World market environment unit 1

Unit 1Unit 1

The World Market Environment

After Studying This Chapter You Should Be Able To:After Studying This Chapter You Should Be Able To:

Understand the nature of the marketing environment and why it is important to marketers.

See how the political/legal environment affects marketing.

Describe the major components of the social environment and how trends in the social environment affect marketing.

Understand how the economic environment affects marketing.

After Studying This Chapter You Should Be Able To:After Studying This Chapter You Should Be Able To:

Appreciate the importance of the technological environment to marketers.

Understand differences in the competitive environment.

Know how changes in the institutional environment affect marketers.

The Marketing Environment

Creation of Market Opportunities & Threats

• The Marketing Environment Creates Opportunities or Threats in 2 Ways:

1. Changes affect specific markets.

2. Changes affect specific marketing activities.

• The Marketing Environment Creates Opportunities or Threats in 2 Ways:

1. Changes affect specific markets.

2. Changes affect specific marketing activities.

Identifying Market Opportunities and Threats

The Social Environment

• The Social Environment:– All factors and trends related to groups of

people including:• Their number• Characteristics• Behavior• Growth Projections

The Economic Environment• The economic environment includes factors and trends related to

income levels and the production of goods and services.

• Economic trends in different parts of the world can affect marketing activities in other parts of the world.

• Market opportunities are a function of both economic size and growth. The Gross Domestic Product (GDP) represents the total size of a country’s economy measured in the amount of goods and services produced.

The Demographic Environment

• The Demographic Environment:– Refers to the size, distribution,

and growth rate of groups of people with different characteristics.

The Demographic EnvironmentGlobal Population Size and Growth:

– The world population is now more than six billion.

– Approximately 95 percent of that growth took place in developing countries in Asia, Africa, and Latin America.

– China currently has the largest population, followed by India, with the United States a distant third.

The World’s Largest Cities City 1995 2015 (estimated)

(in thousands) (in thousands)

1. Tokyo, Japan 26,959 28,887

2. Mexico City, Mexico 16,562 19,190

3. Sao Paulo, Brazil 16,533 20,320

4. New York, USA 16,332 17,602

5. Mumbai, India 15,138 26,218

6. Shanghai, China 13,584 17,969

7. Los Angeles, USA 12,410 14,217

8. Calcutta, India 11,923 17,305

9. Buenos Aires, Argentina11,802 13,856

10. Seoul, South Korea 11,609 12,980

City 1995 2015 (estimated) (in thousands) (in thousands)

1. Tokyo, Japan 26,959 28,887

2. Mexico City, Mexico 16,562 19,190

3. Sao Paulo, Brazil 16,533 20,320

4. New York, USA 16,332 17,602

5. Mumbai, India 15,138 26,218

6. Shanghai, China 13,584 17,969

7. Los Angeles, USA 12,410 14,217

8. Calcutta, India 11,923 17,305

9. Buenos Aires, Argentina11,802 13,856

10. Seoul, South Korea 11,609 12,980

Median Ages In Selected Countries

Italy 36.2 42.4

Japan 37.2 42.2

Britain 35.7 40.0

U.S. 32.9 37.4

Korea (North & South) 25.7 34.4

China 25.4 33.9

Brazil 22.9 29.2

Mexico 20.0 6.5

Nigeria 16.3 18.1

Country 1990 2010

The Political/Legal Environment• The political/legal

environment encompasses factors and trends related to governmental activities, specific laws and regulations that affect marketing practice.

• The political/legal environment is closely tied to the social and economic environments

Global Political Trends• International political events greatly affect marketing

activities.• The most significant global political trend is the “war on

terrorism.” • A second important political trend is movement toward free

trade and away from protectionism.

Benefits to Free Trade:– Countries with the freest trade had the highest GDP

growth from 1990 to 2000.

– Free trade in a global economy requires the free movement of people, goods, and capital across borders.

International Politics• International Politics: Political

relations and conflicts between countries can have a profound impact on firms trying to do business internationally. If relations between countries improve, business can benefit

• International Law: No enforceable body of international law exists. Firms are subject to home and host-country laws. Areas of cooperation among nations exist through bilateral treaties guaranteeing fair treatment. It also includes patent and trademark protection

• The laws and policies of the government and society can affect international marketing. Political situations can be stable or unstable and can create opportunities and threats. Business needs to consider the surrounding political and legal environmental forces.

• The economic interests of the country that an international marketer does business in might not necessarily coincide with their own. The political and legal environments that impact them are inherently related and inseparable

The Political / Legal Environment

Political factors will impact on:-

• Government policies and how they affect the costs and certainty of doing business in the host/foreign country.

• Stability of the government and continuity affecting business confidence. For e.g. current episode between Malaysian government and Anwar is unsettling for investors.

• On bi/multilateral relations between governments; this affects stability of doing business. If relations are strong, then more market opportunities will arise. For e.g. more flights now being mounted between China and Taiwan; cross-straits relationships still tense but slowly improving.

Political Environment and International Business• Political ideology is a body of

constructs, theories, and aims that constitute a sociopolitical program.

• Ultimate test of any political system is its ability to hold a society together despite pressures from different ideologies, and its ability to meet its objectives.

• Ideologies help bring countries together/keep them apart.

• In Terms of Business, Companies must understand the potential sources of political tension and instability.

Basic Political Ideologies

The Political Spectrum Democracy—involves wide participation by citizens in the decision-making process.

Democratic governments differ :-

• Presidential versus parliamentary

• Number of important political parties

• Amount of citizen participation in decision making

• Fragility and stability of new democracies

Democracy (not surprisingly) is believed in democracies to be the best form of government.

Totalitarianism (Absolutist) —a single party, individual, or group of individuals monopolizes political power. Opposition is effectively not permitted

Totalitarianism takes several forms: - Theocratic—religious leaders are political leaders Secular—government often imposes order through military power Authoritarianism—desires to control the people Communism—political and economic systems are virtually inseparable

Impact of the Political System on Management Decisions

• Political Risk- It is caused by political instability. It promotes fear that operating position will deteriorate. It tends to be higher in totalitarian regimes.

It can be termed as the risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably.

When perceived political risk is high, a country will have a difficult time attracting foreign direct investment

Indicators of Political Risk / InstabilitySome indicators of political risk include: • War , Social unrest, Corruption, Nepotism,

Crime, Labor costs, Tax discrimination etc• Negative Attitude of nationals towards

foreign business and foreigners including exploitation ,colonialism, repatriation, employment to foreigners etc.

• Politically-motivated violence , Transparency,

• Social Unrest (population density and wealth distribution),Clashes between or among community groups, ethnic groups and regional groups.

• Host Govt. policies affecting International Business directly and internally or externally.

How to Minimize Political Risk?Political risks cannot be eliminated.

However they can be minimized by:-• Stimulating the economic development

of host country by investing in their priority areas/ portfolios.

• By employing, developing and promoting local people.

• By Sharing Ownership• By being civic minded.• By being politically neutral in host

countries• By observation of political mood and • By reduction of exposure

Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002

Legal and Regulatory Environment


The Legal and Regulatory Environment• One of the more difficult aspects of doing business globally is dealing with vast

differences in legal and regulatory environments.

• The United States, for example, has an established set of laws and regulations that provide direction to businesses operating within its borders.

• But because there is no global legal system, key areas of business law—for example, contract provisions and copyright protection—can be treated in different ways in different countries.

• Companies doing international business often face many inconsistent laws and regulations. To navigate this sea of confusion, American businesspeople must know and follow both U.S. laws and regulations and those of nations in which they operate.

• The annals of business history are filled with stories about American companies that have stumbled in trying to comply with foreign laws and regulations. Coca-Cola, for example, ran afoul of Italian law when it printed its ingredients list on the bottle cap rather than on the bottle itself. Italian courts ruled that the labeling was inadequate because most people throw the cap away.

• In another case, 3M applied to the Japanese government to create a joint venture with the Sumitomo Industrial Group to make and distribute magnetic tape products in Japan. 3M spent four years trying to satisfy Japan’s complex regulations, but by the time it got approval, domestic competitors, including Sony, had captured the market. By delaying 3M, Japanese regulators managed, in effect, to stifle foreign competition.

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Approaches to deal with …..

• One approach to dealing with local laws and regulations is hiring lawyers from the host country who can provide advice on legal issues.

• Another is working with local businesspeople who have experience in complying with regulations and overcoming bureaucratic obstacles.

Dear all, I have also covered this topic with the help of some questions that I have included in the question bank given to you… therefore we move to impacts of legal environment in next slides


How Bribery and Other Types of Corruption Threaten the Global Marketplace?

• There’s no doubt that corruption, endemic in emerging economies around the world, throws economic development into chaos. It affects decisions made by bureaucrats, degrades the quality of those in power, and discourages foreign investment.

• It’s also an increasingly hot business topic, with a growing number of influential business and political leaders from around the globe regularly pinpointing corruption as one of the greatest threats to global economic development.

• Bribery, of course, is the most widespread form of corruption, and corporate strategies for dealing with bribe requests vary.

• Some companies opt to pay, sometimes damaging their public images and making it more difficult to refuse future requests. Others have the sheer bulk and revenues to successfully and consistently say “no.”

• Oil giant Texaco, for example, has such a formidable reputation for refusing to pay bribes that its jeeps are often waved through even remote African border crossings without paying a penny.


Question that arises…

On a practical level, what does the upswing in international corruption mean to a company?

The fact that a great number of government officials in a great number of countries, including some potentially large markets, seem to demand bribes is critical to any business that has a cross-border presence.

Then there’s the reality that more than 20 nations, including the wealthiest and most-active trading nations, have made bribe paying illegal, and the fact that despite this there are still competitors who will pay bribes.


Is bribery a strategy to enter international markets? Is it ethical?

• It depends on the culture we grow up in to classify a specific amount as either bribery or easing business and probably building relationships.

• Some time before I was asked about how business is done in my home country and I described it as partnering with some officials involuntary. Others might describe this as a type of bribery.

• I agree that bribery is unethical, however if a certain attractive market requires a business to enter into such untraditional actions, should the company do them?


Case Study of Wal –Mart (Bribery)

• Some years before, a news report came out about Wal-Mart paying bribes to Mexican officials to obtain permits in virtually every corner of the country.

• Walmart said: “We do not believe that these matters will have a material adverse effect on our business”. They probably believe that doing such acts is necessary to do business in Mexico.

• They don’t believe that they violated the Foreign Corrupt Practices Act, a federal law that makes it a crime for American corporations and their subsidiaries to bribe foreign officials.

• The US law is clear regarding US companies paying bribes for foreign officials. This clearly makes the Mexican market a lost opportunity.

• Walmart as an example going to Mexico should adapt to the way business is done there and formulate strategies that coop with the country.

• Bribery should be a taboo of practicing business in any place. Walmart could have lost the opportunity to enter the Mexican market, however it would have not risked its reputation in the US market that compromise most of its revenue (around 70% of sales based on the last quarter report).

• Walmart runs from a more regulated country compared to other countries. Laws such as the Foreign Corrupt Practices Act and others, discourage companies to engage in such acts. Other companies on the other hand that run from different unregulated countries could have the short-term financial advantage.

• A market system that relies a lot on bribes could easily suck companies’ earnings by asking more with time.


PERMANENT ESTABLISHMENT (BRANCH) VS SUBSIDIARY

• A permanent establishment (Branch) is generally defined as a fixed site through which the business of the company is wholly or partly carried on within that territory. It can include an agent habitually exercising authority to do business on behalf of the company.

• A Subsidiary is a separate legal entity so liabilities arising within the company can not be claimed against another company in the group.

• The points of difference are clearly stated in the table in the next slide.


Issue Branch Subsidiary

Legal entity Not a separate legal entity, so claims and liabilities arising in the PE can beextended to the main company of which it is part.

A separate legal entity, so liabilities arising within the company can not beclaimed against another company in the group.

Inter office remittances/repatriation of profits

Inter office remittances are not taxable. •Repatriation of profits can take various forms and is therefore flexible.•Timing of the repatriation of profits can be arranged to suit the group taxposition.•No withholding tax on dividends

Profits/losses Relief for start up costs and initial trading losses can be set against parent company profits for tax purposes. Corporation Tax will be due on any profit made by the branch.

The rate of corporation tax can be higher as a result of increased numbers of companies in the worldwide group.

Filing requirements. Public filing of parent company accounts is usually required, depending on the law in the country of origin

There is public disclosure of the accounts. There is no cross borderconsolidation so administration can be more straightforward.

Generally A PE can be easier to establish and close down if unsuccessful. However, later incorporation may trigger tax liabilities because of transfers to a separate company although these can often be overcome.

Home Country customers may prefer to deal with a domestic company rather than the branch of an overseas company


Counterfeiting• Counterfeiting is the practice of manufacturing goods, often of inferior quality, and

selling them under a brand name without the brand owner’s authorization.

• Generally, counterfeit goods are sold under a trademark that is identical to or substantially indistinguishable from the brand owner's trademark for the same goods, without the approval or oversight of the trademark owner.

• Many well-known brands, spanning various industries, are victims of counterfeiting.

• Counterfeiting can be distinguished from traditional trademark infringement or passing off, which involves the use of confusingly similar trademarks or service marks on or in association with similar—as opposed to fake—products or services.

• The manufacturing of counterfeits is most prevalent in developing countries with a strong, inexpensive manufacturing capability, including many nations throughout Asia (such as China and Taiwan), although counterfeit goods are sold around the globe.

• Counterfeits are manufactured to a lesser degree in developed countries.

• Anything that can be made can be counterfeited. Counterfeit goods include not only clothing, jewelry, purses, CDs, and DVDs, but also baby formula, medications, cigarettes, electronic equipment and parts, airplane and automobile parts, and toys etc.


Does counterfeiting cause any damage?

• Yes. Although some believe counterfeiting is a victimless crime, it has many far-reaching consequences.

• To begin with, depending upon the nature of the product being counterfeited, there can be serious health and safety concerns for consumers, such as in the examples of counterfeit baby formula, toys for children, medications, car parts, or electronic goods. In nearly every instance, counterfeited goods are not made with the same quality materials or to the same high standards as the original.

• In addition, counterfeiting damages brand owners’ reputations and lowers consumer confidence in the affected brands. Counterfeiting also damages brand owners and retailers selling legitimate products by causing missed sales opportunities and actual job losses by manufacturers and retailers.

• Consumer confidence and the value of branding may suffer when purchasers discover that the product they bought, believing that it was being sold under a recognized brand, is in fact not authentic. Damages do not stop with brand owners and consumers because counterfeiting also deprives national economies of customs duties and tax revenues.

• Counterfeiting may also be linked to organized crime or criminal activity, which may pose serious threats to the health and safety of consumers, economies and national security.


Gray market• The gray market, while not illegal like the black market, involves the sale of goods

through means other than what was intended or approved by the original maker of a product.

• A private person or business purchases the good at retail, wholesale, or a discounted price, and attempts to resell it legally at a higher price.

• The list of things that can be sold this way is endless, but popular items include electronics, photographic equipment, cigarettes, DVDs, and wine. The term can also be used to refer to the securities market, where it defines the buying and selling of securities that will be issued at some point in the future.

• It is extremely difficult to track the gray market because, once a good is sold to an unauthorized dealer, the manufacturer has no way of tracking the sale of it. This market exists just about everywhere.

• In the suburbs, one prime example is the snack stand at a high school football game. In an effort to raise money, the student council may purchase soda, hot dogs, and chips at a wholesale warehouse store, then sell them for a profit at the game.

• Another good example is when someone buys goods at a garage sale or outlet store and resells them on an online auction site at a higher price.


Gray market continued…..• Under some circumstances, different countries have different markets for different goods.

When a person takes advantage of the disparity in market prices of a particular good, it is called arbitrage. An arbitrageur takes advantage of this disparity by buying a good in a country where it is significantly cheaper, then reselling it legally in another country where he can demand a higher price.

• One drawback of the gray market is that many manufacturers will not honor warranties on electronics purchased through it. Because the good is not purchased through “authorized” channels, manufacturers refuse to spend the money to honor the warranty. One of the ways that manufacturers identify items resold this way is by putting different model numbers on the same product in different countries. When someone calls for warranty issues, the manufacturer can identify whether their product was sold in the correct country. The warranty cannot usually be enforced, because it was sold through a third party in a different country.

• Authorized agents and sellers are most often financially affected by the gray market, because they lose business to unauthorized sellers. Local laws can help or hurt this market. In some cases, food is difficult to resell because local laws dictate packaging, so what is legal in one state or country may not be in another.

• In an effort to curb the resale of DVDs and DVD players, DVD region codes are written onto the disc for the specific geographical area it is supposed to be sold in. Only the DVD players intended for sale in that area can play these DVDs.


Cultural Influences on International Marketing


Chapter Objectives• Identify the elements of culture and examine how they affect

marketing practices around the world• Describe national and regional character based on dimensions

such as time orientation, business practices, gift giving, socializing, gender roles, and materialism

• Discuss cultural variability in terms of the Hofstede dimensions with appropriate examples and address cultural change in a marketing context

• Address the self-reference criterion and ethnocentrism and describe how they impeded mutual understanding and cooperation, with direct negative effects on marketing practices

• Describe the global consumer culture as it manifests itself around the world


The Importance of Understanding• Many companies find that their new foreign firm is

about to collapse because they have failed to learn that country’s customs, cultures, and laws

• Two out of every three U.S. executives sent to Saudi Arabia are promptly repatriated due to difficulties in adapting to the local culture

• The costs associated with premature returns (repatriation) negatively affects the bottom-line of international companies


Culture Defined

• A continuously changing totality of learned and shared meanings, rituals, norms, and traditions among the members of an organization or society. Ecology Social Structure Ideology


Cultural Dynamics• Culture: definition, origin, and scope• Culture and consumption (e.g., flower, food, habitats):

modernization influence• Culture is shaped and influenced by

Geography, history and politics Technology Social Institutions: family, religion, school, media, and

government

• Elements of culture Cultural values- Hofstede’s five cultural values Beliefs, rituals, thought process Language: verbal, nonverbal, silent language of time, space and

friendship Aesthetics: arts, folklore, and music, drama, dance etc.

• Cultural change: planned and unplanned, resistance to change


Hofstede’s Cultural Value• Individualism/collective index (IDV): Refers to preference of

behavior that promotes one’s self interest. Higher score (e.g., USA) means high on individualism.

• Power distance index (PDI): Measures the tolerance of social inequality, that is, power inequality between superiors and subordinates within a social system. Higher score (e.g., Arab countries) means more hierarchical.

• Uncertainty avoidance index (UAI): Refers to the intolerance of ambiguity and uncertainty among members of a society. Higher score (e.g., Greece) means less tolerance for uncertainty.

• Masculinity/feminity (MAS): Refers to one’s desire for achievement and entrepreneurial tendencies. Higher score (e.g., Latin culture) means more assertiveness and masculinity.

• Future orientation: Refers to the long-term orientation of the society.


Elements of Culture

• Spoken/Written Language Differences in meaning in

different countries which share the same language

Dealing with multiple dialects High costs of translation High costs of translation

blunders


Elements of Culture• Nonverbal communication

Proxemics - the branch of knowledge that deals with the amount of space that people feel it necessary to set between themselves and others.

Postures - a particular approach or attitude/ viewpoint Orientations - Oculesics - is the study of eye movement, eye behavior, gaze, and eye-related

nonverbal communication. Chronemics - is the study of the use of time in nonverbal communication. The way

that an individual would perceive and value time, structure our time and react to time is a powerful communication tool, and helps set the stage for the communication process.

Haptics - is any form of nonverbal communication involving touch. Kinesics - the study of the way in which certain body movements and gestures serve

as a form of non-verbal communication. Paralinguistics- the study of vocal (and sometimes non-vocal) signals beyond the

basic verbal message or speech. Appearances- the way that someone or something looks. Olfactions – The sense of smell/ past participle of olfacere.


Culture and Business• Role of adaptation

cultural imperatives: must conform (e.g., trust, relationship) cultural electives: may or may not conform (e.g., kissing, hugging,

wine in business meetings) cultural exclusives: exclusively for the locals, do not have to

conform (e.g., local dress, local food, religious practices)• Critical features of different Management Style• Management Styles in the World

Authority and decision making Management objectives and aspirations Role of individual in a company- social dimension Communication styles (High context vs. Low context) Formality P-time (poly chronic) vs. M-time (mono chronic) Negotiation style


Culture and Business (contd.)

• Gender bias in international business• Business Ethics and Corruption• Transparency International’s CPI or Bribery Index• Bribery: definition and variations

Gifts vs. Bribery Extortion Lubrication

• Long term vs. short term orientation in decision making• Relationship-oriented vs. Information-oriented culture


High vs. Low Context Cultures

• Low-Context cultures: What is said is precisely what is meant

• High-Context cultures: The context of the message— the message source, his or her standing in society or in the negotiating group, level of expertise, tone of voice, and body language—are all meaningful


High Context vs. Low Context Cultures

High Context Implicit

Japanese

Arabian

Latin American

Spanish

Italian

English (UK)

French

North American (US)

Scandinavian

German

SwissLow Context Explicit


Religion and Its Impact on Marketing Practice

• Protestant Religion – stresses hard work and frugality

• Judaism – stresses education and development• Islam – focus on rules for social interaction • Hinduism – encourages family orientation and

dictates strict dietary constraints• Buddhism – stresses sufferance and avoidance

of worldly desires


Religion

• Business days• Gender roles• Gift giving• Marketing practices


Cultural Values

• Enduring beliefs about a specific mode of conduct or desirable end-state

• Guide the selection or evaluation of behavior

• Are ordered by importance in relation to one another to form a system of value priorities


Cultural Values

• Enculturation

Process by which individuals learn the beliefs and behaviors endorsed by one’s own culture

• Acculturation

Learning a new culture• Assimilation

Maintenance of the new culture, and resistance to new cultures and to one’s old culture


Cultural Norms

• Norms are derived from values and defined as rules that dictate what is right or wrong, acceptable or unacceptable Imperative

- What an outsider must or must not do Exclusive

- What locals may do but an outsider cannot Adiaphora

- What an outsider may or may not do


National/Regional Character

• Time Orientation• Business Hours• Gift Giving• Socializing• Gender Roles• Status Concern and Materialism• Other – for example, access

(transportation by bicycle, personal automobile, public transportation


Cultural Variability

• Power Distance• Uncertainty Avoidance• Masculinity Versus

Femininity• Individualism Versus

Collectivism


Cultural Change & Marketing

In an advertisement, if the above are perceived as faces, censors

might erase them; if they are perceived as a vase, they would

not be altered.

Marketers need to identify the symbolic elements that are important to a market segment and use them effectively in creating the marketing mix.


Obstacles to Cultural Understanding

• Ethnocentrism A related belief that a particular culture is superior to

another and that strategies that are used in the home country will work just as well abroad.

• The Self-Reference Criterion: The unconscious reference to one’s own value system


Dealing with the Self-Reference Criterion

1) Define the marketing goal in terms of one’s home country’s cultural traits, norms, and values

2) Define the marketing goal in terms of the host country’s cultural traits, norms, and values

3) Isolate the self-reference criterion influence and evaluate it to understand how it affects the marketing issue

4) Solve the marketing problem based solely on the unique conditions of the host country.


THANK YOU…….