IntMarketing

KIT – Universität des Landes Baden-Württemberg und

nationales Forschungszentrum in der Helmholtz-Gemeinschaft

Institute of Information Systems and Marketing (ISSM)

Marketing & Sales Research Group

www.kit.edu

International Marketing

Lecture | Fall term 2014 Martin Klarmann

Institute of Information Systems and Marketing (IISM)


2

Team

Prof. Dr. Martin Klarmann

Lecturer: Prof. Dr. Martin Klarmann

Email: [email protected]

Homepage: http://marketing.iism.kit.edu/

Office hours: Mondays, 4 p.m. – 6 p.m. (appointment required, please contact Juliane

Bayer at [email protected])

MSc. Isabella Kindersberger (Lecture and student support)

Office Hours: Tuesdays 3 p.m.-5 p.m.

Phone : 0721 – 608 4 1798


Adresse: Zirkel 2, Gebäude 20.21, Raum 102

20-Oct-14 Martin Klarmann, Fall 2014

Lecture:

Dr. Sven Feurer (Lecture October 27)

Phone : 0721 – 608 4 1796


Adresse: Zirkel 2, Gebäude 20.21, Raum 103



3

Organization

Times: Monday, 9.45 a.m. – 11.45 a.m.

First lecture: October 20, 2014

Last lecture: December 1, 2014

Room: HS 20.13/ 001

Slides: Available online on ILIAS

Exam:

Type: Written exam (no exceptions), 60 min. + 10 min. reading time

Probable date: December 15, 2014, 5.50 p.m. – 7.00 p.m.

Room: tbd

Resit: 16 May 2015

Old exams: Previous exams will be provided on ILIAS in November

Contact:

Lecturer: Prof. Dr. Martin Klarmann


Homepage: http://marketing.iism.kit.edu/

Office hours: Mondays, 4 p.m. – 6 p.m. (appointment required, please

contact Juliane Bayer at [email protected])

Martin Klarmann, Fall 2014 20-Oct-14



4

Agenda


I. Introduction

II. Understanding International Markets: Culture

III. Understanding International Markets: Buyer Behavior

IV. Market Entry Decisions

V. International Market Research

VI. International Marketing Mix Management

VII. Marketing in Emerging Markets



5

This course has two sets of goals


Familiarity with key English

marketing terminology

Ability to formulate an international

marketing strategy using the appropriate

vocabulary

Language-related goals

Understanding of the concept of

culture and its application to marketing

Familiarity with particular aspects

of international buyer behavior

Ability to evaluate countries regarding

their market potential and knowledge

of appropriate market strategies

Ability to apply market research

techniques to international contexts

Knowledge of particularities that need to

be considered in the international design

of the marketing mix

Knowledge of options in designing

the international marketing organization

Recognition of business opportunities

in emerging markets

Content-related goals

Course goals



6

Reasons for studying international marketing:

World trade is continuously growing (I)


Source: WTO World Trade Report 2013



7


World trade is continuously growing (II)


Source: WTO 2013



8 Martin Klarmann, Fall 2014 20-Oct-14

Foreign trade arises because countries want to increase their wealth at the expense of other

countries: “The ordinary means to increase our wealth and treasure is by foreign trade,

wherein we must ever observe this rule: to sell more to strangers yearly than we consume of

theirs in value.” (Thomas Mun, 16th century)

Mercantilism

Foreign trade arises because countries specialize in the production of goods where they

have an absolute cost advantage. These goods are exported to the countries which import

goods they can not produce without incurring a cost disadvantage.

Theory of Absolute (Cost) Advantage (Smith)

Foreign trade arises because countries specialize in the production of goods where they

have a comparative cost advantage and import goods they can not produce without incurring

a cost disadvantage.

Theory of Comparative (Cost) Advantage (Ricardo)

A country that is relatively abundant in a factor of production should export goods that use a

lot of that factor in the production process, and import other goods.

Factor Proportions Trade Theory (Heckscher/Ohlin)

Foundations of International Trade:

Classical Trade Theories

(Kutschker and Schmid 2006, pp. 375; adapted from Hagelstam 1991; Smith 1776; Ricardo 1970; Heckscher 1949; Ohlin 1952)




Example:

The Theory of Comparative Advantage (Ricardo 1817)

(Kotabe and Helsen 2010, p. 26)



10


Exports are a key factor in German business models (I)


Source: WTO World Trade Report 2013



11


Exports are a key factor in German business models (II)


Source: Firm homepages, all numbers for 2011

Total: 68.8 Bil. €

Germany: 12.9 Bil. € (19%)

Abroad: 55.9 Bil. € (81%)

Total: 106 Bil. €

Germany: 20 Bil. € (19%)

Abroad: 86 Bil. € (81%)


Germany: 28.7 Bil. € (39%)

Abroad: 44.8 Bil. € (61%)


Germany: 1.37 Bil. € (23%)

Abroad: 4.63 Bil. € (77%)


Germany: .59 Bil. € (29%)

Abroad: 1.43 Bil. € (71%)


Germany: .53 Bil. € (13%)

Abroad: 3.71 Bil. € (87%)



12

Evolution of international marketing (I)


Source: Kotabe and

Helsen (2011, p. 15)

Country

Choice

Domestic

Focus Export Modify

Marketing

Strategy

Develop and

Acquire New

National Brands

Share Advertising,

Promotional, and

Distribution Costs

Country 1

Country 2

Country 3

Country 4

Timing and

Sequencing

of Entry

Type of

Marketing

Orientation

Product

Planning

Marketing

Mix

Decisions

Domestic Marketing Export Marketing International Marketing

Ethnocentric

Made at

headquarters

Product

development

for home

customers

Ethnocentric

Made at

headquarters

Product development

determined primarily

by the needs of home

country customers

Polycentric

Made in each

country

Local product

development

based on

local needs



13

Evolution of international marketing (II)


Source: Kotabe and

Helsen (2011, p. 15)

Modify

Marketing

Strategy

Develop and

Acquire New

National Brands

Share Advertising,

Promotional, and

Distribution Costs

Country 1

Country 5

Country 6

Country 4

Type of

Marketing

Orientation

Product

Planning

Marketing

Mix

Decisions

Multinational Marketing

Regiocentric

Made regionally

Standardize

within regions,

but not across

Region 1

Region 2

Coordinate

Marketing Mix

Across Countries

and Regions

Integrate

Sourcing and

Production with

Marketing

Allocate Resources

to Achieve

Portfolio Balance

and Growth

Global Marketing

Geocentric

Made jointly

with mutual

consultation

Global product

with local

variations



14

The international marketing trajectory for Bosch

Siemens Hausgeräte (BSH)


Subsidiaries

Employees

Revenues

1967

3 Factories in Germany

7

14,000

.5 billion Euros

Subsidiaries

Employees

Revenues

1990

13 Factories in Germany,

Greece, Spain

41

23,000

3.3 billion Euros

Subsidiaries

Employees

Revenues

2012

42 Factories in Germany, China, France, Greece, Peru,

Poland, Russia, Slowakei, Slovakia, Spain, Thailand,

Turkey, USA

70 in 50 countries

46,925

9.8 billion Euros

Multinational Marketing Export Marketing Domestic Marketing



15

The international marketing challenge –

Walmart in Germany (I): Background

Short history: 1962: Sam and James Walton open first store in Rogers, Arkansas

1967: 24 stores with US$ 12.6 million revenues overall

1970: Walmart goes public and opens distribution center at

Bentonville, Arkansas

1975: Sam Walton introduces Walmart cheer

1980: 270 stores (USA)

1985: 882 stores (USA)

Today: 10,390 stores in 27 countries (3,925 stores in the USA)

2012 revenues estimated to be US$ 444 billion

Superlatives: - 2011 third largest firm (revenues) in the world (behind Shell and Exxon)

- 2011 largest retailer in the world

- 2011 largest employer in the world (more than 2.2 million employees)

Key elements of the business model:

- „Everyday low pricing“ policy

- Superior logistics

- Strong in analyzing „Big data“

- Low wages and strict anti-union policies




16

Walmart in Germany (II): Timeline


1997

Walmart announces intention to enter European

market

Plans to establish Germany (at the time the third-

largest retailing market in the world) as base for

entering Eastern Europe

Walmart buys 21 Wertkauf hypermarkets

1998 Walmart buys 74 Interspar hypermarkets

(estimated US$ 1.6 billion payment for all

95 markets)

1999 Estimated US$ 200 million loss in Germany

2001 Fourth CEO appointed (Kay Hafner), the

second German after Volker Barth

2002

2003

2006

Introduction of the Euro in Germany results

in strong decreases in consumer spending

Only official profit figure from Walmart Germany:

Loss of 487 million Euros

Six weeks after announcing to stay in the German

market for good, Walmart sells its remaining 85

markets to the Metro Group (“real”) for an unknown

sum, leading to depreciations in the US balance

sheet of almost $US 850 million



17

Walmart in Germany (III): Cultural

misunderstandings


Expatriate top managers

Four CEO‘s in first

four years

First two CEO‘s from

USA and UK without

international experience

and German skills

Lack of cultural

sensibilities: requirement

for managers to share

hotel rooms

Remaining high potentials

leave the firm

The Walmart „Cheer“

Highly publicized after

Walmart‘s entry on

the German market

Earns the firm a lot

of ridicule in Germany

Generally: High

skepticism towards

rituals based on

totalitarian abuse in

German past

Employees not willing

to adopt this practice

The „no romantic

relationsships at the

workplace“ rule

2005: Walmart Germany

introduces new ethics

guidelines

One element: Employees

are not allowed to date

each other or have

romantic relationships

Highly publicized

Revoked by court



18

Walmart in Germany (IV): Unexpected consumer

behavior


No “one stop shopping”

German shopping

behavior different

Many groceries

(e.g., bread, meat,

fruit, vegetables) are

bought the day they

are consumed

Specialized non-food

retailers (particularly

drugstores such as dm

highly successful)

Smaller shopping baskets

at Walmart

Germans bring own bag

German consumers

tend to bring own

bags when shopping

High irritation at the

use of plastic bags by

Walmart

Packaging services

in the stores not

appreciated

High degree of price

consciousness

Empirical show that

German customers

are highly price-

concscious

McKinsey 2002:

45% of German

consumers rank

price as most

important criterion

(vs. 13% for quality)



19

Walmart in Germany (V): Legal troubles


Restricted opening hours

At the time of Walmart’s

entry opening hours

still highly regulated

Maximum 80hrs possible

Strongly reduced

shelf productivity

compared to US

Less time for buyers to

drive out to hypermarkets

No “superior” service

against promise

Labor regulations

German legislation

makes traditional

anti-union policies

impossible to uphold

Reluctance to sign

a global wage arrange-

ment leads to strikes

Walmart learns that

they are required to

allow employee councils

New rules of competing

US managers

simply ignored German

competitive legislation

High fines because milk

and other products were

sold for less than costs

Hesitation to publish

balance sheet and Win/

Loss statements costly

for firm and managers



20

Walmart in Germany (VI): Flawed entry strategy


Bad locations

Acquired hypermarkets

from Interspar and

Wertkauf not profitable

Key reason: Locations

Typically located in

socially difficult areas

of major metropolitan

areas

Not well-aligned with

Walmarts focus on

conservative rural

America

No growth opportunity

US growth strategy

of simply opening

new stores not

applicable to Germany

Rigorous legislation on

zones where retailers

can open new stores

Generally German

regulatory bodies very

reluctant to allow new

zones for hypermarkets

Only growth opportunity

M&A, but no seller willing

to sell to Walmart

≠

Internal culture clash

Interspar and Wertkauf

markets have a

completely different

background

Wertkauf: Highy

centralized

Interspar: Decentralized

decision making in

regions

Strong cultural differences

and major rivalries

between managers from

both firms



21

Walmart in Germany (VII): The tough competive

environment


Home of hard discounters

With Aldi, Lidl, and Penny

hard discounters already

have a strong foothold

on the German market

Hard discounting:

Few items in a very

simple store environment

Walmart cannot become

price leader

Consumers consider

additional services waste

of money

Generally low margins

Margins in German

retailing are often

considered to be

among the lowest

worldwide

In many markets 1% or

less

Only highly efficient

retailers can become

profitable

High degree of

concentration

German retailing market

highly concentrated

In 2002 top five firms

made almost two-thirds of

all revenues

KPMG (2010) expects that

the concentration will

increase even further

to 75%

Much better bargaining

power with suppliers

for these firms




The international marketing challenge –

Tesco in the USA (I): Background

Short history: 1919: Founded by John Cohen as a group of market stalls

1924: Name Tesco first appears (T.E. Stockwell [Tea] + COhen]

1929: First store in Burnt Oak, Middlesex, England

1939: More than 100 stores, focus on groceries

Business motto: “Pile it high and sell it cheap”

1990’s: About 500 stores, increasingly wider product portfolio,

including books, CD’s, clothing (3rd largest retailer in the UK)

1997: Sir Terry Leahy appointed as CEO: Aggressive expansion

nationally and internationally

2006: First UK retailer with profitable grocery online business

2011: Philip Clarke appointed as CEO

Today: 6,800 stores in 14 countries (3,146 stores in the UK)

2012 revenues 72.4 billion pounds, 2 billion profits

Superlatives: - 2012 third (second) largest retailer based on revenues (profits) world-wide

Key elements of the business model:

- Wide range of store brands (ranging from discount to luxury)

- Wide range of store formats

- Online presence

- Loyalty program (Clubcard)

- Process optimization



23

Tesco in the USA:

fresh & easy – The Vision


USA very competitive retail market

Very successful players at the value level (WalMart)

and the premium level (Whole Foods)

No need for another supermarket chain

By some estimates eight times more retails space

per head of the population than the UK

Only a retail innovation can be successful

Tesco invents a new format

Niche strategy: „In a market as vast as the USA, a big niche

allows you to build a very big business“ (Leahy 2012, p. 91)

Focus on high quality fresh food

o European know how advantage

o Just-in-time delivery directly onto the shelves

o 30% of the products produced directly in the distribution

center (e.g., juice, salads, ready-made meals, meat, produce)

Low cost concept

o Self-service checkouts

o Small stores, only 4,000 products

o Mostly store brands

o Economies of scale start with 400 stores Source: Leahy (2012, p. 90-95)

Sir Terry Leahy (*1956)



24

Tesco in the USA:

fresh & easy – What happened (I)


2006 Tesco announces plans to open fresh & easy chain in the US Southwest

Expected to break even in 2009, 250mn Pound investment

2007

Expansion continues

Financial crisis creates very challenging environment 2008

Spring: Opens headquarters in El Segundo (California)

Autumn: First stores open

2013 September: Yucaipa (US investment group) takes over 150 stores

September: Closure of the remaining 50 stores, layoff of 1,000 employees

Writedown of about 1bn Pounds plus overall loss of more than 1bn Pounds

2012

May: New store openings put on hold

Expected losses > 100m Pounds

December: Internal review regarding closure or sale of fresh & easy

Tesco CEO Philip Clarke: “The business has failed, let’s face it.”

2010

Strategic relaunch after accumulated losses > 500m Pounds

Store remodeling to include bakeries

2009

2011

Mothballing of 13 stores, more stores opened

Expansion continues: Opening 1 store in every two weeks




Key problems (Financial Times, 5-Dec-12/7-Dec-12/4-Apr-13)

Problems in securing an adequate supplier base

Requires multi-stop shopping (no bread, no coffee)

Not enough frozen food (against US shopping habits)

Lack of familiar US brands (customers unprepared for store brands)

Produce wrapped in plastic, against fruit-shopping habits of US customers

Self-service checkouts not appreciated

Tesco in the USA:

fresh & easy – What happened (II)



26

Summary: The major challenges in international

marketing compared to national marketing


Even more

need for

information

More information is necessary because of unknown market

environments

Access to information more difficult

Higher risk

Coordination

requirements

Higher task

complexity

Need to align national activities

(e.g., consistent brand image)

More contingency factors need to be taken into account

Additional qualifications are necessary

(e.g., understanding of foreign cultures)

Less information and less transparency lead to higher risks

Many countries less stable than Western home markets



27

Agenda


I. Introduction









28

Fundamentals (I)


Concept of culture difficult to define

Multitude of definitions in the literature

Straub et al. (2002) distinguish three types of definitions

Definitions based on shared values:

Definitions based on problem-solving:

All-encompassing definitions

“Patterned ways of thinking, feeling and reacting, acquired and transmitted

mainly by symbols, constituting the distinctive achievements of human

groups, including their embodiments in artifacts; the essential core of culture

consists of traditional (i.e., historically derived and selected) ideas and

especially their attached values” (Kluckhohn 1951, p. 86, emphasis added)

“Shared way a group of people view the world” (Erez and Earley 1997, p. 23)

“The man-made part of the human environment.” (Herskovits 1955, p. 305)

“Traditional problem solving through accepted responses that have met

with success. It consists of learned problem-solutions” (Ford 1942, p. 546)

“A group problem-solving tool that enables individuals to survive in a

particular environment” (Moran and Stripp 1991, p. 43)



29

Fundamentals (II)


Working definition for this class:

Characteristics of culture:

Culture is “ the pattern of basic assumptions that a given group has invented, discovered, or

developed in learning to cope with its problems of external adaptation and internal integration, and

that have worked well enough to be considered valid, and, therefore, to be taught to new members

as the correct way to perceive, think, and feel in relation to those problems”

(Schein 1984, p. 3, emphasis in the original)

Culture is…

… a multi-level

phenomenon

… described in

dimensions

… a group-level

phenomenon … learnt

… sometimes

perceived inaccurately



30

The levels of culture


Adapted from Schein (1984, p. 4)

Basic Assumptions

e.g. regarding

- nature of reality, time and space

- nature of human activity

- nature of human relationships

- nature of human nature

- relationship to the environment

Values and norms

Values: beliefs as to how the world should be

Norms: behavioral rules how to get there

Artifacts

e.g., Technology, Art, visible and audible

behavior patterns

Visible but often

not decipherable

Greater level

of awareness

- Taken for granted

- Invisible

- Preconscious



31

Some exemplary artifacts of culture




32

Firm cultures as artifacts of national culture

USA

Confidence in the American Dream

Bias for action

Germany

Japan

France

Face protection, honour

Company is sacred

Ultra-courtesy

France- centred self esteem

Sense of intellectual superiority

Factual planning and process

Hierarchical bureaucracy

German Ordnung

Sweden

Ideal welfare system

Focus on human rights

Source: Hammerich, Lewis 2013




33

Four important approaches to determine the

dimensions of culture


Hofstede

Trompenaars (1996)

Hall

Specifity

versus

diffuseness

Individualism

versus

collectivism

Orientation

towards time

Universalism

versus

particularism

Internal

versus

external

control

Power

distance Individualism Masculinity

Uncertainty

avoidance

Long-

terminism

Affective

versus neutral

relationships

Achievement

versus

ascription

Low-context

versus high-

context

cultures GLOBE Project (House et al. 2004)

Power

distance

Institutional

Collectivism

Gender

Egalitarianism

Uncertainty

avoidance

Future

orientation

In-Group

Collectivism

Performance

Orientation Assertiveness

Humane

Orientation



34

The Hofstede (2001) dimensions of culture:

Empirical background


Original publication “Culture’s consequences” (book) in 1980

Revised version (same data) in 2001

Almost 15,000 citations since 1980 according to Google Scholar

Database from employee survey at IBM

Collected between 1967 and 1973

Within IBM subsidiaries in 66 countries

In retrospect Hofstede selected some questions as

indicators of cultural values

In-depth data-analysis revealed four dimensions,

later a fifth dimension was added based on additional data

Popular criticisms:

Age of data

Only collected from IBM employees

High status and high income individuals particularly in third world countries

No controls for IBM corporate culture

Ad hoc nature of the analysis

GLOBE project response to these criticisms

Geert Hofstede (*1928)



35

The first dimension from Hofstede (2001) is the

degree of power distance


Source: Hofstede (2001)

Characteristics Definition

• Power distance refers to the degree of inequality

that exists – and is accepted – among people with

and without power.

• Power distance plays an important role in all types

of groups (e.g., in families and organizations).

• A high score indicates that the culture accepts

an unequal distribution of power, and people

understand “their part” in the system.

• Asian countries are typically characterized by strong

power distance, while Western countries show lower

levels of power distance.

Characteristics Tips

• Centralized companies

• Strong hierarchies

• Large gaps in

compensation, authority

and respect

• Acknowledge a leader's

power.

• Be aware that you may

need to go to the top for

answers.

• Flatter organizations

• Supervisors and

employees are

considered almost as

equals

• Use teamwork.

• Involve as many people

as possible in decision-

making.

High

PD

Low

PD




Distribution of power distance across the planet

Power Distance Index:

Austria 11

Germany 35

USA 40

France 68

China 80

Russia 93

http://geert-hofstede.com/index.php



37

The second dimension from Hofstede (2001) is the

degree of individualism



• Individualism refers to the strength of the ties

people have to others within the community.

• A high score indicates a loose connection with

other people.

• Individualism and collectivism are concepts that

are relevant whenever groups of individuals

interact (e.g., in family and work situations).

• Asian countries are highly collectivist, while

Western countries (especially the USA) are highly

individualistic.


High

IND

Low

IND

• High valuation on

people’s time and their

need for freedom

• An enjoyment of

challenges and an

expectation of rewards

for hard work

• Respect for privacy

• Acknowledge

accomplishments.

• Don’t ask for too much

personal information.

• Encourage debate and

expression of ideas.

• Emphasis on building

skills and becoming the

master of something

• Work for intrinsic rewards

• Harmony more important

than honesty

• Show respect for age and

wisdom.

• Suppress feelings and

emotions in order to work

in harmony.

• Respect traditions and

introduce change slowly.




38

Recent results on individualism


Source: http://www.pewglobal.org/2014/10/09/emerging-and-developing-economies-much-more-optimistic-than-rich-

countries-about-the-future/pg_14-09-04_usindividualism_640-px/




The “too much talent effect” in collective team

sports compared to individualistic team sports Individualism Index:

USA 91

France 71

Germany 67

Austria 55

China 20

Source: Swaab et al. 2014

General belief that top-talented individuals are the key to performance

Reality: U-shaped team performance in collective team sports like football or

baseketball, opposite effect in individualistic sport teams like baseball

Effect due to status related conflicts of top players that affect team coordination



40

The third dimension from Hofstede (2001) is the

degree of masculinity



• Masculinity refers to how much society sticks with

and values traditional male and female roles,

• High MAS scores are found in countries where

men are expected to be tough, to be the provider,

to be assertive, and to be strong,

• Japan is an example of a masculine country, while

Thailand is characterized by strong femininity.

• In Europe, Germany and Great Britain are more

masculine whereas France and Sweden

are not


High

MSC

Low

MSC

• Men are masculine and

woman are feminine.

• There is a well defined

distinction between

men’s work and women’s

work.

• Be aware that people may

expect male and female

roles to be distinct.

• Advise men to avoid

discussing emotions or

making emotionally based

decisions or arguments.

• A woman can do

anything a man can do.

• Powerful and successful

women are admired and

respected.

• Avoid an “old boys’ club”

mentality.

• Ensure job design and

practices are not

discriminatory to either

gender.

• Treat men and woman

equally.





Female employment rates differ according to

masculine and feminine role model distribution

Masculinity Index:

Austria 79

China 66

Germany 66

USA 62

Italy 70

Netherlands 14

Source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdec420

Masculine cultures feature traditional role model distribution of duties

Typically the female employment rate differs due to the fact that women tend to stay at

home and take care of the familiy instead of being employed

Femine cultures show a more differentiated role model distribution with overlaps

30%

40%

50%

60%

70%

Year

Female Employment Rate

Italy

Netherlands

http://geert-hofstede.com/



42

The fourth dimension from Hofstede (2001) is the

degree of uncertainty avoidance



• Uncertainty avoidance refers to the degree of

tolerance for uncertainty and ambiguity with the

society; i.e., unstructured situations.

• The uncertainty avoidance index indicates whether

the country has a low tolerance for uncertainty and

ambiguity, resulting in a rule-oriented society that

institutes laws, rules, regulations and controls to

reduce uncertainty.

• Japan and France are examples of countries with

high uncertainty avoidance, while China is

characterized by low uncertainty avoidance.


High

UNC

Low

UNC

• Very formal business

conduct with lots of rules

and policies

• Structure is needed and

expected

• Sense of nervousness

spurs high levels of

emotions and expression

• Differences are avoided

• Be clear and concise

about your expectations

and parameters.

• Plan and prepare

• Communicate often and

early

• Be calm and consider

carefully what you say

• Informal business

attitude

• More concern with long-

term strategy than what

is happening on a daily

basis

• Accepting of change and

risk

• Do not impose rules or

structure unnecessarily.

• Express curiosity when

you discover differences.





Up to 53% variance in mineral water consumption across

Europe due to different uncertainty avoidance

Source: De Mooij 2010

Uncertainity Avoidance

Index:

USA 46

France 86

Austria 70

Germany 65

China 40

UK 35

Since 1970s comparable tap water quality across Europe

Significant differences in mineral water consumption correlated to uncertainty avoidance

index



44

The fifth dimension from Hofstede (2001) is the

degree of long-term orientation



• This cultural dimension was not identified in the

original study from Hofstede but in a later validation

study in Asia.

• Long-term orientation refers to the degree the

society embraces or does not embrace long-term

devotion to traditional, forward-thinking values.

• A high LTO ranking indicates the country

subscribes to the values of long-term commitments

and respect for tradition.

• China is an example of a country with strong long-

term orientation, and the US is a country with low

long-term orientation.


High

LTO

Low

LTO

• Family is the basis of

society

• Parents and men have

more authority than

young people and

women

• Strong work ethic

• High value placed on

education and training

• Show respect for tradition

• Do not display

extravagance or act

frivolously

• Reward perseverance,

loyalty, and commitment

• Avoid doing anything that

would cause another to

“lose face”

• Promotion of equality

• High creativity and

individualism

• Treat others as you

would like to be treated

• Self-actualization is

sought

• Expect to live by the same

standards and rules you

create

• Be respectful of others.

• Do not hesitate to

introduce necessary

changes





Long-term orientation results in total higher saving

rates

Long-term orientation:

China 118

Hong Kong 96

Germany 31

USA 29

Source:http://www.oecd-ilibrary.org/

The higher saving rate is based on the future driven perspective

Rather short term oriented cultures indulge spending in the present instead of saving



46

Hall distinguishes communication cultures by the

importance of implicit meanings


Low-context cultures High-context cultures

Most emphasis on the written or spoken word

Context, within which messages are

communicated, is largely discounted

“What is meant is what is said!”

Typical examples:

Scandinavia

United States

Germany

Interpretation of messages heavily rests

on contextual cues:

Nature of relationship between

sender and receiver (gender, age,

balance of power)

Time and site of communication

„What is left unsaid is often as (if not

more) important as what is said!“

Typical examples:

Confucian cultures

(China, Korea, Japan)

Latin America

Source: Hall 1989



47

Low context versus high context cultures


Low context

High context Japanese

Arabian

Latin American

Spanish

Italian

English (UK)

French

English (US)

Scandinavian

German

Swiss EXPLICIT

IMPLICIT

Source: Kotabe and Helsen (2011)



48

Globe Study


Goal: Analysis of the effectiveness of management styles in different cultural contexts

Derived cultural clusters

PerformanceOrientation

Assertiveness

Future Orientation

Humane Orientation

Institutional CollectivismGender Egalitarianism

Power Distance

In-Group Collectivism

Uncertainty Avoidance

Germanic Europe

Practices Values

PerformanceOrientation

Assertiveness

Future Orientation

Humane Orientation

Institutional CollectivismGender Egalitarianism

Power Distance

In-Group Collectivism

Uncertainty Avoidance

Confucian Asia

Practices Values

(House 2004; Javidan, House, and Dorfman 2004, p. 33)



49

Overview country cluster of Globe Study


Cluster Nations High characteristic Low characteristic

Anglo Saxon Australia England, Ireland, Canada, New

Zealand, South Africa, USA

Performance oriented Group-based collectivism

Germanic Germany, Austria, Switzerland,

Netherlands

Performance oriented, certainty, future

oriented, uncertainty avoidance

Human-oriented, group-based

collectivism, institutional collectivism

Confuzian China, Japan, Singapur, South Korea,

Taiwan

Performance oriented, institutional

collectivism, group-based collectivism

Latin America Argentina, Brasil, Bolivien, Costa Rica,

Ecuador, El Salvador, Guatemala,

Columbia, Mexico, Venezuela

Group-based collectivism Performance oriented, future

oriented, uncertainty avoidance,

institutonal collectivism

Latin Europe France, Israel, Italy, Portugal, Spain Human-oriented, institutional

collectivism

Middle East Egypt, Qatar, Kuweit, Morocco, Turkey Group-based collectivism Future oriented, uncertainty

avoidance, gender equality

Northern Europe Denmark, Finland, Norway, Sweden Future oriented, uncertainty avoidance,

institutional collectivism, gender equality

Certainity, group-based collectismus,

uncertainty avoidance

Eastern Europe Albany, Georgia, Greece, Poland,

Russia, Slowenia, Czech Republic,

Hungary

Certainity, group-based collectivism,

gender equality

Performance oriented, future

oriented, uncertainty avoidance

Sub-Saharan Namibia, Nigeria, Sambia, Zimbabwe Human-oriented

South Asian India, Indonesia, Iran, Malaysia,

Philippines, Thailand

Human-oriented, group-based

collectivism

Source: Engelen/ Tholen 2014



50

Culture is a group-level phenomenon (I)


National culture descriptions always

relate to the group level.

Individual members of the culture are

not described.

The means of natural cultural

characteristics vary according to

national culture.

Consequently, there can be

substantial

overlap between national cultures,

despite mean differences

Culture A Culture B

μA μB

Source: Trompenaars/Hampden-Turner (2008)



51

Culture is a group-level phenomenon (II)


Source: Trompenaars/Hampden-Turner (2008)

Overlays of National culture Stereotyping

Norms and values Norms and values

American culture French culture

How Americans see

the French:

• Arrogant

• Flamboyant

• Hierarchical

• Emotional

How the French see

Americans:

• Naive

• Aggressive

• Unprincipled

• Workaholic

French culture American culture



52

Cultural learning in a foreign country: The concept

of acculturation


Acculturation refers to

how individuals react to

foreign cultures.

Migration is the most

intense form of

acculturation.

“Milder” forms of

acculturation exist, such

as through exposure to

global mass media.

Separation Integration

Marginalization Assimilation

low high

Willingness to adopt another culture

high

low

Cultural

maintenance/

identity

Source: Berry (1990)



53

Perceiving culture: The psychic distance paradox


Source: O‘Grady/Lane (1996)

True cultural distance

Difficulties in

cross-national

projects



54

Examples of small cultural differences between

Germany and the USA


Attitude towards squirrels

Applying toilet paper

Having lunch on workdays

Expressing criticism

Celebrating birthdays

Party!

Feier!

Party Time

Good Morning



55

Agenda


I. Introduction









56

Concepts of individual buying behavior in an

international context


What do individuals prefer to buy? How do they prefer to buy?

Levitt’s convergence hypothesis:

Customer preferences are assimilating

internationally

Country-of-Origin:

Stereotypes about countries influence

the purchase decision

Social Identity Theory:

Sense of group membership and

discrimination

Ethnocentrism:

Patriotism influences the purchase

decision

Empirical investigations on what

European consumers expect from their

shopping environment shows fairly

homogenous preferences.



57

Levitt (1983) posited that consumer needs are

converging internationally


Socio-demographic development

In many industrial nations, there is a trend

towards small families and older people

Education

Early confrontation with foreign cultures

Transport technology

High distances can be overcome accompanied

by decreasing costs

Communication technology

Better information sources for customers

Convergence of

customer needs

Standardization of

products

&services

Centralization of

decisions

Low costs and

therefore, low

prices



58

Examples supporting the convergence hypothesis


International proliferation of the television

format „Who wants to be a millionaire?“

International

proliferation

of McDonald’s



59

Country-of-Origin effects


What is the country-of-origin?

What is the country-of-origin effect?

Country associated with the product

Country of headquarters

Country of manufacture or assembly

Country of product design

Country associated with the brand name (e.g., French fries, French

mustard)

When consumers are unfamiliar with a product (e.g., product

quality), country image has a “halo effect” on their evaluation

of the product (Han 1989)

A positive country image may allow marketers to introduce

new products that quickly gain consumer recognition and

acceptance. (Agarwal/Sikri 1996)

Products made in developing countries are only marketable

when they are priced far less than products offered by

regional or global competitors (Hulland/Todino/Lecraw 1996)




What does the effect depend on?

Country-of-origin effects are not stable over time

Country images can change when consumers become more

familiar with the country Example: Japanese-made cars’ image

took a 180° turn during the last couple of decades.

(Wood/Darling/Siders 1999, Nagashima 1970)

When consumers are more knowledgeable about country’s

products, country image may be less important in forming their

beliefs about product and brand

Country-of-origin influences are particularly strong among the

elderly (Shimp/Sharma 1987), less educated, and politically

conservative (Anderson/Cunningham 1972)

Country-of-origin effects depend on product

COO effects are more relevant for products like cars or

consumer electronics (+), while COO effects would be less

relevant for cosmetics or designer clothes (Roth/Romeo 1992)

Country-of-Origin effects II



61

Using the country-of-origin effect: The case of

moods of norway


Source: http://store.moodsofnorway.com/



62

Country images (quality)


(Reinecke, Feige, and Fischer 2009, p. 51)

Based on a global survey in 2008 (n=8,007)



63

127 years „Made in Germany“

To beginn of industrial revolution German products were of inferior quality but offered at a

lower price

Rivalry of British quality productus and cheaper German plagiarised products

Need for more transparency

Britain introduced Merchandise Marks Act in 1887, requirement to label country of origin

German quality campaign in order to keep up with international standards

Late 19th century contrary effect of Made in Germany as a quality indicator


(http://www.br.de/themen/wissen/made-in-germany-100.html)



64

Country-of-Origin effects revisited: Country images


Hong Kong Taipei Seoul Bangkok Shanghai Moscow Frankfurt

1 Japan

(86.4%)

(94.3%)

(29.6%)

(54.3%)

(49.6%)

(70.4%)

(64.2%)

2

(74.1%)

(78.3%)

(28.9%)

(45.8%)

(39.2%)

(42.6%)

(38.6%)

3

(60.5%)

(61.0%) (19.3%)

(34.4%)

(33.6%)

(24.8%) (24.2%)

4

(38.0%)

(28.3%)

(11.8%)

(20.3%)

(26.9%)

(15.4%)

(9.4%)

5

(6.0%)

(2.1%)

(2.5%)

(11.6%)

(16.0%)

(1.0%)

(7.9%)

Quality image of products made in various countries

(Percent (%) of respondents rate xxx products as being high quality)

Source: Hakuhodo Global HABIT 2008 survey, found by Kotabe and Helsen (2011, p. 382)



65

The relevance of country-of-origin effect: Brand

origin recognition accuracy in the USA


Question: Do customers actually know, where a product comes from?

Survey in the USA with 480 participants

Participants were asked to state the country-of-origin for 84 brands from 7 countries

Hong Kong was included as option, although no brand was from there

Additional options: “Country not listed” and “don’t know”

Results:

Source: Samiee et al. 2005



66

Social Identity Theory – Examples of different

social groups and corresponding identities (I)




67

Social Identity Theory (II)

Social identity theory is an analysis of an

individual's perceived concept derived from group

membership:

social reference group

group process

intergroup relation

1. People want to create a positive self-assessment

2. People derive their self assessment, the social identity,

…..from group membership and group assessment

3. Group assessment is a comparison of the group with other

…..relevant groups

Potential group members are able to identify with ingroup

categories

Importance of category and connected social identity are

dependent on situation


What is the key learning of

the social identity theory?

What are the axioms of the

social identity theory?

What are the conditions of

the social identity theory?

Source: Turner 1979



68

Social identity & consumer ethnocentricsm




69

Consumer ethnocentricsm


What is ethnocentrism?

The belief that one‘s own culture is superior

to another culture.

As an example, purchasing managers often

prefer to deal with sales managers who

speak the same language and come from the

same country.

As another example, consumers often prefer

domestic products over imports.

Ethnocentrism may result in an

overestimation of the attributes and overall

quality of domestic products and an

underestimation of the quality of foreign

products

What does the strength of ethnocentrism

depend on?

Ethnocentrism has been seen to increase

when there is a perceived threat to the own

nation

Source:Sharma et al. 1995



70

Ethnocentricsm in the USA




71

Ethnocentricsm in Germany


(GPRA-Vertrauensindex, TNS Emnid Horizont 49/2012)

Deutsche Bank

Apple

Nike

Hugo Boss

Coca-Cola

Esprit

Sony

Samsung

BMW

Mercedes-Benz

Adidas

Nivea

Audi

VW

35

44

49

49

53

53

62

64

69

69

70

73

73

77

Percentage of Germans who “highly trust” or “rather trust” the following brands



72

Agenda


I. Introduction









73

Market entry decisions


Decisions concerning the internationalization process

Four key decision areas:

Decision areas

Internationalization

Strategy

Country Market

Selection Exit Mode

Entry Mode



74

Two basic internationalization strategies


Principle of concentration

Extensive market research

Customization of marketing activities

Very often: Selection of the geographically

closest market from the home country

Principle of diversification

Activity in as many markets as possible in a

relatively short time

High standardization of marketing activities

Failure and withdrawal from some markets

accepted

“Waterfall strategy“ “Sprinkler strategy“

years 0 1 2 3

Country A

Country B

Country C

Country D

Market entry

Land A

Land B

Land D

Land C

Markteintritt

Wasserfallstrategie Sprinklerstrategie

Jahre 0 1 2 3

Jahre 0 1 2 3

Country A

Country B

Land C

Land D

Market entry

Country A

Country B

Country D

Country C

Market entry

Wasserfallstrategie Sprinklerstrategie

years 0 1 2 3



75

“Waterfall” strategy leads to extension of product

life cycles


Product life cycle in each country

1

Years

Sales

Years

Sales

Years

Sales

Comparison of sales volumes

Years

Sales Simultaneous

market entries

“Waterfall”

entry

Country1

Country2

Country3

The waterfall strategy artificially extends the

overall life cycle of a product.

Source: Kotabe/Helsen (2011)



76

Advantages and disadvantages of the two

strategies


Criteria Waterfall

strategy

Strategy of

simultaneous

market entry

Company-

related

criteria

External

criteria

Low resources

Low risk propensity

Little experience in foreign countries

Competitive advantage is only temporary

Market-related

High market entry costs

Low homogeneity of consumers’ preferences

Competition

High competitive intensity in countries

Strong overall degree of globalization in the industry

Short product life cycle stage

+ + + -

- - - +

+ +

- -

-/+ - -

-/+ + +

+ Strategy is more appropriate

- Strategy is less appropriate Source: Kotabe/Helsen (2011)



77

Waterfall strategy: The case of the group


1964 1967 1970 1973 1976 1979 1988 1991 1994 1997 2000 2003 2006 2009

10

20

30 Number of country markets (* selling of the format

** leaving after first tests)

Nether-

lands

Germany

Denmark

Egypt

France Austria

Great Britain

Belgium

Spain Italy

Luxembourg *

USA **

Turkey Greece

Morocco

Portugal

Czech. Rep.

Romania

China Poland

Hungary

Switzerland

Russia Slovakia

Bulgaria

Croatia

Japan Vietnam

India Ukraine

Moldavia Serbia

Sweden Pakistan

Kazakhstan

No. of Outlets

(06/2010) in

Germany: 121

Foreign countries: 543

126 /

15

Belgium

345 /

86

Poland, Turkey, Romania, Russia

353 /

355

Austria, Belgium, France, Greece, Hungary, Italy, Lux.,

Netherlands, Poland, Portugal, Russia, Spain, Sweden,

Switzerland, Turkey

Zentes et al. (2011)



78

Waterfall strategy: store openings in Europe


http://www.dm.de/de_homepage/unternehmen/zahlen-fakten/unternehmenszahlen/

No. of Outlets (10/2014) in

Germany: 1.480

Foreign countries: 1.413



79

Sprinkler strategy: and


Source: wikipedia.org



80

“Born Globals” as new type of international company


“Born Globals” refer to firms

that adopt an international or

even global approach right

from birth or very shortly

thereafter.

1

2

3

4

Management

Products

Markets

Technology

Drivers of born globals

• Managers with a strong background in

international activity will foster

international expansion.

• Products with short life cycles (particularly

those of high-tech firm) need to be

brought to foreign markets in a timely

fashion.

• Born globals often operate in niche

markets

• Demand in the home market is too low to

permit expansion

• Recent technology developments enable

born globals to expand to international

markets with reasonable investments.

Source: Hollensen 2011



81

Example „Born Globals“-


German Start Up of the Year 2013

Highest amount of crowdfunding in history 1.5m Euro

Unique mission:

At Protonet, we are following our vision: to build the simplest server in the world. Our goal is to make it easy for companies and individuals to take control and ownership of their data. To do that, we’ve built the hardware and software to eliminate the need for cloud services and for IT expertise. Our users – whether solo, small, or medium-sized businesses – simply need to press a button to start the process of data ownership and control. simply independent.

Key product features: secure data storage, team communication, work with clients, create

networkhttps://protonet.info/en/product/



82

Country market selection: Possible process for

selecting attractive country markets


All

countries

20

acceptable

countries

6

countries

in the short list

Exclusion

2 target countries

Ranking

Selection



83

Important criteria for strategic country market

selection


General attractiveness

of a country market Ease of entry

Political, legal, and technological criteria

Availability of skilled labor (+)

Wage level (-)

Political stability (e.g., BERI-Index) (+)

Quality of infrastructure (+)

Extent of price regulations (-)

Possibility to use market as a

platform market, e.g. Singapore, Hong

Kong (+)

Demand-related criteria

Number of customers (+)

Market volume (+)

Market growth (+)

Growth of population (+)

Purchasing power per capita (+)

Competition-related criteria

Intensity of competition (-)

Political, legal, and technological barriers

Import duties (-)

Different technical norms (-)

Logistical costs (-)

Local content laws (-)

Demand-related criteria

Cultural barriers (-)

Language barriers (-)

Switching costs of customers (-)

Customer loyalty to competitors (-)

Competition-related criteria

Scale advantages / cost advantages of

incumbents (-)

Technological advantage of incumbents

(-)



84

Assessing country risk: The BERI index


Provided by Business Environment Risk Intelligence S.A.

1 and 5 year forecasts for 50 countries and 5 regions

Evaluation through management executives, political scientists, and sociologists

Two-stage scoring model in which the total score is an aggregation of the three following sub indices:

In addition to the indices for each country, two-page summaries for each of 50 countries, including the outlook and tables with historical and forecasts for ratings and economic and financial information, are provided (see following pages for summarized examples of country reports)

Comparable indices provided by other agencies, e.g., Business Monitor International or Economist Intelligence Unit

ORI: Operation risk index PRI: Political risk index R factor: Remittance and

repatriation factor

E.g.,

Attitude: Foreign investors and profits

Degree of privatization

Bureaucratic delays

Economic growth

Labor cost productivity

E.g.,

Fractionalization of the political spectrum

and the corruption, nepotism, willingness

to compromise

Fractionalization by language, ethnic

and(or density and wealth distribution

Legal framework (dividend, profit, and

salary remittances, repatriation of

capital)

Foreign exchange

International debts

Source: Business Risk Intelligence S.A. 2001



85

Assessing country risk: An example of the BERI-

index for selected countries


Interpretation of the ratings:

70-100: Stable environment typical of an advanced industrialized economy. Problems for foreign businesses are offset by the coun try‘s efficiency, market opportunities, financial system, and advanced infrastructure.

55-69: Moderate-risk countries with complications in day-to-day operations. Usually the political structure is sufficiently stable to permit consistent operations without serious disruption. Dynamic economic expansion often has the potential for attractive profits.

40-54: High risk for foreign-owned businesses. Only special situations should be considered, e.g., scarce raw materials for unusual profit potential. Selection of management is critical to success in this risk range.

0-39: Unacceptable business conditions for foreign-owned businesses.

Country Political risk

index (PRI)

Operations risk

index (ORI)

Remittance &

repatriation factor

(R factor)

Average

score

2001

+5 years forecast

average score

Major

advanced

economies

Germany 64 71 78 71 72

United States 68 74 68 70 73

France 60 64 72 65 66

United Kingdom 63 66 57 62 65

Other

advanced

economies

Spain 62 64 61 62 64

Italy 41 53 60 51 53

Israel 36 53 45 45 47

Countries in

transition

Estonia 44 46 38 43 44

Russia 41 37 46 41 44

Ukraine 37 36 38 37 40

Developing

countries

China 56 49 66 57 57

Egypt 44 45 45 45 46

India 39 48 47 45 46

Syria 46 42 44 44 44

Brazil 42 40 37 40 42

Indonesia 36 36 44 39 42

Source: Business Risk Intelligence S.A. 2001



86

Starting point: Selection of comparison standard (base country)

Country that is at the same stage of economic development as the country of interest

Market size is known in base country

Premise: Relationship between the demand for a product and a particular indicator (e.g., the demand for a related product) is similar in both countries

Example:

Electronics company wants to estimate the market size for DVD players in the Ukraine

Base country: Poland

Proxy that correlates highly with DVD players demand: Number of color TVs in use

Assumption: 𝐷𝑉𝐷 𝑝𝑙𝑎𝑦𝑒𝑟 𝑑𝑒𝑚𝑎𝑛𝑑 (𝑈𝑘𝑟𝑎𝑖𝑛𝑒)

𝐶𝑜𝑙𝑜𝑟 𝑇𝑉𝑠 𝑖𝑛 𝑈𝑠𝑒 (𝑈𝑘𝑟𝑎𝑖𝑛𝑒)=

𝐷𝑉𝐷 𝑝𝑙𝑎𝑦𝑒𝑟 𝑑𝑒𝑚𝑎𝑛𝑑 (𝑃𝑜𝑙𝑎𝑛𝑑)

𝐶𝑜𝑙𝑜𝑟 𝑇𝑉𝑠 𝑖𝑛 𝑈𝑠𝑒 (𝑃𝑜𝑙𝑎𝑛𝑑)

2001 data:

Market size: 73,400

Challenges: Finding a comparable country and a good proxy variable

Assessing market size: Method of analogy


Source: Kotabe and Helsen (2011, p. 209)

Color TV‘s in Use* DVD Player Sales*

Poland 14,722.64 69.17

Ukraine 15,626.15 ???

* in thousands



87

Analogy may also exist between time periods

E.g., economic state of country A is similar to economic state of country B ten years back

Formula changes to:

𝑀𝑎𝑟𝑘𝑒𝑡 𝑆𝑖𝑧𝑒 𝐴 𝑖𝑛 2012

𝑃𝑟𝑜𝑥𝑦 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐴 𝑖𝑛 2012=

𝑀𝑎𝑟𝑘𝑒𝑡 𝑆𝑖𝑧𝑒 𝐵 𝑖𝑛 2002

𝑃𝑟𝑜𝑥𝑦 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐵 𝑖𝑛 2002

Both analogy methods produce misleading estimates whenever:

Consumption patterns are not comparable due to strong cultural disparities

Other factors (competition, trade barriers) cause actual sales to differ from potential sales

Technological advances allow use of product innovations in a country at an earlier stage of economic development (“leapfrogging”)

Assessing market size: Longitudinal method of

analogy





88

Fortune reported in 1994 that McDonald’s uses a variant of the analogy method to derive market size estimates

𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝐶𝑜𝑢𝑛𝑡𝑟𝑦 𝑋𝑁𝑜.𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑝𝑒𝑟 𝑀𝑐𝐷𝑜𝑛𝑎𝑙𝑑′𝑠

𝑖𝑛 𝑈𝑛𝑖𝑡𝑒𝑑 𝑆𝑡𝑎𝑡𝑒𝑠 (21,629)

=𝑃𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 𝐼𝑛𝑐𝑜𝑚𝑒 𝑜𝑓 𝐶𝑜𝑢𝑛𝑡𝑟𝑦 𝑋

𝑃𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 𝐼𝑛𝑐𝑜𝑚𝑒 𝑖𝑛

𝑈𝑛𝑖𝑡𝑒𝑑 𝑆𝑡𝑎𝑡𝑒𝑠 ($41,800)

= 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑃𝑒𝑛𝑒𝑡𝑟𝑎𝑡𝑖𝑜𝑛 𝑖𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦 𝑋

Market potential estimates (based on 2006 data):

Use of the analogy method at


Source: Kotabe and Helsen (2011, p. 210-11)

Country 2004: Number of Restaurants 1996: Number of Restaurants Market Potential

Japan 3,774 2,004 4,284

Canada 1,362 992 1,190

Germany 1,262 743 2,707

UK 1,249 737 2,064

France 1,034 540 2,004

Australia 729 608 711

China 639 117 8,958

Brazil 549 214 1,750

Sweden 244 129 295

Poland 207 65 542

Argentina 186 88 594

Malaysia 164 129 (1999) 275



89

Typical process:

Starting point: Very rough base number (e.g., population size)

Systematic fine-tuning by applying a string (“chain”) of percentages to come up with the most meaningful estimate for total market potential

Illustration: Potential market size in Japan for Nicorette gum (2002 figures)

Base number: Total population 127 million

Smoking rate: 31%

Nicorette targets adult smokers: 15 to 64-year old age group is about 67.5% of Japans total puplation

Survey data: 64% of adult smokers in Japan would like to quit or cut smoking

Survey data: 25% of smokers that intend to quit would like to start immediately

Assessing market size: The chain ratio method



Japan

Total population 127 MM people

Adult population (15-64) 85.6 MM =.675 127 MM

Adult smokers 26.5 MM =.31 85.6 MM

Smokers with intention to quit 17.0 MM =.64 26.5 MM

Smokers with intention to quit and

wishing to start immediately 4.3 MM = .25 17.0 MM



90

Entry modes: Different ways to market products in

a foreign market (I/II)


Exports

Two Types Direct: Without intermediary

Indirect: With intermediary

Direct exports Access to customers

Control over marketing mix

(especially the price)

Requires some investments

Indirect exports Very small risks

No need of know-how concerning

regulations in other countries

Limited access to customers

Limited control over marketing mix

Licensing

Licensor offers intellectual

property (e.g., brand name) to

the licensee in exchange for

royalty fees

Advantages Light on resources (attractive

for smaller companies)

Possibility to enter closed markets

Fast implementation

Facilitates differentiation

Disadvantages Reduced commitment of licensee

Possibly nurturing of future

competitors

Franchising

Transferring right to use

the franchisor’s business model

to the franchisee

Royalties (and/or lump sum)

Franchisor often operates as

supplier to the franchise outlets

Advantages Reduced risk

Fast growth

Control over marketing mix

Disadvantages Dependence on franchisees

Spillover effects in case of

crises



91

Entry modes: Different ways to market products in

a foreign market (II/II)


Subsidiary

Two Types Greenfield

Acquisition

Limited to sales & services or

including manufacturing

Advantages Control

Acquisition of market knowledge

Possibly country-of-origin effects

Supports differentiation strategies

Disadvantages Full country risk

High investments required

Possibly negative country-of-origin

effects

Joint venture

Co-managed firm

Both partners contribute capital,

know-how and possible existing

companies

Advantages Possibility to enter closed

markets

Know-how synergies (e.g., product

expertise + market expertise)

Risk sharing

Disadvantages Often source of conflict

Danger of hijacking through

one of the partners

Sales representation

Selling products directly to

the customer without

intermediary

Representation staffed with

own employees

Advantages Little risk, reduced investment

Acquisition of market knowledge

Supports standardization

strategies

Disadvantages Distance to mother-firm

Little product know-how



92

What entry mode is appropriate? (I)


Key issue: Control versus autonomy

Control is always associated with large investments in terms of time and other resources

Two theoretical approaches to make decisions in this environment

Three differences between perspectives (Kotabe and Helsen 2011, p. 298)

TCE predicts high-control entry modes because of opportunistic behavior, RBV predicts high-control entry modes to facilitate cooperation

TCE focuses on one-time events, RBV looks at a chain of events

TCE assumes exploitation, RBV cooperation

Transaction Cost Economics Resource-Based View

Key idea: Desirable governance structures

depends on the comparative transaction costs

Market entry = transaction

In highly competitive markets no need of high

control structures

If transaction-specific assets are valuable

(e.g., patents, know-how), high control

structures are preferred

Resources itself do not create competitive

advantage, organization is required for this

If resources are imitable (e.g., knowledge),

then high control entry modes are

recommended

Source: Anderson and Gatignon (1986)



93

in South Korea


Lessons learnt in international retailing:

Importance of local know how

Process know how can only be partially transferred

Joint Ventures explored as alternative entry mode

Tesco in South Korea:

Entered the country in 1999

Joint Venture with Samsung (Store chain “Home plus”)

Samsung required retailing expertise

Tesco required market expertise

80% Tesco / 20% Samsung

Key learnings:

Vertical store format due to limited availability of land: o 3-4 floors for parking o 3 retail floors (hypermarket, food court, boutiques)

People are customers and citizens: Extra floor for Culture Centre

Stronger focus on fresh food and convenience food than in UK

Legal protection of small retailers requires omitting some products

Successful experiments with virtual stores in subways

Performance:

Best-performing foreign business of Tesco

2012: 520 stores, 5.3m Pounds revenues

Sources: Leahy (2012),

www.tescoplc.com



94

Exit strategies


Reasons for leaving a market:

Sustained losses (e.g., Walmart’s exit from Germany in 2006)

Difficulties in cracking the market (e.g., Nokias exit from Japan in 2008)

Volatility in the markets

Premature entry

Ethical reasons

Intense competition

Resource allocation

Exit barriers:

Exit costs

Damage to corporate image

Low liquidation value

Signal to other markets

Long-term opportunities

Three recommendations:

Assess all other options

Incremental exit > Immediate full exit

Migrate customers Sources: Bea/Haas 2009



95

Agenda


I. Introduction









96

The “emic” versus “etic” dilemma in international

market research


Distinction originally from anthropology (science of humanity)

Key question: How relative are human values?

Based on the response to this question two viewpoints can be distinguished:

Emic perspective Etic perspective

Everything that individuals do and say

can only be understood by other

individuals raised in the same

cultural environment

It is not possible for external observers

to accurately understand the behavior

of individuals in other cultures

Highly relativist perspective

Implications for market research:

Emphasis on longitudinal

qualitative projects

No generalizations across

cultures

Rarely adopted by practitioners

While cultural differences exist,

it is possible to establish universal

truths about human behavior

If appropriate methodological

care is taken, cross-cultural

market research is possible

Implications for market research:

Emphasis on establishing

cultural invariance of methods

Quantitative approaches

and qualitative approaches

Mainstream perspective in

business practice

Sources:Engelen/ Tholen 2014



97

Challenges associated with international market

research based on secondary data


Problems with

secondary data

Measurement reliability

over time Data accuracy and age

Measurement

comparability across

countries

Data lumping and

degree of aggregation

1. When were the data collected? Over what time frame?

2. How were the data collected?

3. Have the variables been redefined over time?

4. Who collected the data?

5. For what purpose were the data gathered?

Be sure to check:



98

Sources of secondary data


Source: Schopphoven 1991, p. 31; Schulz-Rinne 1989, p. 14ff

Non-commercial Commercial

Na

tio

na

l In

tern

ation

al

National statistical offices

Scientific institutes

Chambers of commerce

and industry (CCIs)

National market research

institutes

Publishing companies (e.g.

Gruner + Jahr)

United Nations information

service

Worldbank

International Monetary Fund

World Trade Organization

Organization of ECD

European Union

International market

research institutes (e.g.

Nielsen)

international agents

Data bases (z.B.

International Market

Identifiers)



99

Eurostat is the EU’s initiative to make national

statistics comparable


Basic facts about Eurostat From national to European statistic

Established in 1953 as Statistics Division to

meet the requirements of the Coal and Steel

Community

Areas of Eurostat activities:

Economic statistics

Economic and monetary convergence

External and intra-Community trade statistics

Business statistics

Social statistics

Agricultural, environmental, food and regional

statistics

Staff & Budget:

In 2011 around 900 people worked in

Eurostat

Eurostat had a total budget of around 61

million € in 2010, this budget was used for

the implementation of the Community

Statistical Programme (CSP) and the

Modernisation of European Enterprise and

Trade Statistics (MEETS).

Eurostat‘s role is to consolidate the data and

ensure they are comparable, using harmonized

methodology.

Statistical Authorities of the Member States

collect data. They verify and analyze national

data and...

...send them

to Eurostat.

Source: http://europa.eu.int/comm/eurostat



100

Challenges associated with international market

research based on primary data


Sources of the lack of

comparability of international

interview results

Different cultural

response styles

Different cultural responses

to the form of data collection

Lack of linguistic similarity of questions and response scales



101

The suitability of survey methods in intercultural

market research studies


Mail

Requires literacy

Only applicable

in some countries

with working

postal systems

Great reluctance

to participate in

surveys initiated

from abroad

(return address

in own country

needed)

Telephone Face-to-Face Online

Requires literacy

Problematic for

surveys in less-

developed countries:

High and middle

incomes over-

represented

Problems with

censoring in

some countries

Can be organized

and managed from

one country

Very expensive

Allows for

surveys among

households

that cannot be

accessed through

telephone or online

In high context

cultures prone

to cause social

desirability biases

Native speaking

interviewers a must

Problematic for

surveys in less-

developed countries:

High and middle

incomes over-

represented

In high context

cultures prone

to cause social

desirability biases

In Japan and other

countries considered

to be an extreme

intrusion into

private lives

Native speaking

interviewers a must

Can be organized

and managed from

one country



102

Establishing the linguistic equivalence of questions

A standard process for establishing the linguistic equivalence of survey questions exists

It is called the translation – back-translation process:


Master questionnaire

is translated into

the foreign language

Translated questionnaire

is back-translated into

the original language

(by a native speaker

not involved

in the project)

Identification of

difference between

the original questionnaire

and the back-translated

questionnaire

Adapt the translated

questionnaire until

the back-translated

version is sufficiently

similar to the

original version




103

Establishing the linguistic equivalence of response

scales (I)


0 4 8 12 16 20

Extremely

poor

Mode-

rately

poor Fair

Rea-

sonably

good

Unusually

good

Terriblement

mauvais

Faible Légère-

ment

bon

Honnête Merveilleux

Verzerrung Verzerrung Verzerrung

1 2 3 4 5

1 2 3 4 5

Englische Originalskala

Französische Übersetzung

Empfundene

Wertigkeit des

Urteils

Source: Bauer (2002, p. 303)

Original scale in English

French translation

Distortion Distortion Distortion

Perceived valence

of the judgment



104

Establishing the linguistic equivalence of response

scales (II)


Source: Angelmar/Pras (1978), p. 67

Examples for equivalent rating scales



105

Acquiescence bias

Tendency to respond positively to survey statements (e.g., agree with statements)

Can be discovered by adding reversed survey items to a questionnaire

Some empirical evidence of a link between acquiescence bias and a high degree of

cultural collectivism

Response styles in intercultural market research (I)

Response styles: Tendency of survey participants to favor certain responses regardless

of the content of the question

Different types of response styles are observed in practices

Particularly problematic in intercultural market research

Most response styles are negligible if everyone is affected the same

Cultural differences make even comparison of averages difficult


To what extent do you agree with the following statements?

Strongly

Disagree

Strongly

Agree

1 2 3 4 5 6 7

Most products I buy are overpriced.

Businesses could charge lower prices and still be profitable.

Most prices are reasonable considering the high costs of firms.

Most prices are fair.



106

Response styles in intercultural market research (II)


Extreme response style

Tendency to prefer endpoints of the scale over the middle of the scale

Some empirical evidence of a link between extreme response styles and the degree of

power distance in a country (more extreme response if power distance is high) (Johnson et al. 2005)


Strongly

Disagree

Strongly

Agree

1 2 3 4 5 6 7





Midpoint response style

Tendency to prefer the middle of the scale over the endpoints


Strongly

Disagree

Strongly

Agree

1 2 3 4 5 6 7








107

Testing for measurement equivalence (I)

Goal in primary international market research: measurement equivalence

Also referred to as „measurement invariance“

Can be statistically tested using confirmatory factor analysis

Requirement: A phenomenon (or construct) is measured through three or more

questions (or items, or indicators) in a questionnaire

Idea: The shared variance of the items represents the essence of the

construct () that is supposed to be measured

Graphically: Formally:

The parameters of these equations can be estimated using a Maximum Likelihood

approach (not considered in this lecture)


„The general question of invariance of measurement is one of whether or not,

under different conditions of observing and studying phenomena, measurement

operations yield measures of the same attribute.“ (Horn/McArdle 1992, p. 117)

1

x1

x2

x3

1

2

3

𝑥1 = 𝜏1 + 𝜆11𝜉1 + 𝛿1

𝑥2 = 𝜏2 + 𝜆21𝜉1 + 𝛿2

𝑥3 = 𝜏3 + 𝜆31𝜉1 + 𝛿3

xk: Response for item k

1: Construct/phenomenon behind responses

k: Expected response for item k, if 1=0

k: Random measurement error for item k

k1: Strength of link between item k and 1

11

21

31



108

Testing for measurement equivalence (II)

Different types of measurement invariance can be distinguished

Three types are typically the most important:


1. Configural invariance

Can the construct be measured

through the same indicators in all

contexts?

2. Metric invariance

Are the relationships between

indicators and construct equally

strong in all countries?

3. Scalar invariance

At the same level of the

construct, are indicator values

equal in all countries?

Source: Steenkamp and Baumgartner (1998)



109

Testing for measurement equivalence (III)

Starting point: equation system from before

Configural invariance between the measures from two countries A and B is given, if

all k1 that are different from zero in A are also different from zero in B

all k1 that are zero in A are also zero in B

Metric invariance between the measures from two countries A and B is given, if

D for all k items

Scalar invariance between the measures from two countries A and B is given, if

for all k items


𝑥1 = 𝜏1 + 𝜆11𝜉1 + 𝛿1

𝑥2 = 𝜏2 + 𝜆21𝜉1 + 𝛿2

𝑥3 = 𝜏3 + 𝜆31𝜉1 + 𝛿3

xk: Response for item k

1: Construct/phenomenon behind responses

k: Expected response for item k, if 1=0

k: Random measurement error for item k

k1: Strength of link between item k and 1

𝜆𝑘1𝐴 = 𝜆𝑘1

𝐵

𝜏𝑘𝐴 = 𝜏𝑘

𝐵

Source: Klarmann (2008)



110

Outcomes of lack of measurement equivalence


Mean values are

not comparable

Mean values are

not comparable

Correlations

are comparable

Correlations are

not comparable

Mean values

are comparable

Is

configural

invariance

present? Is

metric

invariance

present?

Is

scalar

invariance

present?

Yes

Yes

No

No

Yes

No

Correlations

are comparable Source:

Klarmann (2008)



111

Agenda


I. Introduction






I. Product Management

II. Pricing

III. Communication

IV. Sales




112

The importance of international product

management


Ford Taurus too large for Japanese

parking spaces (sales reportedly <1500) Source: Business Week (1999)

IKEA with problems on the US market,

because European bed sizes were

considered too small Source: Kotabe and Helsen (2011)

Audi has problems selling the A6 in

China, because space in the back is

not sufficient for buyers with drivers Source: Müller and Gelbrich (2004)

For each aspect of the product, a decision between standardization and differentiation is required.



113

Reasons for standardizing and for differentiating

the product offering


Factors speaking for standardization Factors speaking for differentiation

Cost-related considerations

Economies of scale

Economies of simplicity

Critical mass for brand recognition

Economies of flexibility (e.g., logistics)

Customer-related considerations

Anticipation of converging customer needs

Requirements of internationally expanding

customers and distributors

Bargaining power vis-à-vis international

customers and distributors

Customer-related considerations

Possibility to address taste differences

Possibility to make use of country-of-origin

effect (patriotism, nostalgia)

Necessity to avoid country-of-origin effect

Need to avoid cross-cultural misunderstanding

of names and symbols

Environmental considerations

Different climate conditions

Different technical norms

Different legal norms

Strategic considerations

Possibility to spin-off and sell brands

Occupying niche markets

Supporting price differentiation and fighting

gray imports



114

Differences in customer tastes: Automotive color

popularity in Brazil, China, and Europe


Source: DuPont Perfomance Coatings 2012 Global Color Popularity Report



115

Product differentiation at


Country Sandwich Description

France Croque McDo A grilled ham and cheese sandwich on toast

India Maharaja Mac Two grill chicken patties with smoke-flavored mayonnaise,

onions, tomatoes, and cheddar cheese

Taiwan Rice Burger Shredded beef between two rice patties

Japan Teriyaki Burger A chicken cutlet patty marinated in teriyaki sauce

Middle East McArabia Sandwich A marinated grilled chicken sandwich in flatbread

New Zealand Kiwi Burger A hamburger with a fried egg and a slice of pickled beet

Poland McKielbasa Kielbasa (Polish sausage) patty topped with ketchup, mustard,

and onion

Pakistan Spicy McChicken A chicken sandwich with chutney

Thailand Samurai Pork Burger A pork burger flavored with teriyaki sauce

South Korea Bulgogi Burger Pork patty marinated in soy-based sauce

Netherlands McKroket A deep fried roll containing beef ragout and potato

Greece Greek Mac A pita bread sandwich with two beef patties and some yoghurt

Israel McShawarma Shawarma served in flatbread



116

The challenge in managing differentiation is to combine

product differentiation with production standardization


1

2

3

4

Differentiated

products

Modular design

Built-in-flexibity

Standardized

products


Levels of product standardization




The story of the new beetle

Early 90s Market Research detects that old beetle is most know and appreciated VW car in the US

1991 Secretly US engineers start working on a design remake of the old beetle

1992 VW Concept 1, as the project is called as a code name is presented to leading designers

1993 Volkswagen AG design chief Dr. Helmut Warkuss presents the first scale

model to Ferdinand Piech, chairman of VW AG

1993 First full size model is developed

1994 North American International Auto Show unveiling of the Concept 1 version of the

New Beetle and later the same year Volkswagen Board of Management approves development of

New Beetle

1998 New Beetle goes on sale and becomes an instant success

Source: Kiley 2002

A special modular design success study: the new

beetle



118

The special case of brand standardization: Global

brands

„A truly global brand is one that has a consistent identity with consumers across the

world“ (Kotabe and Helsen 2011, p. 362)

What conditions favor launching a product with a single brand identity worldwide?

Analyze costs , economies of scale and value creation of a global brand compared to a

local brand


Advantages of local brands Advantages of global brands

Customers value global brands

(Holt, Quelch, and Taylor 2004)

Global brands signal quality and offer

higher prestige

Global brands give customers the

sense of belonging to something bigger

Global brands are held to higher

ethical standards

Economies of scale

Higher brand awareness, even without

entry in a specific country market

No negative spillover effects from a

crisis in one country to other countries

The name does not need to work

internationally

Can be adapted to cultural particularities

Allows firms to draw on patriotism and

buy-local attitudes

No negative country-of-origin associations




119

Naming products internationally: Some car stories


Rolls Royce Silver Mist

In Germany (and elsewhere) sold as „Silver Shadow“

Ford Pinto

Reportedly never aimed at the Brazilian market.

Mitsubishi Pajero

Sold in Spain (and some other countries) as

Mitsubishi „Montero“

Chevy Nova

Reportedly quite successful in South America

(despite the name)

Source: Haig (2011) and the Internet



120

Three options for standardizing local brand names


The new global brand is

combined with the existing

brand name. After a transition

period, the old name is

dropped:

Examples:

Morgan Grenfell

Deutsche Morgan Grenfell

Deutsche Bank

D2

D2 Vodafone

Vodafone D2

Vodafone

The local brand name is

dropped almost overnight and

replaced by the global brand

name.

Example: Fairy Ultra

becoming Dawn

The customers are intensely

informed about the changed

brand name.

Examples:

Raider became Twix

(“Raider heißt jetzt Twix,

sonst ändert sich nix”)

Fade-in/fade out or

Dual branding Transparent forewarning Hard cut



121

A failed “Hard Cut” strategy, the case of


Introduction on the German market in 1992, to replace the traditional brand “Spüli”

Large TV budget for introduction, campain surrounding two Spanish villages

(Villariba und Villabajo) competing for the cleanest Paella pan

At a time more than 90% of German consumers were able to remember these

spots, with 61% linking them to Fairy (Source: wikipedia.de)

2000: Brand standardization initiative

by Procter and Gamble, Fairy Ultra

(market share of nearly 12%) renamed

overnight to “Dawn”

2001: “Dawn” market share of 4.7

2003: Reintroduction of Fairy Ultra on

the German market, now called

“Fairy by Dawn”

Today: Product only called Fairy

Source: Kotabe and Helsen 2011



122

Importance of congruent branding in international

context

Web-bases survey of consumers In New Zealand, because a developed country with a high level of

foreign trade , N=577

Online invitation to survey where brand name, price and short description were provided in a fictitious

advertisement

Participants indicated likelihood of purchase

Luxury watch was used as hedonic product, whereas sports watch was used as utilitarian


Source: Melnyk et al. 2012



123

Product plagiarism and brand counterfeiting as

threats in international marketing


Product Plagiarism Brand Counterfeiting

Product Piracy



124

Estimates of the total value of counterfeit and

pirated products in 2008 and 2015


OECD Category Estimate in $ billions (2008) Estimate in $ billions (2015)

Internationally traded counterfeit and

pirated product 285 – 360 770 – 960

Domestically produced and consumed

counterfeit and pirated products 140 – 215 370 – 570

Digitally pirated products 30 – 75 80 – 240

Sub total 455 – 650 1,220 – 1,770

Broader economy-wide effects1 125 125+

Employment losses in G20 economies 2.5 million 2.5 million+

1 Effects on government tax revenues, welfare spending, costs of crime fighting services, FDI flows

Source: Frontier Economics 2011



125

Scope of the problem for German firms


Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)

76%

24% 16%

19%

32%

25%

8%

Are your products plagiarized or counterfeited?

No

Yes

How strongly is your firm affected by these actions?

Rarely

Sometimes

Often

Strongly

Very strongly



126

Product piracy: The case of Stylus shoes


Stylus: A south European mid-range to premium shoe manufacturer

Moved its production to Taiwan

Partnership developed well, in 2004 entry of the Chinese market was considered

In 2007: 60,000 pairs of shoes sold in China

Taiwanese partner proposed production of 250,000 pairs of shoes in 2008

Stylus managers skeptical, worked with normal growth rate

2008:

Stylus managers observe that their supplier had bought material

to produce 460,000 pairs of shoes

Japanese distributor observes that a Japanese discounter is selling

Stylus shoes for $20 per pair

Stylus immediately ends the business relationship

2009: Retailing outlets of the supplier were still operating and pirated shoes were

also sold in Europe (Switzerland, Spain, and Italy)

Collaboration with the China State Administration leads to raids and the confiscation

of 100,000 pairs of shoes

Supplier markets shoes under new (but very similar) name




127

Different variants of product piracy


Counterfeits that are

considered to be originals

sold at a low price

Example:

Counterfeited spare

parts of a car

Counterfeits of high quality

that are considered to be

originals

Example:

Apparel that was secretly

produced in addition to the

numbers ordered

Low quality plagiarized

products that customers

buy in full knowledge of

the product piracy

Example:

Imitated luxury watch from

cheap material sold at a

bargain price

Plagiarized products of high

quality that customers

buy in full knowledge of

the product piracy

Example:

Imitated machines

Degree of

deception

Quality of the pirated product

high

low

low high

Source: Wildemann et al. (2007)



128

Customer reactions to brand counterfeiting


Flight Reclamation Abranding

Key response to

proliferation of

counterfeits

Flee brands popularly

counterfeited

Offer evidence of pioneering

brand affiliations and fashion

leadership

Disguise information on brands

patronized

Motivation behind key

response

Fear of conforming to

stereotypes

Dissonance arising out of two

factors: (1) others not

similarly stationed are

dressing as these consumers

do, and (2) the inability to

change wardrobe on account

of substantial investments

already made and lower

discretionary incomes

Desire to sustain high social

distance from others not

similarly stationed

Profile Young

Newly rich

Transitioning social classes

Mean age: 25 years

Older

Well-established brand

loyalties

Mean age: 47 years

Very affluent

Mean age: 40 years

Brands patronized

Pepe

Diesel

Dolce & Gabanna

Gucci

Nike

Armani Exchange

Ralph Lauren

Coach

Tommy Hilfiger

DKNY

Fendi

Giorgio Armani

Versace

Hermes

Anderson & Sheppard

Escada

Topic that engaged

these consumers most

When you see counterfeits,

how does that make you feel?

Tell us about your last

purchase of a fashion item.

How will I be able to tell the

difference between you and

someone wearing a counterfeit?

Source: Commuri 2009



129

Activities of German firms to protect their

intellectual property


77%

46%

33%

17%

4%

Legal

Board

Marketing

Other

None

91%

43%

38%

34%

34%

28%

2%

Legal measures

Customer-relatedcommunication

Internal communication

Active involvement inindustry associations

Technological solutions

Lobbying

Nothing

Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)

Activities pursued Departments involved



130

Counterfeiting protection through pricing


+



131

Sennheiser

Individual product ID

allows Internet check,

whether the product

is authentic

Similar information

through QR-Code

Paper changes color

under light and last

figure of ID becomes

larger

Knauf

Combination of

open and hidden

security features

„Seal of quality“ on

every Knauf product

Security paper seal

tightly glued to the

package

Seal changes color

upon touching

(special ink), from

blue to transparent

Training videos for

foreign markets with

piracy problems

George Gina and Lucy

Introduced in 2010:

Certificate of

authenticity in every

bag

ID allows accessing

information through

RFID chips: Where

should the bag be

right now?

Customers can

check authenticity

using smartphone

in a store

Canada Goose

Individual Product

ID Hologram on paper

certificate

Counterfeiting protection through electronic

certificates of originality


http://www.schreiner-prosecure.de/fileadmin/swf/Knauf_Werbefilm_d.flv



132

Agenda


I. Introduction







II. Pricing

III. Communication

IV. Sales




133

Challenges in international pricing


Challenges in

international

pricing

Price differentiation

Currency fluctuations

Inflationary

environments Price escalation

Setting transfer prices

Defining sales and

delivery terms



134

Price differentiation: The Economist BigMac Index


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Source: The Economist 2014

Introduced by the Economist in 1986 as a

guide to compare currencies according to the

theory of purchasing power parity for homogeny goods

Displays under- overvalued currencies



135

Regional price discrimination : Examples of car

prices in the EU

Martin Klarmann, Fall 2014

Model Germany France UK Denmark Poland ∆ in (%)

Fiat Panda 9.050 8.319 6.764 7.270 7.577 34%

Kia Picanto 8.437 8.269 7.112 7.700 6.378 32%

Ford Fiesta 11.345 10.661 8.983 9.110 8.898 28%

Mazda 2 13.113 12.205 9.712 9.977 11.159 35%

Opel Astra 15.261 14.737 12.309 12.562 12.446 24%

VW Golf 13.866 13.076 10.738 11.031 10.687 30%

Peugot 407 24.196 23.411 17.373 17.062 20.067 42%

Toyota Avensis 22.017 20.818 15.262 17.023 15.721 44%

Audi A6 38.412 35.812 26.371 32.847 31.443 46%

Mercedes E220 34.500 34.555 23.387 34.500 27.293 48%

BMW 730d 59.244 56.970 40.332 66.431 46.713 65%

Audi A8 66.655 66.816 43.105 61.920 60.840 55%

Alfa Romeo Brera 26.849 28.052 21.897 27.833 27.934 28%

Volvo XC 90 36.815 36.573 24.413 34.091 29.481 51%

(Source: Backhaus/Voeth 2010, S. 151)

*(without taxes )

20-Oct-14



136

Profit maximization as key benefit of international

price differentiation (I)


Exemplary calculation for the two country case

Notation: q: Quantity sold

p: Price

Country A:

Large market

High price sensitivity

Price demand function: 𝑞𝐴 = 400 − 2𝑝𝐴

Cost function: 𝐶𝑜𝑣𝑒𝑟𝑎𝑙𝑙 = 10000 + 20(𝑞𝐴 + 𝑞𝐵)

Country B:

Small market

Reduced price sensitivity

Price demand function:𝑞𝐵 = 150 − .4𝑝𝐵

Cost function: 𝐶𝑜𝑣𝑒𝑟𝑎𝑙𝑙 = 10000 + 20(𝑞𝐴 + 𝑞𝐵)

qA

pA

pB

qB



137

Profit maximization as key benefit of international

price differentiation (III)

One price for all countries

Sales:

Costs:

Profit:

Optimum price:

Overall profit:

About 2550€ less profit compared to the situation with price differentiation

Overall profit:


222

BA p4.2p550p4.p150p2p400pqpqS

p4821000p83000p40800010000)qq(2010000K BA

21000p4.2p598p4821000p4.2p550KSG 22

58.1248.4/598*p

Sales

Costs

Profit

42.1625021000p58.1244.258.124598CSG 2



138

Arbitrage as key risk of international price

differentiation


Source: Simon and Wiese (1992, p. 250)

Country B

Price level: €

Country C

Price level: €€€

lateral gray imports

reimports parallel

imports

authorized

exports

authorized

exports

Country A (production site)

Price level: €€



139

Arbitrage: The case of Levi’s


Levi’s pricing problem Reasons for price

differences

Diverters buy Levi’s 501s at

retail prices (usually during

sales) and then resell them to

foreign buyers.

The US retail price is about

$40/pair; in Germany a pair is

sold for $40 to authorized

wholesalers and retailed for

$80.

The difference of about $40

makes it possible to buy a pair

in the US and sell it for about

$65 in Europe.

Retail prices are typically more

competitive in the US than in

Europe.

Some of the difference can be

attributed to price escalation

(e.g., because of tariffs,

shipping).

Solution:

Levi’s first sued Tesco and won after four-year court battle.

Levi’s developed a new brand, “Levi’s Strauss Signature” for about $20 less than ordinary Levi’s

for value-channel retailers such as Tesco.




140

Arbitrage: Supap Kirtsaeng and the Supreme Court


Supap Kirtsaeng

The arbitrage opportunity:

Supap Kirtsaeng

Thai math student at USC

Relatives in Thailand buy international versions of US textbooks

Resale over ebay: estimates of revenues up to $US 1.2m

First court case

Wiley sues for damages

Student asked to pay over $US 600,000 in damages

Everything he owns is confiscated, because of potential money transfers abroad

US Supreme court decision March 2013

No one can forbid resale of legally acquired goods, new interpretation of “first sale doctrine”

Student gets his money back

Overall profit:

Source: Business Week (10/26/2012), The Economist (03/23/2013)



141

Strategies for dealing with arbitrage buying


Buying all reimports and

gray imports oneself

Harmonizing prices

Lead country pricing

Introduction of price

corridors

Do nothing (maintain

price differences while

tracking product flows)

Increasing distributors

loyalty

Segmenting national and

international customers

and establishing a cross-

country relationship

management for

international customers

Creation of country

specific products or

brands

Limiting guarantees and

service for unauthorized

imports and making that

known in the market

Responding through

pricing

Responding through

products, services, and

communication

Responding through

customer relationship

management



142

Lead country pricing as instrument to avoid

arbitrage


Prices must be set in a way

such that arbitrage does not pay

off

Lead country concept National

markets

Price

Country

A

Country

B

Lead

Country

Country

D

Country

E

Arbitrage

costs

Source: Simon and Fassnacht (2009)



143

International price differentiation and harmonization

are a matter of degree: Idea of the price corridor


Time

International prices

Highest

Lowest

Today Tomorrow

Future price corridor

Time

International prices

Highest

Lowest

Today Tomorrow

Worst case of price harmonization Desirable evolution if

harmonization is necessary

Source: Simon and Fassnacht (2009)



144

Reasons for standardizing and for differentiating

prices


Factors speaking for price differentiation Factors speaking for price standardization

Low interdependence

Customers are local

Customers have little transparency of

foreign prices

Insulating market sub-segments is

possible

Products are differentiated

Products can be easily customized

High differences

Heterogeneous customer needs

Heterogeneous willingness to pay

Competitive intensity is lower in some

countries

Cost-related considerations

High costs of implementing price

differentiation

High interdependence

Low costs of transporting the product

Low trade barriers

Low currency risks

Existence of international key accounts

High degree of international M&A activity

between customers

Centralized procurement of customers

High price transparency

Other considerations

Legal restrictions on price differences

Customer emphasis on price fairness



145

Currency fluctuations: The Dollar/Euro exchange

rate since 1999


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Source: European Central Bank



146

Pricing optimization considering for currency

fluctuations

A European company selling in the USA

Quantity:

with q: quantity sold in USA, p$: price in $US, a,b: response parameters

Costs:

with Cfix: fixed costs, k: variable costs per unit

Sales in $:

Sales in €:

with w: exchange rate expressed in €/$

Profit in €:

Optimum price:

Some generalizations:

Impact of currency fluctuations larger, if k is large compare to a/b (maximum price)

Increasing exchange rate reduces the optimum price in $


$bpaq

$fixfix€ kbpkaCkqCC

$fix

2

$$€€€ kbpkaCwbpwapCSG

Source: Simon/Fassnacht 2009

2

$$$$ bpappqS 2

$$$€ wbpwap)pq(wS

w

k

b

a

2

1p

kbwbp2wadp

dG

*

$

$

$

€



147

Example: Impact of the exchange rate on the US

optimum price in and the US quantity sold



Example

Quantity sold in the USA

Variable costs in €

Profit in €

Profit in $

q = a- bp$ = 200 -10p$

C€ = Cfix + kq = 5q

G€ = 200p$w-10p2

$w-1000 + 50p$

G$ = 200p$ -10p2

$ -1000w-1 + 50p$w-1

.5

2.00

0

2

4

6

8

10

12

14

16

.6

1.67

.7

1.43

.8

1.25

.9

1.11

1.0

1.0

1.1

.91

1.2

.83

1.3

.77

q/10

p* in $

w [€/$]

w-1 [$/€]



148

0

100

200

300

400

500

600

700

800

900

Example: Impact of the exchange rate on profits in

$ and €



Example (continued)



Profit in €

Profit in $

q = a- bp$ = 200 -10p$

C€ = Cfix + kq = 5q

G€ = 200p$w-10p2

$w-1000 + 50p$

G$ = 200p$ -10p2

$ -1000w-1 + 50p$w-1

.5

2.00

.6

1.67

.7

1.43

.8

1.25

.9

1.11

1.0

1.0

1.1

.91

1.2

.83

1.3

.77

Profit in €

Profit in $

w [€/$]

w-1 [$/€]



149

Determining the right amount of “Pass-through”

Strong assumptions for price optimization on previous charts:

Price demand function remains unaffected (no competitive effects)

Costs remain unaffected (no imports necessary for production)

In business practice the question becomes much more complex

With € appreciation, local competitors offer relatively better prices

With € depreciation, local competitors are disadvantaged

Price variation should be reduced

Question: To what degree should exchange rate changes be “passed through” to the

customer?

Two basic alternatives:

Maintain the foreign price (Local currency price stability)

Maintain the price in € (Home currency price stability)


Sources: Kotabe and Helsen (2011), Simon and Fassnacht (2009)



150

Example: Impact of maintaining the price in $/€ on

profits


Source: Simon and Fassnacht 2009

Example (continued)



Profit in € $$$€

fix€

$$

p501000wp10wp200G

q5kqCC

p10200bpaq

.5

2.00

.6

1.67

.7

1.43

.8

1.25

.9

1.11

1.0

1.0

1.1

.91

1.2

.83

1.3

.77

w [€/$]

w-1 [$/€]

0

100

200

300

400

500

600

700

800

900

Profit in € with a constant price of 10€

Profit in € with optimum price in $ Profit in € with a constant

price of $ 13.33



151

Pass through behavior in the 1990’s car industry


Source: Gagnon and Knetter 1995, reproduced form Kotabe and Helsen 2011

Model

Real Dollar

Appreciation

Real Retail Price Change

in U.S. Market

Honda Civic 2-Dr. Sedan 39% -7%

Datsun 200 SX 2-Dr. 39% -10%

Toyota Cressida 4-Dr. 39% 6%

BMW 210i 2-Dr. 42% -8%

BMW 733i 4-Dr. 42% -17%

Mercedes 300 TD Station Wgn. 42% -39%

Retail Price Changes during Dollar Appreciations:

Japanese and German Exports to the U.S. Market



152

The problem of inflation for pricing


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Country 2007 2008 2009 2010 2011

Belarus 8.4 14.8 12.9 7.7 53.2

Brazil 3.6 5.7 4.9 5.0 6.6

China 4.8 5.9 -.7 3.3 5.4

Egypt 9.3 18.3 11.8 11.3 10.1

Germany 2.3 2.6 .3 1.1 2.3

India 6.4 8.4 10.9 12.0 8.9

Italy 1.8 3.4 .8 1.5 2.7

Japan .1 1.4 -1.3 -.7 -.3

Russia 9.0 14.1 11.7 6.9 8.4

Serbia 6.4 12.4 8.1 6.1 11.1

Turkey 8.8 10.4 6.3 8.6 6.5

Ukraine 12.8 25.2 15.9 9.4 8.0

USA 2.9 3.8 -.4 1.6 3.2

Inflation as measured by the consumer price index reflects the annual percentage change in the cost

to the average consumer of acquiring a basket of goods and services that may be fixed or changed

at specified intervals, such as yearly.

Inflation, measured as annual change in consumer prices in %

January 1990: First

shop in Moscow

Price of a BigMac meal:

6 rubles

January 1993: Price of

a BigMac meal: 1100 rubles

Beginning of the 1990’s

Hyperinflation in Peru

(up to 7000% per year)

Procter required to raise

prices for washing powder

twice per week

Sources: World Bank; Kotabe and Helsen 2011; Simon and Fassnacht 2009



153

Dealing with inflation from a marketing perspective


Price differentiation Defining sales and

delivery terms

With free capital markets and without exchange rate controls, inflation is not

a large problem for exporters

Exchange rate reflects inflation

Relative price level remains large unaffected

Problems especially in two cases

Governments respond with price regulation to inflation

Products are at least partly produced in the country with inflation

The case of government interventions

Typically as price control/price freeze

Price caps for some (or all) industries

Often coupled with wage freezes

Very ineffective due to rumors and anticipatory actions

Options for companies facing price controls

Launch variations of existing markets

Export products from inflationary countries

Predict incidence of price controls

Negotiate with the governments

Sources: Kotabe and Helsen 2011; Simon and Fassnacht 2009



154

Safeguarding against inflation if products are at

least partly produced in the country with inflation


1

2

3

4

Shorten credit terms

Include escalator-

clauses in long-term

contracts

Quote prices in a

stable currency

Pursue rapid

inventory turnovers

Reduce the time your customers have to

pay you for the product

In long-term contracts in B2B settings include

clauses that allow you to raise prices in

inflationary environments

To handle high inflation, companies often quote

prices in stable currency such as the U.S.

dollar or the Euro

High inflation mandates rapid inventory

turnarounds driven by information technology


Five alternative ways to safeguard against inflation

5 Draw lessons from

other countries

Managers from countries with a long history of

inflation (e.g., Brazil, Turkey) can offer valuable

insights for other countries



155

Price escalation


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Exporting…

requires more steps in the logistic chain from manufacturer to customer

is associated with higher risks than exporting to the home market

Result: Price escalation, i.e. “the final foreign retail price will often be much higher than

the domestic retail price” (Kotabe and Helsen 2011, p. 402)

Illustration:

Shipping (longer distance,

across water)

Tariffs

Taxes

Importer margin

Insurance

Manufacturer price

Wholesale margin

Retailer margin

Manufacturer price

Wholesale margin

Retailer margin

Possible local price elements Possible foreign price elements

Shipping



156

Some examples for high discrepancies between US

retail prices and German retail prices


USA: $499

D: €499

USA: $60

D: €90

USA: $300

D: €370

USA: $200000

D: €75000

(Exact

configuration

differs)



157

Options for dealing with price escalation


Price escalation

The final foreign

retail price is often

much higher than

the domestic retail

price because of

incremental costs.

Rearrange the distribution

channel.

Eliminate costly features or

make them optional.

Downsize the product.

Assemble or manufacture

the product in the foreign

markets.

Adapt the product to

escape tariffs or tax levies.

• Distribution channels are often responsible for price

escalation.

• Solution: Shorten channel arrangements that provide cost

savings.

• Offer no-frills versions of products.

• Downsize the product by offering a smaller version of the

product.

• Closer proximity to the export market lowers transportation

costs.

• Reduce or eliminate import duties.

• Modify the product to bring it into a different tariff or tax

bracket,




158

Transfer prices are important when local sales

companies are run as profit centers


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Country A Country B Country C

Sales company

(profit center)

Sales company

(profit center)

Sales and

production company

(profit center)

Customer Customer Customer

Market price Market price Market price

Transfer price Transfer price



159

Alternative transfer pricing policies


Real costs Standard costs Market price

Incentive for sales company to

achieve high (market) prices ++ +++ +

Incentive for sales company to

reduce costs + ++ +++

Incentive for production

company to achieve high

(market) price

+ ++ +++

Incentive for production

company to reduce costs + +++ ++

Possibility of tax optimization ++ +++ +

Simplicity / feasibility ++ +++ +



160

In comparing international price quotations,

particular attention to the Inco terms is warranted


Challenges in

international

pricing



Inflationary



Defining sales and

delivery terms

Explanation Carriage

arranged by

Risk transfer from seller to

buyer: When the goods...

Cost transfer from seller to buyer

EXW Ex works buyer are at the disposal of buyer when goods are at the disposal of buyer

FCA Free carrier buyer or seller on

buyer‘s behalf

have been delivered to the

carrier at the named place

when the goods have been delivered to the carrier at the named

place

FAS Free along-side

ship

buyer have been placed alongside

the ship

when the goods have been placed alongside the ship

FOB Free on board buyer pass the ship‘s rail when the goods pass the ship‘s rail

CFR Cost and Freight seller pass the ship‘s rail at port of destination, buyer paying such costs as are not for the

seller‘s account under the contract of carriage

CIF Cost, Insurance,

Freight

seller (carriage

and insurance)

pass the ship‘s rail at port of destination, buyer paying such costs as are not for the


CPT Carriage paid to seller have been delivered to the

carrier

at place of destination, buyer paying such costs as are not for the


CIP Carriage and

insurance paid

seller (carriage

and insurance)

have been delivered to the

carrier

at place of destination, buyer paying such costs as are not for the


DAF Delivered at

frontier

seller have been delivered at the

frontier

when the goods have been delivered at the frontier

DES Delivered ex

ship

seller are placed at the disposal of

the buyer on board the ship

when the goods are placed at the disposal of the buyer on board

the ship

DEQ Delivered ex

quay


the buyer on the quay

when the goods are placed at the disposal of the buyer on the

quay

DDU Delivered duty

unpaid


the buyer

when the goods are placed at the disposal of the buyer on the

quay

DDP Delivered duty

paid


the buyer

when the goods are placed at the disposal of the buyer

Source: International Chamber of Commerce 1999



161

Agenda


I. Introduction







II. Pricing

III. Communication

IV. Sales




162

Standardization in communication is only

sometimes possible


Standardization in communication

Standardized international communication strategies distinguish themselves by assuming

a worldwide standard with no particular consideration for national wishes and needs.

Advantages

• Uniform implementation of goals

• Cost saving

• High control potential

Disadvantages

• Disregard of differences

• Empty messages

• Problem of acceptance

Requirements of complete standardization:

• Culture-free products (e.g., regarding

utilization)

• Homogeneous target group

• Similar product life cycle

• Media availability



163

Barriers to standardization in advertising


Barriers to

standardization in

advertising

Cultural differences

Advertising regulations

Market maturity

“Not-Invented-Here” Syndrome

Cultural gaps may permit many products

(e.g., terms of lifestyle, usage contacts)

Local advertising regulations pose a barrier to

standardization that affects the execution of

commercials

Gaps in cross-market maturity levels lead to

different advertising approaches.

“Education” of customer may be necessary

Local subsidiaries or local agencies could

stonewall attempts at standardization

Source: Ghauri/Cateora (2005)



164

Barriers to communication standardization:

Different meanings of colors


Example of different meanings of colors in several countries:

Source: Hünerberg 1994

White Black Red Yellow Blue Green

Western

Europe

Birth, purity Death,

mourning

Love,

danger,

power,

dynamic

Optimism,

friendliness,

sun

Coldness,

authority

Freshness,

vitality

China Death,

mourning

Fun,

festiveness

Japan Death,

mourning

Dignity,

aristocracy

Future,

energy,

virtue

Arabian/

Islamic

countries

Happiness,

wealth

Virtue, trust,

truth

Religious

color, fertility

Tropical

countries

Illness,

jungle



165

Barriers to communication standardization:

Legal advertising restrictions in selected countries


Spirits Wine Beer Tobacco Medicines

Austria X X O

France X X X O

Greece X O

Italy O O O X O

Turkey X X X X X

The Netherlands X O

UK X O O X O

X - Forbidden O - Highly regulated




166

Example of a standardized advertising campaign:

Crédit Suisse


China Italy US/UK



167

Nissan’s global “shift” advertising campaign


Starting point (2002)

• Nissan’s advertising

messages varied across

markets:

- In Europe, there was no

tagline,.

- In the US, the tagline

was “Driven.”

- In Japan, the tagline was

“Driving more to enjoy

your life every day.“

“Shift” campaign (2002)

• Varying taglines, but all include the world “shift.”

- Second half of the tagline after “shift” allowed local variations.

- In the US, “shift achievement,” “shift forward,” etc.

- In Europe, “shift expectations.”

- In Japan, “shift the future.”

Result of a worldwide

cooperative process with all

subsidiaries

“Shift” is not

copyright

protected in any

country.

Can be easily

understood in

non-English

speaking

countries

Conveys

appropriate

message for

Nissan




168

Example of a differentiated advertising campaign:

Siemens


Symbol of „energy“ in ...

... Hong Kong ad:

Firework display with a view of

the Hong Kong skyline.

... German ad:

Crowd of enthusiastic youngsters

at a pop concert.



169

Example of a localized advertising campaign:

Dunkin’ Donuts in Thailand



General position in

Thailand “Mom’s campaign” 1999

• Dunkin’ Donuts entered

Thailand in 1981 and now

operates130 outlets with

300,000 customers per week.

• The largest Dunkin’ Donut shop

worldwide is in Thailand.

• Dunkin’ Donuts portrays itself as

a company that cares for

society and honours the family.

• Restaurants are meeting places

for families and friends.

• Summer 1999: Dunkin’ Donuts

runs five-week campaign

around the birthday of

Thailand’s queen which

coincides with national mothers’

day.

• Objective: Increase in market

share by two percent

• Cornerstone was that Thais

came to restaurants and

penned a love note to their

mothers on a special banner.

• Dunkin’ Donuts positioned as a

company that cares about Thai

culture.

• 5% increase in market share

was achieved.



170

Agenda


I. Introduction







II. Pricing

III. Communication

IV. Sales




171

Distribution channels in international markets

can be very complex


International channel

of distribution

alternatives varies

according to :

• Length of channel

(i.e., number of

parties in the

channel)

• Types of

distribution

partner in the

channel

Home country Foreign country

The foreign marketer or producer

sells to or through

Domestic producer or

marketer sells to or

through

Open distribution via

domestic wholesale

middlemen

Export management

company or company

sales force

Exporter Importer

Foreign agent

or merchant

wholesalers

Foreign

retailer

Foreign

consumer



172

One key challenge in international sales is the control

over marketing activities vis-à-vis the final customer


Supplier

Country

of origin

Target

country

Importer Own

subsidiary

Country A Country B Country C Country D

Wholeseller

Consumer

Exporter Exporter

Consumer Consumer Consumer

Importer



173

If several channels are used to cover one country,

functions and segments have to be carefully separated


Example: Coverage concept for Belgium of one business unit of a large chemical company

Customer

segment

Function

International key

accounts

Large national

accounts

Small and medium national accounts

Selling,

relationship

management

Key-account-

manager

Belgian field rep

Belgian field rep

External

distribution partner

for France and

Benelux countries

none

Order handling &

customer service

Central European

customer service

center

Local customer

service center

responsible for

Belgium

E-Commerce

portal (partially

owned)

Technical service

Central technical

coordinator

Belgian technician

Belgian technician none



174

Barriers to global internet marketing


Source: Kotabe and Helsen 2011, p. 627-633

Language Barrier

Knowledge Barrier

Cultural Barrier Infrastructure

Access Charges Regulations



175

Digital economy is still only well developed in

economically strong countries


Source: www.economist.com



176

Negotiation behavior varies greatly between

countries: The example of Japan and America


Category Japanese Americans

Language Most Japanese executives understand English,

though interpreters are often used.

Americans have less time to formulate answers and

observe Japanese nonverbal responses because of a

lack of knowledge of Japanese.

Nonverbal behaviours The Japanese interpersonal communication style

includes less eye contact, fewer negative facial

expressions, and more periods of silence.

American businesspeople tend to “fill” silent

periods with arguments or concessions.

Values Indirectness and face-saving are important.

Vertical buyer-seller relationships, with sellers

depending on the goodwill of buyers is typical.

Speaking one’s mind is important; buyer-seller

relationships are horizontal.

Four Stages of Business Negotiations

1. Non-task sounding Considerable time and expense is devoted to

such efforts in Japan.

Very short periods are typical.

2. Task-related exchange of

information

The most important step: High first offers with

long explanations and in-depth clarifications.

Information is given briefly and directly. “Fair” first

offers are more typical.

3. Persuasion Persuasion is accomplished primarily behind the

scenes. Vertical status relationships dictate

bargaining outcomes.

The most important step: Minds are changed at

the negotiation table, and aggressive persuasive

tactics are often used.

4. Concessions and

agreement

Concessions are made only toward the end of

negotiations – a holistic approach to decision-

making. Progress is difficult for Americans to

measure.

Concessions and commitments are made

throughout – a sequential approach to decision-

making.

Source: Ghauri/Cateora (2005)



177

More clichés about negotiations with international

customers


Source: Wirtschaftswoche

DO Speak French.

Talk elegantly and

eloquently.

Try to find an abstract

approach to your topic

before going into

specifics.

Take delays (up to 30

minutes) of your

partners into account.

Accept contradictions

as your partner‘s way to

show interest.

Look for pragmatic

solutions.

Practice fairplay.

Dress conservatively

(e.g., leave your jacket

on during negotiations).

Be prepared for subtle

humor.

Bring an interpreter –

most negotiations are in

Russian.

Be serious.

Be patient. Negotiations

may take four times as

long as in the West.

Restrict drinking to the

official toasts.

Clarify everything –

Russians dislike

uncertainty.

Build personal

relationships.

Be on time.

Define the key terms of

the project first.

Keep it short and

simple.

Keep smiling. Be

prepared to talk

business after a very

short, casual warm-up.

Give positive feedback

on personal anecdotes.

Involve local lawyers.

Put all agreements into

the written contract.

Be patient. Negotiations

may take six times as

long as in the West.

Be polite. Always.

Use middlemen who are

trusted by all parties.

Build personal

relationships.

Ask for compensation for

each concession.

Document all results.

Even written contracts are

subject to later

„interpretation“.

DON‘T Translate verbally:

„Compromis“ has a

negative connotation. A

„concept“ is a vague

idea, not an elaborated

proposal.

Be too relaxed toward

managers who are

hierarchically superior.

Rush into details right

away.

Reduce a conversation

to the factual level.

Be blunt and rude.

Expect your partner to

openly contradict. Look

for implicit concerns

instead.

Underestimate

understatement. A

„slight“ problem might

be big.

Talk politics or

ideologies over dinner.

Be overly fussy about

details.

Make the other side lose face.

Teach, explain. Compromise too early –

this is a sign of weakness. Display strength and endurance.

Overestimate a contract. Delivery guarantees often do not mean a lot.

Talk about religion,

sexuality, politics.

Use abstract thinking.

Use concrete examples.

Boast on academic

titles.

Think that nobody understands you when your delegation is speaking German among themselves.

Make the other side lose face.

Be direct. A „no“ is a no-go. Circumscribe it in order not to expose the counterparty.



178

Some clichés about negotiating with Germans

found on the Internet and elsewhere


DO‘s: Be on time. A delay of more than ten minutes is

often considered offensive.

Stick to the agenda. Germans prefer crisp

meeting agendas.

Consider negotiations as a joint problem-solving

process.

Focus on long-term benefits.

Be patient. Negotiations take a long time.

Bring a translator. English is the likely language

at the table. However, Germans tend to speak

in native language during side discussions.

Focus on the Euro as the agreement currency.

Communicate directly and openly.

Take hard-and-fast questions regarding

your offer as a clear signal of interest.

Keep your distance. People generally converse

standing about three to four feet apart.

Understand that oral agreements are

considered binding (and often legally so).

Be prepared to talk about politics over dinner.

DONT‘s: Haggle. Germans believe in the concept of a „fair

price“. Prices rarely move by more than 10 to 25

percent between initial offers and final

agreement.

Feel patronized. The Germans negotiate in “an

unpleasant, instructor-type style.”

Waste time by reading „between the lines.“

Be too enthusiastic. Germans view too much

enthusiasm and spin as lacking credibility. Focus

on the logic and facts of your arguments.

Take blunt, if not brusque, words from the

Germans personally. Questions come across as

aggressive. Germans like to debate.

Bring gifts.

Discuss business over dinner.

Ask for exceptions.

Bring your lawyer to a negotiation table. It is a

strong signal of distrust.

Question the effectiveness and efficiency of

German workers.

Sources: Various blogs; Katz (2008); Kotabe and Helsen (2007)



179

Expatriates in international selling


Expatriates: Home country personnel sent abroad to manage local operations

in a foreign market. (Kotabe and Helsen 2011, p. 486)

Advantages:

Better Communication

Goal alignment with

headquarter

Development of Talent

Difficulties:

Cultural

misunderstandings

Motivation

Compensation

Family Discord

Security Risk

Using expatriates is generally positive, when communication with the home

country office is at a premium: Complex operating environments

High cultural distance

Elevated political risk that requires constant monitoring

Highly individualized products manufactured in the home country

Sting as „Englishman in New York“



180

Agenda


I. Introduction









181

What are the emerging markets?

Term coined in 1981

Introduced by Antoine van Agtmael at an investor conference in Thailand

At the time deputy director of World Bank‘s International Finance

Corporation

Idea: To replace “Third World” label with something more optimistic

No clear definition what countries can be counted as

“emerging market”

Popular: Goldman Sachs classifications by Jim O’Neill

BRIC: Brazil, Russia, India, China

(political organization includes since 2011 South Africa)

Next Eleven (N-11): Bangladesh, Egypt, Indonesia, Iran,

Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey,

Vietnam

Related term: Transition economies = Countries changing from planned economy to free

economy


Source: Kotabe and Helsen 2011, p. 598/599

Jim O‘ Neill, Goldman Sachs

Antoine van

Agtmael



182

Characteristics of emerging markets


Source: Kotabe and Helsen 2011, p. 599

Low per capita incomes

High rates of emigration

High income inequalities Rapid pace of

economic development

Youthful and growing

populations

Weak and highly

variable infrastructure

BRIC countries alone:

15% of global GDP in 2007, predicted to overtake G7 in 2050

40% of world population (3 billion people)



183

Prediction: The growing importance of emerging

markets


China

India

Russia

Brasil

BRIC Total

2000 2010 2020 2030 2040 2050

GB D JAP USA

ITA FRA D JAP

ITA

ITA

FRA

FRA

D

D

G7

Years, when these countries are expected to have a larger GDP than G7 countries

Source: Holtbrügge and Welge (2010)



184

Average consumer spending for products

per year


Source: Fortune.cnn.com



185

Product management in emerging markets: The

infrastructure challenge as a source of innovation (I)

■ No equivalent to 911 or 112

hotline for ambulances in India

■ Taxis used for transport to hospital

■ 2003: Startup „Dial 1298 for

Ambulance“ in Mumbai

Paid private ambulance service

Premium services and prices

for middleclass subsidize

free fares for the poor

Training facilities for staff

Funding through non-profit

foundation accepting donations

■ Today: Fleet of 280 ambulances,

expanded into other cities


■ No equivalent to 911 or 112

hotline for ambulances in India

■ Access to drinking water difficult

in rural regions of Bangladesh

■ 2010 foundation of private-public

partnership “Micro Water Facility”

■ Idea: Combination of micro-

financing with machines for

water-purification

■ Locals get a credit for buying a

machine to clean the water and

then sell this water at a small

price to others in the village



186

Product management in emerging markets: The

infrastructure challenge as a source of innovation (II)

■ Strong position of Unilever in middle

class in Latin America

■ Goal: Target consumers in poor

rural communities

■ Development of special washing

powder that is suited if clothes

are washed in the river

■ Result: ALA brand

■ Today: highly

successful in

northern regions

of Brazil


■ P&G set up an “$2 per day” initiative in

October 2009

■ Goal: Develop product and pricing

models that target consumers that

earn less than $2 per day

■ Focus on market research in poor

rural communities in China

■ First consequence: Development of*

hair and body products that do not

require much water for rinsing



187

Pricing in emerging markets: “Sachet Marketing”

as response to the low income challenge


Coke popular brand in many emerging

markets and developing countries

However, regular prices often too high

2002: Introduction of a new 200ml bottle

in India

Offer expanded to other markets, such

as Kenya and Tanzania in 2011

Low income households cannot afford

standard cartons of washing powder

Strategy of P&G, Unilever, and other

companies: “Sachet Marketing”

Small packages including washing

powder for one washing at very low

prices (.02€-.04€)

Distributed through small vendors



188

Pricing in emerging markets: Reducing costs to

respond to the low income challenge

Bharti group founded in

Bharti Airtel: Largest mobile phone provider in India

Radical outsourcing strategy:

Network operations from Ericsson

Business infrastructure from IBM

Transmission towers from independent Indian company

(Bharti Infratel)

Airtel nothing more than a marketing and sales unit

Cost-reduction through contract design:

Pay-per-minute contract with Ericsson

Prepaid business model with customers (no billing costs, no

relationship costs)

186.41 million subscribers in October 2012 (Vodafone India: about 150 million)

Business model successfully exported

Bangladesh and Sri Lanka in Asia

Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana,

Kenya, Madagascar, Malawi, Niger, Nigeria, Rwanda, Seychelles, Sierra Leone, Tanzania,

Uganda, and Zambia in Africa


Source: Meyer and Kirby (2012, p. 21/22)

Sunil Bharti Mittal (*1957)



189

Distribution and sales in emerging markets: The use

of innovative channel designs in Russia and India


■ P&G entered Russian market in 1991

■ Slow growth: 1995 11 P&G employees

■ Key problem for all multinational

FCMG firms: Selling outside

Moscow and St. Petersburg

■ Adoption of model from P&G Poland:

Training and equipping whole-

sellers through P&G (including

a van and computers)

Regional exclusivity

Exclusive distribution of P&G

■ Access to 80% of the population before

all competitors -> strong market position

■ 2001: Hindustan Unilever without access

to 500,000 rural communities in India

■ Solution: “Project Shakti”

Target women’s self-help groups

(more than a million in India)

Women were trained in selling,

commercial knowledge, and

bookkeeping

After completion of training

possibility to become “Project

Shakti entrepreneurs”

Micro-Financing of first stock

Sales to around 500 customers

Profits of about $22 per month

■ 2009: 45000 participants, 135000 villages




190

Africa: The new emerging market?


Source: Economist 12/32011

Some facts about African economies 2000-2010:

Six of the world‘s ten fastest growing countries in Africa

In eight of ten years faster growth than East Asia

(including Japan)

IMF expectations: 6% growth in 2011 and 2012

(similar to Asia)

Still the poorest continent:

most Africans live on less than two dollars a day

food production per person has slumped since the 1960s

the average lifespan in some countries is under 50

highly instable political environment and corruption in many countries

Fundamental numbers going up:

Fast growing middle class: 60 million Africans with more than $3,000 per year

(expected to rise to 100 million in 2015)

1000% increase in foreign investment (often Chinese, but also Brazil, Turkey, and India)

600 million mobile-phone users (more than in Europe)

Tenth of the land mass covered by mobile internet services (more than in India)

Productivity growth by 3% a year



191

Growth in African markets: The case of


Source: HeidelbergCement

First presence in the 1960’s

Today:

4 cement plants: Congo (2x), Gabon, Tanzania

9 grinding plants: Benin, Congo, Gabon (2x),

Ghana (2x), Liberia, Sierra Leone, Togo

2011: 10% growth compared to 2010

Capacities limits reached in nearly all plants

Heavy expansion activities:

New mills in Liberia and Ghana (2012)

New clinker plant at Lomé facility in Togo,

new grinding plant in Togo (2014)

New grinding plant in Burkina Faso (2015)

300% Capacity increase in Congo

Capacity increase in Tanzania (2012)

Options in other countries being evaluated

Grinding plant in Lomé, Togo

Integrated plant in Dar es Salaam, Tanzania

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