Chapter 5

Global Markets

 Tom Cockrem/Lonely Planet Images

Learning Objectives
List the factors that influence consumers abilities to buy and explain how these affect various national markets. Describe Maslows hierarchy-of-needs model and apply it to consumers in different cultures. Give examples of how consumer behavior is similar across cultures and examples of how it may differ from one culture to another. Describe segmentation options for consumer markets abroad. Explain why business-to-business markets vary in buyer needs and behavior from one country to another. List the special qualities of national and multinational global buyers. Describe the five screens a foreign firm must pass through to win a government contract. Explain the role of bribery in international contracts.

Chapter Overview
Understanding Markets and Buyers Business Markets Government Markets

P&G in Japan
1972 - P&G is the first company to introduce disposable diapers to Japan 80% share of market within a year 1985 - P&G market share has plunged to 8% and the subsidiary is losing $40 million per year. WHY?

P&G ignored cultural differences!

Consumer Markets
Are consumption patterns converging
The French drink more beer The Germans drink more wine The Japanese eat more beef The Swiss prefer French cheese

But major differences persist!

Alcohol Consumption for Selected Countries (in liters per person)

Ireland Germany Austria Denmark 155 119 106 98 Netherlands Finland New Zealand Canada 80 79 78 70

Belgium United Kingdom Australia United States

98 97
89 85

Switzerland Sweden
Norway

57 56
56

Source: http://manyeyes.alphaworks.ibm.com/manyeyes/visualizations/2008-alcohol-consumption-by-country

Starbucks Mexican Dilemma

Why dont Mexicans drink coffee? 5th largest coffee producer Mexicans - 2 lbs. a year Americans - 10 lbs. a year Swedes - 26 lbs. a year What should Starbucks do?

National Differences
Global marketers must consider national differences in:
Ability to buy Consumer needs Consumer behavior
PhotoDisc Europe

Ability to Buy
Per capita income Purchasing power parity

Image copyright Arnold John Labrentz, 2009. Used under license from Shutterstock.com

Per Capita Income in Selected Countries (U.S.$)

Patterns of Consumption (US$ per capita)

Country Consumer expenditure on food 418.8 3106.2 1230.3 1111.8 1912.0 3030.4 2284.5 2841.9 1734.8 Milk, Sugar cheese and Alcoholic and eggs Vegetables confectionery drinks 41.4 42.4 4.8 16.3 158.8 388.3 293.6 581.3 212.4 144.7 33.5 77.3 129.1 93.7 81.5 96.2 214.7 184.7 130.0 354.4 481.8 314.7 241.0 344.3 294.3 216.4 216.0 370.2 420.3 346.6 211.2 192.1 243.2 281.0 196.8 333.1

China Japan Brazil Mexico USA France Germany Italy United Kingdom

Meat 85.3 288.6 343.7 268.1 427.3 844.9 519.9 699.4 399.9

Source: Market Sizes - Historic - US$ Per Capita - Fixed 2009 Exchange Rates - Value at Current Prices, Euromonitor

Income Distribution
Government tax policies Wealth concentration
Belgium Top 10% = 20% income Colombia Top 10% = 46% income

The Hidden Economy

Informal sector = Income not reported to authorities Perus informal sector =
42% construction 45% transportation 16% manufacturing

Changing Views
Assumption

Economic Development

Informal Sector Activity

Reality = The bulk of new employment in recent yearsparticularly in developing and transition economieshas been in the informal economy

Informal Sector Growth: Why?

Globalization
Loss of employment in formal sector
Uncompetitive firms fold following liberalization Uncompetitive firms fold during currency crises and other global economic shocks

Cost pressures of increased competition

Core of wage employees and periphery of informal workers

Information and communications technology

Makes global coordination of informal firms possible

Informal Sector Growth (cont.)

Institutions
Lack of enforcement institutions and laws against
Corruption Tax evasion Labor and health violations

Red tape of bureaucratic institutions

Role of human nature orientation

Tax-related institutions
Complex, unfair tax codes Lack of effective tax auditing

Lack of political will to change institutions!

NPR Segment: Caracas

NPR's Martin Kaste reports on the prevalent black market economy in Caracas, Venezuela. Confronted with a shortage of jobs and economic hardship, many residents of the metropolitan capital area have resorted to joining the so-called "informal economy" in order to make ends meet. Listen to it at
http://www.npr.org/templates/story/story.php?storyId=1787749

Consumer Needs
Is Maslows hierarchy of needs applicable crossculturally? Self-actualization Friendship, Love Safety, Food, Shelter Physiological Needs

Consumer Behavior
Cultural differences revisited
Insurance in Muslim countries Who makes the purchase decision?
More joint husband-wife decisions in the U.S. than in Venezuela

Decision-Makers Purchase Categories

Buying decision What Country Turkey Vietnam U.S.A When Turkey Vietnam U.S.A Where Turkey Vietnam U.S.A How Turkey Vietnam U.S.A Vacation J J J H H H J J J J J J Food W W W W W W W W W W W W Appliances W W J W W J W W J J J J Savings J J J J J J J J J J J J Furniture J J J J J J J J J J J J Auto H H H H H J H H H H H J

Decision-Makers Key-Joint=J, Wife=W, Husband=H

Global Colors
The worlds favorite color?
Blue

But many colors elicit different responses

Purple = Expensive (in Japan, China, South Korea) Purple = Cheap in USA

Segmentation
A marketing technique that targets a group of customers with specific characteristics

Diego Azubel/epa/Corbis

Four Characteristics of a Segment

1. 2. 3. 4. Homogeneous characteristics Profit potential Ability to measure group Ability to communicate to group

Three-Step Segmentation Process

DEFINE: Take a look at existing customer list; look for common traits. Analyze competitors customer profiles PROFILE: Full definition of who the segment is, their buyer behavior, attitudes/values, lifestyle etc. RANK: Order of importance for business goals Highest profitability, least competition, most in need of product/service

Segmentation
Segmentation is important for two reasons:
1. You dont need everyone in a country to buy your product you just need a large enough segment to purchase your product or service 2. How and how much you adapt your marketing mix depends on the segment that you are targeting in a market

Segmentation (cont.)
Most segmentation is done at the local level
Should we target French housewives or French working women?

Global Segments
Global segment transnational consumer segment based on age, social class, lifestyle
Convergence of some aspects of buyer behavior Cosmopolitans

But for most products and segmentation schemes, national differences persist

Just-Like-Us Segment
Just-like-us-segment segments in international markets that resemble a firms domestic buyers
Easier because does not require marketing mix adaptation But may result in few consumers worldwide and limits a firms global profit potential EXAMPLE If toy manufacturer only targeted children in China they would miss out on a large segment adults buying for themselves!

Urban/ Rural Population Distribution by Country (%)

Business Markets
Are business markets less culturespecific than consumer markets? Yes
Its cost and performance!

No
Its about relationships!

Factors Affecting Organizational Buyer Choice

Initiator

Decision Maker

User

Other Influencers

Gatekeeper

Buyer

First Meetings
Should you present a prospective client with a gift? Yes China and Japan No! Latin America and the Arab world

Business Buyers Needs

The cost-performance criterion is a key consideration for business buyers Business buyers in developed countries choose capital intensive technologies Capital is cheaper/ labor is more expensive Business buyers in developing countries usually choose labor intensive technologies Labor is cheaper/ capital is more expensive

Labor compensation Per Hour for Selected countries

United States Sweden Spain Slovak Republic Norway Netherlands Mexico Korea Italy Hungary Greece Germany France Finland Denmark Czech Republic Canada Austria Australia 0 5 10 15 20 25 30 35

2006 2000 1995

US dollars calculated using PPPs

Source: OECD Factbook 2009: Economic, Environmental and Social Statistics

Developing Business Relationships

Cross-cultural negotiations are a particular challenge
Russian tactics: Emotional outburst, falling asleep, unreasonable requests Americans like to negotiate clear contracts while Chinese prefer to establish personal trust relationships

Global Buyers
National global buyers
Search the world for products used in a single market

Multinational global buyers

Search the world for products used throughout their global operations

Global account management

Marketers assign special executive or teams to address demanding global buyers

Government Markets
The buying process
Procurement processes vary by country Some contracts go to the lowest bidder More sophisticated projects demand more complicated bidding processes

Marketing to Governments in Developing Countries

Insert figure 5.2, p. 165 here

Bribery and Government Markets

Bribery is giving something of value to an individual in a position of trust to influence judgment or behavior Government employees are trusted to do whats best for the public good Government corruption is more prevalent in emerging markets

Transparency International Corruption is operationally defined as the misuse of entrusted power for private gain.
(TI web site)

Transparency International (cont.)

Transparency can be defined as a principle that
allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably.
(TI web site)

Transparency International (cont.)

1. Corruption Perceptions Index 2. Bribe Payers Index Other Good Resources on the Transparency International Web Site
Country Surveys CORIS Corruption Online Research & Information System http://www.corisweb.org/

Which Countries are the Least Corrupt?

Rank 1 2 3 3 5 8 17 17 19 25 63 Country New Zealand Denmark Singapore Sweden Switzerland Canada Japan United Kingdom USA Chile Italy
Source: Transparency International

Source: Transparency International 2009

Which Countries are the Most Corrupt?

Rank 84 89 111 111 130 139 146 176 179 180
Source: Transparency International

Country India Mexico Egypt Indonesia Nigeria Bangladesh Russia Iraq Afghanistan Somalia

Source: Transparency International 2009

Which Country Pays the Least Amount of Bribes? Rank 1 1 3 3 5

Source: Transparency International

Country Belgium Canada Netherlands Switzerland Germany

Source: Transparency International 2008

Which Country Pays the Most Amount of Bribes?

Rank 17 19 20 21 22
Source: Transparency International

Country Brazil India Mexico China Russia

Source: Transparency International 2008

U.S. Foreign Corrupt Practices Act

Forbids U.S. citizens to bribe foreign government employees or politicians or to give money to agents that is subsequently used to bribe Citizens must report bribery in their organization Records must be transparent and well kept Failure to comply can result in fines and jail time !
Lockheed Martin Corp. in Egypt

Expediting Payments
Small sums paid to civil servants to do their jobs
Unilever and BP Amoco do it!

Used to avoid delays, not gain an unfair competitive advantage Allowed under the U.S. FCPA
But there is pressure to change this

Executives Charged in Foreign Bribery

Twenty-two executives and employees of military and law enforcement products were charged under the FCPA in a sting operation to pay a 20% commission to a sales agent of which half would go directly to the minister of defense of an African country. The maximum prison sentence for each charge under the FCPA is 5 years.

Source: U.S. Newswire, Washington: Jan. 19, 2010

Diaspora Marketing
Case Review How and why might diasporans ability to buy differ from that of individuals of a similar age who their country of origin or homeland? Referring to Maslows hierarchy of needs, identify and describe the level of needs that the companies featured in this case (Tulumba, Jollibee, Thamel.com, Wizz Air African American Travel Agency, Coptic Orphans) fill for the diasporans who purchase products and services from them.

Diaspora Marketing cont.

Case Review Are the companies featured in this case targeting a global segment when they target their diaspora communities? Why or why not?

What Teens Want

Case Review
Would it be useful for certain global marketers to think of teens as a global segment? Why or why not? Suggest ways in which teen consumer behavior is likely to differ between developed and developing countries. Why do you think street kids in Brazil are attracted to global brand names?

Questionable Payments
Case Review
Scenario 1 : Should Thomas give the agent $1 million to pass on to the cabinet minister? Scenario 2 : Should David retain the public relations firm owned by the prime ministers wife? Scenario 3 : Should Michael pay the customs officials to expedite his clients goods through customs. Scenario 4 : Should Ana allow the sales force to offer tea money ?