Global Markets. World Trade U.S., Europe, Canada, China, Japan together are about 2/3 of world trade Not all trade is for money –Countertrade – The practice

Global Markets

World Trade• U.S., Europe, Canada, China, Japan together

are about 2/3 of world trade

• Not all trade is for money– Countertrade – The practice of using barter

rather than money for making global sales– Popular with Eastern European nations (rice for

corn)– Volvo of North America traded Volvos for oil

with Siberia, then sold oil for cash and paid for U.S. ads

http://www.volvocars.us/default

World Trade

• The argument for free trade – Trade Feedback Effect– As exports rise, its national output and

income rise, leading to more imports. This demand for imports stimulates exports of other countries. Increased demand for exports increases their economic activity, creating more income, stimulating their need for more imports.

World Trade• U.S. Perspective

– World leader of Gross Domestic Product (GDP)• Monetary value of all goods and services

produced in a country during one year

– Among leaders in world exports• Aerospace, chemical, office equipment,

information technology, pharmaceutical, telecommunications, professional services

• Has decreased over the last 30 years

– World imports have increased

World Trade

• U.S. Perspective– Balance of Trade

• The difference between monetary value of a nation’s exports and imports

– U.S. has balance of trade deficit• Imports have exceeded exports since 1975• Imports and exports are 10 to 15 times

what it was in 1970’s

World Trade

• U.S. Perspective– Canada, Mexico, and Japan are largest

importers of U.S. goods (~44%)

– Canada, China, Mexico, and Japan are largest exporters to U.S.

– Japan, South Korea, and China are about 80% of the total U.S. balance of trade deficit

Borderless Economic World

• Trends influencing landscapes of global marketing– Decline of economic protectionism by

individual countries

– Formal economic integration and free trade among nations

– Global competition among global companies for global customers

– Networked marketspace

Borderless Economic WorldDecline of Economic Protectionism

• Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas.

• Tariffs are a government tax on goods or services entering a country, primarily serve to raise prices on imports.– Average tariff on manufactured goods is 4%

• Substantial effect on world trade and prices– Japan tariff on U.S. rice imports costs Japanese

consumers $6 billion annually

Borderless Economic World Decline of Economic Protectionism

• Quotas are restrictions placed on amount of a product allowed to enter or leave a country.– Mandated or voluntary, legislated or

negotiated by gov’t

– U.S. has sugar quota to protect domestic producers

Borderless Economic World Decline of Economic Protectionism

• General Agreement on Tariffs and Trade– International treaty that limits barriers and promotes

world trade through reduction of tariffs– Did not address nontariff trade barriers, caused

disputes among nations

• World Trade Organization– Created to address more broad trade issues– 147 member countires, 90% of world trade– Sets rules to govern member trade– Hear and decide trade disputes among members

Borderless Economic WorldRise of Economic Integration

• Countries with similar economic goals formed trade groups or signed agreements to promote free trade

• European Union– 25 member countries eliminated barriers to trade

across borders– 380 million consumers, combined GDP larger than

the U.S.– 12 countries adopted a common currency, the euro– Don’t have to market products nation by nation any

longer (same product, same price)

Borderless Economic World Rise of Economic Integration

• North American Free Trade Agreement– Lifted many trade barriers between Canada,

Mexico, and U.S.– 400 million consumers– Negotiations to create a 34 country free trade

area including U.S., Canada, Mexico, Latin America, Caribbean countries

– Stimulated trade flows among members as well as cross-border retailing, manufacturing, and investment

Borderless Economic World Rise of Economic Integration

• Asian Free Trade Agreements– Japan, Hong Kong, Singapore, South

Korea, Taiwan, Thailand, Malaysia, and Indonesia

– Less formal, but have reduced tariffs among these countries

Borderless Economic WorldGlobal Competition Among Global Companies for

Global Consumers

• Created by lack of “borders” among trade

• Global Competition exists when firms originate, produce, and market products and services worldwide– Soft drinks, cosmetics, cereals

– Pepsi vs. Coca-Cola

http://www2.coca-cola.com/index.html

Borderless Economic World Global Competition Among Global Companies for

Global Consumers

• Global Companies– International Firms market their products/services

in foreign countries the same as they do in their home country• Avon sells their products using the same marketing

strategy in Asia, Europe, and South America pretty much the same as they do in the U.S.


Global Consumers

• Global Companies– Multinational Firms view the world as consisting of

unique parts and markets to each part differently• Multidomestic marketing strategy – have as many

different product variations, brand names, and advertising programs as countries in which they do business

• Basically the same product idea, just different brand names, product variations, and marketing strategies

– Mr. Clean is Mr. Proper in Europe, Africa, and Middle East


Global Consumers

• Global Companies– Transnational Firms view the world as one market

and emphasizes cultural similarities across countries or universal customer needs and wants more than differences• Global marketing strategy – practice of standardizing

marketing activities when there are cultural similarities and adapting them when cultures differ

• Global brand – a brand marketed under same name in multiple countries with similar centrally coordinated marketing programs

http://www.cocacola.com/


Global Consumers

• Global Consumers– Consist of consumer groups living in many

countries or regions of the world who have similar needs or seek similar features and benefits from products or services

Borderless Economic WorldEmergence of a Networked Global Marketplace

• Internet technology

• Exchange of goods, services, and information from companies anywhere to customers anywhere at any time and at a lower cost

Global Environmental Scan

• Three kinds of uncontrollable environmental variables that are very different than domestic markets– Cultural Diversity

– Economic Considerations

– Political-Regulatory Climate

Global Environmental ScanCultural Diversity

• To create beneficial exchange relationships with global consumers, marketers must be sensitive to cultural differences of different societies

• Cross-cultural Analysis– The study of similarities and differences

among consumers in two or more nations or societies, involves understanding of values, customs, symbols, and languages


• Values– Represent personally or socially preferable

modes of conduct or states of existence that tend to persist over time• McDonald’s does not sell beef in India

– Cultural values influence behavior


• Customs– What is considered normal and expected about

the way people do things in a specific country• Japanese women give Japanese men chocolate

on Valentine’s Day• Business gifts are expected in many countries• Japanese business executives listen more in

negotiations• Germans “dress up” more, muted business suits

are appropriate for most meetings


• Cultural Symbols– Things that represent ideas and concepts

• Important because different objects may mean different things in different countries

– Semiotics is the study of symbols• North Americans think superstitious about

#13, Japanese think the same way about #4• A thumbs-up sign is positive in U.S.,

offensive in Russia and Poland


• Language– Must know the language and also the slang– About 100 official languages, but about 3,000

different languages are spoken– Principal languages globally are English,

French, and Spanish– Back translation is where a translated word or

phrase is retranslated into the original language by a different interpreter to catch errors


• Cultural Ethnocentricity– The belief that aspects of one’s culture are

superior to another’s

• Consumer Ethnocentrism– Tendency to believe that it is inappropriate,

indeed immoral, to purchase foreign-made products• Unpatriotic, harm domestic industries,

cause domestic unemployment• Makes global marketing more difficult

Global Environmental ScanEconomic Considerations

• Includes– Compare economic development

– Assessment of economic infrastructure

– Measurement of consumer income

– Recognition of currency exchange rates

Global Environmental Scan Economic Considerations

• Stage of Economic Development– Two classifications of economic development– Developed countries have somewhat mixed economies

• Private enterprise dominates, substantial public sectors as well

• U.S., Canada, Japan, most of Western Europe– Developing countries are moving from agriculture to

industrial economy• Already made the move (Brazil, China, Israel)• Locked in pre-industrial (Sri Lanka, Tanzania)


• Economic Infrastructure– A country’s communications,

transportation, financial, and distribution systems


• Consumer Income and Purchasing Power– Household income varies between nations

– As middle-income households increase, the greater the nation’s purchasing power tends to be

Global Environmental ScanEconomic Considerations

• Currency Exchange Rates– Price of one country’s currency expressed

in terms of another country’s currency.

– When foreign currencies can buy more U.S. dollars, U.S. products are less expensive for the foreign consumer

Global Environmental ScanPolitical-Regulatory Climate

• Political Stability– Internal political problems– Terrorism– War

• Trade Regulations– Rules that govern business practices (these are trade

barriers)– All commercials in Malaysia have to be made in

Malaysia– Auto replacement parts in Japan have to be Japanese

Global Market-Entry Strategies

• Exporting

• Licensing

• Joint Venture

• Direct Investment

Global Market-Entry StrategiesExporting

• Exporting is producing goods in one country and selling them in another country.

• Allows a company to make the least number of changes to product, organization, corporate goals

• Provides less local employment than other ways of entry

Global Market-Entry StrategiesExporting

• Indirect Exporting is when a firm sells its domestically produced goods in a foreign country through an intermediary.– Little commitment, little risk, little profit– Ideal for those with no overseas contacts

• Direct Exporting is when a firm sells its domestically produced goods in a foreign country without intermediaries.– Believe that they will have large amount of sales– More risk, potentially more profit– Main entry strategy for small-medium companies

Global Market-Entry StrategiesLicensing

• Licensing is where a company offers the right to a trademark, patent, trade secret, or other similarly valued item of intellectual property in return for a royalty or a fee.

• Low risk, capital-free entry into foreign country

• Foreign licensee gets competitive advantage, foreign country gets employment opportunity

Global Market-Entry Strategies Licensing

• Disadvantages– Lose control of product

– Reduces potential profits

– Creates its own competition

– Reputation may be harmed


• Contract manufacturing– U.S. company contract with foreign firm to

manufacture products according to stated specifications, then sold in that country or shipped to U.S. to be sold

• Contract Assembly– U.S. company send products to foreign country and

they assemble them into final product• In both, the U.S. firm gets lower work wages and the

foreign country gets employment


• Franchising– Fastest growing market-entry strategy

– McDonald’s is a global franchiser

Global Market-Entry StrategiesJoint Venture

• Joint ventures are where a foreign company and a local firm invest together to create a local business.

• Share ownership, control, profits

• Advantages– One company doesn’t have to enter market

alone (may not have the resources alone)– Foreign gov’t may require a joint venture

• Disadvantages– Disagreements between the two companies

Global Market-Entry StrategiesDirect Investment

• Direct Investment is where a domestic firm invests in and owns a foreign subsidiary or division.

• Big commitment from company

• Usually follows one of the other market-entry strategies

Worldwide Marketing Program

• Product– Product extension is selling the same product in all

countries• Works when target market is alike, shares same needs and

uses for product• Coca-Cola, Levi’s, Gillette razors Levi's webpage

– Product adaptation is when the product is changed is some way to make it more appropriate for a foreign country.• Gerber baby food (rabbit meat in Poland), Maybelline

make-up

http://www.levis.com/


• Product– Product invention is when a totally new product is

created for a certain country.

• Promotion– Identical promotional strategy is usually used for

product extension and product adaptation strategies.– Can adapt message for certain countries– Can use a dual adaptation strategy by modifying

both product and promotional strategies


• Distribution (Place)– Usually determined by the foreign country’s stage of

economic development

• Pricing– Some countries impose considerable restraints on

pricing• German officials told Wal-Mart that prices were too

low– Economic factors (production costs, selling, tariffs,

transportation) affect global pricing


• Pricing– Can receive fines/penalties

– Dumping is when a firm sells a product in a foreign county below its domestic price or below its actual cost.• Used to build market share• Can’t be sold domestically, want to “get rid of”• Foreign companies can set large tariffs if they

suspect this

Documents

Global Markets. World Trade U.S., Europe, Canada, China, Japan together are about 2/3 of world trade Not all trade is for money –Countertrade – The practice