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Lecture 1: an introduction
Global Marketing
BUS603 Lecture 2
Dr Rosalind Jones Rm106 Roz.jones@glyndwr.ac.uk
Learning Objectives To explore the following 1. What two factors drive market economies, and how are these factors different in command economies? 2. How do Rostows five stages of economic development apply to the concepts of most-, less-, and least-developed economies, emerging markets, newly industrialized countries, and transition economies? 3. What factors help create a national competitive advantage for an economy?
4. How do the five forces that increase competitive rivalries relate to industry-level competitive advantage?
5. How do the various modes of entry balance a companys level of control with its level of risk?
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Learning Objective #1
1. What two factors drive market economies, and how are these factors different in command economies?
Economic Systems
An economy in which most economic decisions are made in the marketplace is a market economy.
The marketplace may be found anywhere money changes hands in a capitalist economic system.
Market Economy
Competitive Marketplace
Government does not interfere with prices or sales
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Command Economy
A central authority makes all key economic decisions in a command economy.
Socialism refers to economic systems where the state owns at least some parts of industry.
Mixed Economy
The marketplace guides part of the economic system and the government runs the other part.
Government may oversee defense, education, building and repairing roads, and/or fire protection. Marketplace vends other items, including necessities, sundries, and luxuries.
Learning Objective #2
2. How do Rostows five stages of economic development apply to the concepts of most-, less-, and least-developed economies, emerging markets, newly industrialized countries, and transition economies?
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Economic Development
Degree of economic development in a region or country drives many international marketing decisions.
Development can be controversial and rooted in politics and conflicts between countries.
Different levels of economic development
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Rapid Development
Takeoff
Manufacturing industries grow rapidly Airports, roads, and railways built A few leading industries support high levels of economic growth
At each stage, the presence and growth of potential target markets changes.
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Emerging Markets
Emerging markets are countries that are moving through the transformation from developing to developed.
Mexico, South Africa, and several countries in Asia
NICs are always emerging markets, but emerging markets are not always NICs
Government plays a clear role in NICs and less so in some emerging markets
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Characteristics of NICs
Transition Economies
Occur in formerly communist countries with centrally planned economies as the country transitions to a free market economy.
Eastern Europe, China
Corruption a large problem limiting growth The task may be difficult, but the resources are scarce.
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Bottom-of-the-Pyramid
Low-income, bottom-of-the-pyramid customers are most likely to reside in least-developed economies or in Rostows traditional societies. The potential does exist for products that are tailored to these consumers. As an economy moves forward and infrastructure emerges, the opportunities tend to grow and expand impressively.
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Learning Objective #3
3. What factors help create a national competitive advantage for an economy?
Demand Conditions
The unique features of demand in a nation make up that countrys demand conditions.
Domestic consumers may be more or less representative of the global consumers. Consumers who move the global taste in a category or industry help a nation become global leaders in that category.
France and fashion South Korea and technology
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Factor Conditions
Factor conditions include components needed for production of goods or services, such as labor and infrastructure.
Each industry has specific factors associated with success in that field.
Traditionally, these factors were natural endowments that nations possessed without effort.
Labour or land or various natural resources such as oil or minerals Increasingly, resources are created such as trained human resources.
Factor conditions most clearly lead to national competitive advantage when specialization exists.
The American film industry has the various directors, actors, producers, and cinematographers needed.
Government
Government, and how government interacts with the free market, plays a role in creating national competitive advantage. Industry innovation results from competition and governmental activities can assist this.
Support for education Encouraging cooperation between related industries Assisting in the development of new technologies and emerging industries
Policies that increase competition while supporting innovation help create national competitive advantage.
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Learning Objective #4
4. How do the five forces (another Porters Model) that increase competitive rivalries relate to industry-level competitive advantage?
When consumers can switch from product to product, companies face stronger pressure from competitors to get consumers to make the switch.
Switching costs increase Consumer loyalty increase
Brand loyalty, unique product benefits, and repeat purchase rewards all decrease switching.
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Supplier bargaining power increases when only one or a small number of companies serve as supplier.
Price sensitivity increases consumer power due to the increased likelihood of a customer switching to a lowerpriced competitor. Methods to decrease consumer bargaining power:
Brand loyalty Opening new markets or increasing market share Growth in market size
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When every company in an industry competes based on similar, duplicable factors, rivalry becomes intense.
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Learning Objective #5
5. How do the various modes of entry balance a companys level of control with its level of risk?
Modes of Entry
Exporting
The product is shipped in one manner or another into a foreign market.
Typical initial method to enter a market Little control after products leaves home country
Licensing
A contract that grants a company (the licensee) the legal right to use another companys brand, image, and other marketing components Can provide a quick, low-cost method for entering a foreign market
The licensee holds additional knowledge about the local market that increases the chance for success.
Franchising
The contractual agreement to implement a business model
McDonalds, KFC, 7-Eleven, Supercuts, and Jani-King
In return for an up-front fee, signees obtain access to the companys colors, images, and products, which offers greater control over the marketing process by the parent company. The risk is a poor franchisee.
Signee may ignore contract or make decisions that hurt the company. Costs accrue to control signees.
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Joint Ventures
Some companies choose to partner with local businesses when entering a country. When these legal partnerships involve an investment, a division of ownership, and the creation of a new legal entity, the newly created business is joint venture. The categories of joint ventures include:
Majority owned, where the foreign company owns 51% or more of the joint venture; Minority owned, where the foreign company owns 49% or less of the joint venture; 50% / 50%, or an equal split of ownership.
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Disadvantages:
Lost or leaked proprietary knowledge. Partners may misappropriate company assets and may even break the joint venture and then use that knowledge to succeed in separate, independent business ventures. Conflicts between partners can also occur.
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Strategic Alliances
A formal agreement between companies to work together to achieve a common goal.
In contrast to joint ventures, a separate legal entity does not get created. Resource sharing, project funding, and knowledge transfer all happen within most strategic alliances.
Many strategic alliances investigate problems that affect all or most members of an industry.
Sharing research on a new technological breakthrough or combining resources to enter a new market are two common goals for strategic alliances.
Advantage
Limited financial commitment and fewer formal legal lessens risk.
Disadvantage
Exposure to a potential partners leaving or stealing technology.
Company is able to use its own brand, logo, and color scheme, and maintains control over both managerial operations and marketing decisions.
Primary advantage is complete control. Primary disadvantage is lack of shared risk and high cost. Also, fail to have a local contact to facilitate entry success.
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Internationalization Theory
Companies go through four stages during the move to becoming a completely global company:
(1) no regular export activities, (2) export via independent representatives, (3) establishment of an overseas sales subsidiary, and (4) foreign production.
Key concept is psychic distance or the differences between managers from different countries.
It includes differences in language, communication styles, legal and political structures, education, and overall cultural values.
Internalization Theory
Focuses on advantages to each entry mode type. Exporting represents the default, efficient choice for market entry.
Supply and demand guide the process. The company exerts little control and less cost is involved. The lack of control is acceptable if no unusual risks or uncertainties and trusted partners.
In many cases, uncertainty and risks exists making exporting too risky.
Managers choose to internalize the entry hence the name of the theory.
Ownership Advantages
Ownership advantages can be thought of as the why for multinational corporation foreign activities and represent the reasons marketers spend the time and effort to enter a foreign country. Two types of ownership advantages:
Asset advantages represent anything the company does well that competitors cannot do. Transaction ownership advantages relate to the ability to capture transactional benefits, such as lower costs, from the common governance of a network of ownership assets.
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Location Advantages
Location advantages explains the where of entry location advantages. Some markets are more attractive than others and are entered first due to:
Local resources, natural and human; Governmental activities; Market potential; and Lower political risk.
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Internalization Advantages
Internalization advantages are the how of market entry, and the advantages that come from making the correct entry decision. While exporting is the default option, when companies are considering entering an attractive market (location advantages) and have unique assets that will generate sufficient profit (ownership advantages), the correct selection of entry mode type leads to internalization advantages. To select the right type of entry mode, companies need to balance risk, uncertainty, the ability to exploit economies of scale, and cost.
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