving traffic without any lights

Ethical Issues
The ethical obligations faced by multinational enterprises include:
Corporate governance and responsibility Intellectual property rights Bribery and corruption

Corporate governance and responsibility

Corporate governance - Relationships among stakeholders that determine and control the strategic direction and performance of an organization. Its key elements include:
Transparency of a firms operation. Financial results. Principles by which it measures sales, expenses, assets, and liabilities.

Bribery and corruption

The Foreign Corrupt Practices Act (FCPA): passed in 1977 to prohibit U.S. firms to bribe foreign officials for business purposes. Functional lubrication/Enabling payments: the amount is small, it is standardized, and is passed on to others involved in the processing of the documents. Bribery: the process driven by individual greed, the amount depends on the individual official and is for the officials own personal use.

Bribery and corruption

In 1995, the Organization of American States (OAS) officially condemned bribery. The Organization for Economic Cooperation and Development (OECD) in 1999 agreed to change the bribery regulations among its member countries to prohibit the tax deductibility of improper payments. The Sarbanes-Oxley Act of 2002 was intended to protect investors by improving the accuracy and reliability of corporate disclosures.

Chapters 6 (Strategic Planning) and 7 (Organization and Control) will be covered later

Chapter 8 Research

Chapter 8 Research

Purpose of Marketing Research

Marketing Research is used to: Identify marketing opportunities and problems. Generate, refine and evaluate marketing actions. Monitor marketing performance and improve understanding of marketing as a process.

International vs. Domestic Research

International and domestic research vary in the following areas: New parameters like duties, foreign currencies, modes of transportation, international documentation etc. New environment: cultures, demographics, political systems, stability, different societal structures, language, laws etc. Increased and different forms of competition

Determining Research Objectives

Exporting - Foreign market opportunity analysis Broad-brush approach to narrow down international marketing activities; the two approaches being country ranking and clustering. Cursory analysis of general market variables such as total and per capita GNP, population statistics, etc. Information on individual market data to identify fastest-growing markets, largest markets for a particular product, market trends, and restrictions. governmental restrictions. competitive assessment.

Determining Research Objectives

Market expansion Detailed information for penetrating a market. Monitoring the political climate of a country. Importing Reliability of a foreign supplier. Consistency of its product or service quality. Length of delivery time. Government rules in the exporting (source) country. Domestic restrictions and legislation. Risks of disruption and terrorism.

Secondary Information Sources

Internal documents Governments International/Regional organizations Service organizations Trade associations Directories and Newsletters Electronic information services Other firms

Secondary Information Caveats

Consider the quality of the data source, with primary focus on the purpose and method of original data collection. Assess the quality of actual data in terms of accuracy, reliability, and recency. Assess the comparability and compatibility of the data.

The Primary Research Process

Conducted to fill specific information needs. Is essential for the formulation of strategic marketing plans. Is also useful in international market segmentation. Must formulate specific research questions to determine precise information requirements for a subject.

Research administration approaches

Centralized - The research specifications are designed by the home office and forwarded to the local country operations for implementation. Coordinated - An intermediary such as an outside research agency brings headquarters and country operations together. Decentralized - Corporate headquarters establishes the broad thrust of research and delegates design and implementation to the specific countries. Outside research services Appropriate for large-scale international marketing research or when highly specialized research skills are required. The selection process should emphasize the quality of information rather than the cost.

Research Techniques
Qualitative Interviews (beware of gender issues) focus groups (cultural influences on participation) Quantitative Surveys: Questionnaire design issues such as willingness to respond, societal constraints, ambiguous words and questions, language or data equivalence translation/retranslation, etc. Observation

Sampling
Can be difficult due to a lack of organized or old sources or lists etc. Local survey organizations in some countries have devised reasonably reliable sampling techniques In the Web 1.0 online research model, surveys can be administered either through e-mail or via a website. Another trend in the Web 1.0 world is the use of social networks to access particular consumer groups. In the Web 2.0 model, users generate the content of the data collected. The limitations of Web 2.0 market research efforts are reliability, sampling, and the methodology.

The International Information System

Serves as a mechanism to coordinate the flow of information to corporate managers for decision-making purposes. The system should have the following attributes: Relevant Timely Flexible Accurate Exhaustive Convenient

Environmental scanning
Information on: Political, social, and economic affairs internationally; Changes of attitudes held by public institutions and private citizens; Possible upcoming alterations in international markets. Performed by Obtaining factual input regarding relevant variables. Content analysis of communication in a society and monitoring social, economic, cultural, and technological environment, pinpoint upcoming changes and new opportunities. Conducted within and/or outside the corporation.

Chapter 9

Chapter 9 Market Entry and Expansion

Market Entry and Expansion

Why Firms go International

Proactive Stimulus Profit advantage Unique products Technological advantages Exclusive information Economies of scale Market size Reactive Stimuli Competitive pressures Overproduction Stable or declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports

Foreign Market Entry Strategies 1.

(A) (B) Exporting (Casual, Indirect, Direct) Contractual Agreements Licensing (patents, technology, trade secrets) Franchising (brand, managerial know-how)

Subcontracting (from prime contractors)

Contract manufacturing (for foreign brands) Turnkey Operations

(IK)

Co-production Agreements
Management Contracts

Foreign Market Entry Strategies 2.

(C) (D) Joint Ventures (minority/majority equity) Wholly-Owned Subsidiaries
Local Local Local Local Sales only Assembly & Sales Production & Sales Production, Sales & Export

Start-up of new operations

Merger with an existing enterprise Acquisition of an existing enterprise Greenfield investment

Exporting
Export management companies (EMCs) Domestic firms that perform international marketing services as commission representatives or distributors for other firms. Two primary forms of operation Take title to goods and operate internationally. Perform services as agents.

Exporting
Trading companies
The most famous trading companies are the sogoshosha of Japan. Reasons for the success of the Japanese sogoshosha: The firms are organized to gather, evaluate, and translate market information into business opportunities. Their vast transaction volume provides them with cost advantages. They serve large markets around the world and have transaction advantages. They had access to capital, both within Japan and in the international capital markets.

Going International
E-commerce
The ability to offer goods and services over the Web. Various methods to market products over the internet:
Development of corporate websites. Business-to-consumer and consumer-to-business forums.

Going International
E-commerce concerns - Firms must be ready to:
Provide 24-hour order taking and customer support service. Have the regulatory and customs-handling expertise to deliver internationally. Have an understanding of global marketing environments for further development of business relationships.

Licensing and Franchising

Advantages of licensing
Capital investment or knowledge or marketing strength is not required. Additional return on R&U investments already incurred. Reduces the risk of R&D failures Ongoing licensing cooperation and support enables the Licensee benefits from new developments. Allows a firm to test a foreign market without major investment of capital or management time. Preempts a market for competition, especially if the licensors resources permit full-scale involvement only in selected markets. Increases protection of intellectual property rights.

Licensing and Franchising

Disadvantages of licensing
Licensor gets limited expertise. Licensor creates its own competitor. Allows multinational corporations (MNCs) to capitalize on older technology.

Foreign Direct Investment

Types of ownership - Joint ventures
Collaborations of two or more organizations for more than a transitory period. Partners share assets, risks, and profits, though equality of partners is not necessary. Reasons for joint ventures are governmental and commercial.

Foreign Direct Investment

Advantages of joint ventures Pooling of resources. Better relationships with local organizations. The partners knowledge of the local market. Minimize exposure to political risk. Tap local capital markets. Disadvantages of joint ventures Different levels of control are required. Difficulty in maintaining the relationship. Disagreements over business decisions. Disagreements over profit accumulation and distribution (profit repatriation).

Foreign Direct Investment

Firms are categorized as:
Resource seekers - Search for natural and human resources. Market seekers - Search for better opportunities to enter and expand within markets. Efficiency seekers - Attempt to obtain the most economic sources of production.

Foreign Direct Investment

Positive perspectives on foreign direct investors
Bring in capital, economic activity, and employment. Transfer technology and managerial skills. Encourage competition, market choice, and competitiveness.

Foreign Direct Investment

Negative perspectives on foreign direct investors
Drain resources from host countries. Starve smaller capital markets. Discourage local technology development. Bring in outmoded technology. Create new competition for local firms.

Chapter 10 Chapter 10
Product Adaptation

Product Adaptation

Product Variables
Products can be differentiated by their composition, country of origin, tangible features such as packaging or quality, or augmented features such as warranty.

TM 89

Product Design Strategy Standardization vs. Customization

Standardization vs. Customization: Decision Criteria

(IK)

Nature of Product Technology Differences Weights & Measures Physical Environment Cost/Benefit Relationship Legal Requirements Competition Support Systems Cultural differences Market Conditions

Exhibit 10.2 - Standardization versus Adaptation

Factors encouraging standardization Economies of scale in production Economies in product R&D Economies in marketing Shrinking of the world marketplace/economic integration Global competition Factors encouraging adaptation Differing use conditions Government and regulatory influences Differing consumer behavior patterns Local competition True to the marketing concept

Exhibit 10.3 - Strategic Adaptation to Foreign Markets

High Need for Adaptation

Degree of Cultural Grounding

Low Industrial/ Technology Intensive Consumer

Nature of Product
Source: Adapted from W. Chan Kim and R. A. Mauborgne, Cross-Cultural Strategies, Journal of Business Strategy 7 (Spring 1987): 31; and John A. Quelch and Edward J. Hoff, Customizing Global Marketing, Harvard Business Review 64 (May-June 1986): 92-101.

The Market Environment

Government regulations Political agendas often dictate government regulatory requirements. Firms can influence these regulations by lobbying directly or through industry associations. Economic integration reduces discretionary governmental regulations to some extent. Nontariff barriers Include product standards, testing or approval procedures, subsidies for local products, and bureaucratic red tape.

The Market Environment

Customer characteristics, expectations, and preferences Physical size, local behaviors, tastes, attitudes, and traditions influence product adaptation decisions. Consumption patterns, psychosocial characteristics, and general cultural criteria determine cultural and psychological specificity in relation to products and services. Product positioning - Consumers perception of a brand as compared with that of competitors brands.

The Market Environment

Economic development
Affects demand characteristics and helps determine potentials for selling certain kinds of products and services. Backward innovation of the product may be required to meet local requirements.

The Market Environment

Competitive offerings - Monitoring competitors product features is critical in adjusting the product for competitive advantage. Climate and geography - Have an effect on the total product offering the core product; tangible elements, mainly packaging; and the augmented features.

Global Brand Development

Questions to ask when management seeks to build a global brand:
Will anticipated scale economies materialize? How difficult will it be to develop a global brand team? Can a single brand be imposed on all markets successfully?

Global Brand Development

Create a compelling value proposition (warranty can also be a value proposition) Think about all elements of brand identity and select names, marks, and symbols that have the potential for globalization Research the alternatives of extending a national brand versus adopting a new brand identity globally Develop a company-wide communication system

Product Characteristics
Packaging
Serves three major functionsprotection, promotion, and user convenience. Varies as a function of transportation mode, transit conditions, and length of time in transit. The promotional aspect of packaging relates mostly to labeling.

Product Characteristics
Packaging
User convenience is a priority in packaging decisions; Containers must withstand logistics challenge, and yet must be easy for customers to open. Package aesthetics mainly involves the prudent choice of colors and package shapes. Package size varies according to purchasing patterns and market conditions.

Product Characteristics
Country-of-Origin effects
The origin of a product may have a strong effect on consumer perceptions and biases about foreign products. This effect reduces as:
Customers become more informed. Countries develop the necessary bases to manufacture products.

Product Counterfeiting
Counterfeit goods Goods bearing an unauthorized representation of a trademark, patented invention, or copyrighted work that is legally protected in the country where it is marketed. The European Union estimates that trade in counterfeit goods accounts for 2 percent of total world trade. The largest number of counterfeit goods are sourced from China, Brazil, Taiwan, Korea, and India.

Product Counterfeiting
Few acts, agreements, and alliances that help combat counterfeiting include: The Omnibus Tariff and Trade Act of 1984 The Trademark Counterfeiting Act of 1984 The Intellectual Property Rights Improvement Act The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement The International Anti-Counterfeiting Coalition (1978) Counterfeit Intelligence and Investigating Bureau

Pirated/Fake Brands

Real

Fake

Chapter 11

Chapter 11

Export Pricing

Export Pricing