Marketing in a Global Economy

Chapter 18

How Popular Is American Fast Food in China?

What is the number one fast food restaurant in China?

Video: KFC is #1 China!

The U.S. and International Trade

• The United States has the world’s largest economy.

• In a recent year, the U.S. produced $14 trillion in goods and services, one-fifth (20%) of the world’s total production.

• Only the European Union and China approach the output of the United States.

Worldwide Interdependence

• International trade is the sale of goods and services to people in other countries.

• One –third of all world production is sold outside of the country in which it is produced.

• Economic interdependence means that most countries need to get some of their goods and services from other nations.

• Very few, if any, countries are truly self-sufficient.

Imports Vs. Exports

• Imports are products or services purchased from another country.

• Exports are products or services that are sold to other countries.

• A country’s balance of trade is the difference between the country’s exports and imports.• A trade surplus occurs when a nation exports more than it

imports.

• A trade deficit occurs when a nation imports more than it exports. The United States has a negative balance of trade.

Frameworks 4.1

United States Exports

• United States exports include goods such as airplanes, steel, weapons, electronics, automobiles, and information technology.

United States Exports

• Agriculture, including all agriculture products, is the largest export category of the United States.

The United States is the

world’s largest producer of

corn and many other

agriculture products. Why?

Video: American Steel

“Steel - the so called "backbone of America" - is suffering. The credit crisis has hit the industry hard. Steel plants across the country are hanging on until the federal stimulus package kicks in with its over $100 billion for building things like highways, bridges, and power grids, and its promise to get workers back into their hard hats.”

Absolute Vs. Comparative Advantage

• Absolute advantage occurs when a country has special natural resources or talents that allow it to produce an item at the lowest cost possible.

• Comparative advantage is the value that a nation gains by selling the goods that it produces most efficiently.

Absolute Advantage

• Brazil grows roughly a third of the world's coffee.

• Its climate and terrain is well suited for the cultivation of coffee.

• Coffee can only be grown in the earth’s equatorial region.

Comparative Advantage• The United States sells 41% of

the world’s total military equipment exports.

• The United States has specialized in the manufacture of military equipment resulting in a comparative advantage.

• China, France, Russia, Germany, and the United Kingdom also export military equipment.

Why Businesses Are Going Global

• The global marketplace makes all the people and businesses in the world potential customers, as well as potential employees or employers.

• Companies move into foreign markets to gain sales and increase profits.

• Increasing global demand for products encourages international trade.

• Improvements in transportation, communication, technology, and banking have made it easier to serve foreign markets.

How Businesses Get Involved

• Indirect exporting is the process in which marketing businesses with exporting experience represent the exporting company and arrange for sale of products in other countries.

• Direct exporting involves having the company take complete responsibility for marketing its products in other countries.

• Businesses often hire customs brokers, licensed specialists who know the laws, procedures, and tariffs required for importation.

How Businesses Get Involved

• With foreign production a company owns and operates production facilities in another country.

How Businesses Get Involved

• Foreign investment consists of owning all or part of an existing business in another country.

• The United States is the leading host country for foreign investments.

“Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying.

On a single day in June, an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian company bought a 99-year lease on Virginia's Pocahontas Parkway, and Texas officials decided to let a Spanish-American partnership build and run a toll road from Austin to Seguin for 50 years.” – USA Today

How Businesses Get Involved

• In a joint venture independent companies develop a relationship to cooperate in common business activities.

“PSA Peugeot Citroen (a French Company) and China Changan Automobile Group pledged to assemble Citroen cars in China by 2012 in a joint venture that will also introduce a new brand to the fast-growing market.

The carmakers will together invest $1.2 billion to increase and upgrade capacity at Changan’s plant in Shenzhen, China creating shared output of 200,000 vehicles a year.” - Bloomberg

Doing Business in China

• In China, they have seen the future, and it is Shanghai. The sprawling metropolis may turn out to be the world capital of the 21st Century.

Shanghai is more than just the biggest city in the world's biggest country; it is a great experiment in urban living, and it could affect the way we all live.

Multinational Companies

• A multinational company is a business that has operations throughout the world and that conducts planning for worldwide markets.

In November 2009, Disney received approval from the Chinese government to build a Disneyland resort in the Pudong district of Shanghai. The resort is expected to open in 2013.

The World’s Largest Employers

Company Home Country No. of Employees

Wal-Mart Stores United States 1,900,000

China National Petroleum China 1,086,966

U.S. Postal Service United States 796,199

Sinopec China 681,900

Siemens Germany 475,000

McDonald’s United States 465,000

Deutsche Post Germany 463,350

Carrefour France 456,295

Agricultural Bank of China China 452,464

Understanding International Markets

• Businesses must recognize that important differences exist among prospective customers in other countries.

The vintage Gerber baby food jar on the

left has a plain label. The modern jar on the right has a photo of the jar’s contents. Why was the label changed?

Information Needed for International Markets

Market Information

NeedsEconomic

EnvironmentEconomic

Environment

Culture and Customs

Culture and CustomsConsumer

CharacteristicsConsumer

Characteristics

Political andLegal Structure

Political andLegal Structure

TechnologyTechnology

Culture and Customs• Differences in language and culture make international

trade more challenging than doing business at home. What is common practice in one country may take on a different meaning elsewhere.

• Example: Gift giving is considered part of business etiquette in Asia, but may seem like an illegal bribe in the U.S.

Culture and Customs

The Chevrolet Nova was produced by General Motors from 1962 until 1988. While the car was very successful in the United States, exports of the vehicle were less than expected. The name Nova translated into Spanish as no go. Consumers in Spanish speaking countries were reluctant to purchase a car named the “No Go.”

Culture and Customs

The French perfume manufacturer of Champs-Elysees used one print ad in France and another version, with the model more conservatively dressed, in ads used in Middle Eastern countries.

Understanding International Markets

• The preindustrial economy is based on agriculture and raw material development through activities such as mining, oil production, and harvesting timber.

Mining for gold in the Democratic Republic of

the Congo, a preindustrial economy,

is done by hand.

Understanding International Markets

• In an industrial economy, the primary business activity is the manufacturing of products.

India and China are countries that are rabidly developing industrial economies.

Understanding International Markets

• A postindustrial economy is based on a mix of business and consumer products and services produced and marketed in the global marketplace.

• These countries have a very high standard of living.

SwedenSwitzerland

Denmark

Understanding International Markets

• Conditions of the Economy– Gross Domestic Product (GDP) is the total value of

goods and services produced within a country during a year.

– Gross National Product (GNP) is the total value of all goods and services produced by a country during the year, it includes foreign investments. It is a broader measure and includes the production of multinational companies.

– A growing GDP and GNP is a sign of a strong economy.

Frameworks 4.8

Understanding International Markets

• Conditions of the Economy– A country’s standard of living is a measure of the

quality of life for its citizens.• It is based on factors such as housing, food, education,

clothing, transportation, and employment opportunities.• A country’s standard of living is calculated by dividing the total

income of the country (GDP) by its population. This is known as GDP per capita.

• A country with a high standard of living produces and sells larger quantities of goods and services, meaning more jobs, higher wages, and better markets for businesses.

Frameworks 4.8

Understanding International Markets

• Conditions of the Economy– Productivity is the average output by workers for a

specific period of time.– Productivity shows the efficiency of a country’s work

force and the technology used in production. – Productivity can increase as a result of having a more

educated workforce, more efficient operations, and increased use of technology to support work procedures.

Frameworks 4.8

Understanding International Markets

• Americans are the most productive workers in the world.• Each U.S. worker produces $63,885 of wealth per year,

more than their counterparts in all other countries.• Ireland comes in second at $55,986, ahead of Luxembourg,

$55,641; Belgium, $55,235; and France, $54,609. – CBS News

Understanding International Markets

• Purchasing power is the amount of goods and services that can be purchased with a specific amount of money.

• The consumer price index (CPI) is the change in the cost of a specified set of goods over time.

• Inflation occurs when prices increase faster than the value of goods and services.

• A recession is a period of time in which the economy slows resulting in lower production, employment , and income. Frameworks 4.8

Trade Agreements & Alliances

• Governments make agreements with each other to set up trade alliances that establish guidelines for international trade. Some alliances in the interest of worldwide free trade are:

– World Trade Organization

– North American Free Trade Agreement

– European Union

The World Trade Organization• The WTO is a global coalition of 135 governments

that makes the rules governing international trade.

• The WTO was formed in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT).

North American Free Trade Agreement

• NAFTA is an international trade agreement among the United States, Canada, and Mexico. It went into effect on January 1, 1994.

The NAFTA Initialing Ceremony, October 1992. From left to right: (Standing) Mexican President Salinas, US President Bush, Canadian Prime Minister Mulroney, (Seated) Jaime Serra Puche, Carla Hills, Michael Wilson.

The European Union• The EU is Europe's trading bloc. It was

established by the Maastricht Treaty, which called not only for free trade among member nations, but also for a single European currency and a central European bank.

The European Union’s currency is known as the Euro.

Trade Agreements & Alliances

• Depicted on this map are two major trading blocks or markets - NAFTA and the EU.

• When marketing products in foreign countries, companies must make product and promotion decisions. • Customization means creating completely new

products for specific countries.• Globalization occurs when a company does not

change anything about its product or promotion.• Product Adaptation is changing a product to make it

more appropriate for a country's preferences.• Promotion Adaptation involves changing the

promotion to meet foreign customers' way of thinking.

Customization vs. Globalization

Promotion Adaptation

Rugged individualism is NOT a desired characteristic in most Asian countries, so tobacco manufacturers tailor their ads to the Asian market where social sophistication and financial success are greatly desired.

Largest Global Public Corporations

Rank CompanyRevenues ($

millions)Profits ($ millions)

1 Exxon Mobil 339,938.0 36,130.0

2 Wal-Mart Stores 315,654.0 11,231.0

3Royal Dutch Shell

306,731.0 25,311.0

4 BP 267,600.0 22,341.0

5 General Motors 192,604.0 -10,567.0

6 Chevron 189,481.0 14,099.0

7 DaimlerChrysler 186,106.3 3,536.3

8 Toyota Motor 185,805.0 12,119.6

9 Ford Motor 177,210.0 2,024.0

10 ConocoPhillips 166,683.0 13,529.0

11 General Electric 157,153.0 16,353.0

Trade Barriers to Foreign Markets

• A nation's government may impose trade barriers or restrictions when it wants to limit trade. There are three main types of trade barriers:

• tariffs

• quotas

• embargoes

Frameworks 4.10

Trade Barriers

• A tariff (sometimes called a duty) is a tax on imports.

• Tariffs may be used to produce revenue for a country.

• Another type of tariff is a protective tariff, which is generally high. Its purpose is to increase the price of imported goods so that domestic products can compete with them.

Frameworks 4.10.2

Trade Barriers

• An import quota limits either the quantity or monetary value of a product that may be imported.

• Example: In the late 1980’s the U.S. threatened to place a quota on the number of Japanese autos that could be imported to the U.S. As a result, many Japanese autos are assembled in the United States today.

Frameworks 4.10.2

Trade Barriers

• A subsidy is money provided to a business to assist in the development and sale of products.

• Example: The U.S. subsidizes some U.S. industries such as the manufacture of electric vehicles and some agriculture operations. France subsidizes it’s movie industry.

• The free trade movement is an effort to end this type of protection.

Frameworks 4.10.2

Trade Barriers

• An embargo is a total ban on specific goods coming into and leaving a country. Embargoes are usually used for political reasons.

• Example: The United States has lead a United Nations imposed embargo on Iran in an attempt to stop that country’s development of nuclear weapons.

Frameworks 4.10.2

Trade BarriersThe United States embargo

against Cuba is an economic, commercial, and financial embargo imposed on Cuba since 1962. The embargo was enacted after the Castro regime confiscated the properties of US citizens. The Castro regime was also accused of executing numerous U.S. citizens. The embargo also bans most travel to Cuba.

Frameworks 4.10.2

Video: Embargo Of Iran

“The Islamic Republic of Iran announced this week that it has already starting enriching uranium at its nuclear facility at Natanz, giving the Obama administration ammunition in its drive to pressure Russia and China into imposing tough new sanctions against Iran.”

Frameworks 4.10.2

End of Chapter 18: Marketing in a Global Economy50

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