Year 3-Marketing SpecializationWeek-1 Lecture

International Marketing

Module Title: International Marketing 2

Module Code:MK6065

Semester: Spring

Module Details….

Core texts

Kotabe M. and Helsen K. (2011) Global Marketing Management, 5th Edition, John Wiley & Sons Inc.

Hollensen, S. (2011) Global Marketing: A Decision-Oriented Approach, 5th Edition, Financial Times/ Prentice Hall.

Reading list

Globalization of markets Internationalization theories International Marketing research Marketing in emerging economies Cross Cultural consumer behavior and communications International sales negotiations International E-Marketing International Brand Management Social responsibility and Ethical issues in International

Marketing International Services Marketing

Important Topics covered….

Assessments-Compulsory Attendance

◦ Group Activities-50 % Group Presentation and feedback on others presentations

(Audio track submission)-10% Project report/Course Work-40%

◦ Unseen Examination-50%

◦ Minimum of 80% attendance is compulsory to attend the unseen examination

Module Details….

The world is shrinking rapidly with the advent of faster communication, transportation, and financial flows.

International trade is booming and accounts for 25% of U.S. GDP.

China is supplying goods to the entire world at cheaper price as a strategy.

China has surplus international trade. Most of the US companies consider the

world as their local market.

Some of the facts….

“International marketing consists of identifying and satisfying consumer needs abroad; better than the national and international competitors, under the constraints of the internationalization stage of the firm and the global environment”

By, Nathalie Prime

International Marketing

Domestic marketing vs. international marketing

DOMESTIC MARKETING Focus on domestic sales and markets Relatively homogenous market Data usually available and relatively easy

to collect Uniform financial climate Single currency Limited scope with reduced competition

DOMESTIC MARKETING (CONTD..) Within domestic markets, both domestic

and international companies can be found trading

What are the advantage for domestic companies compared to those of international?

Taxes and tariffs, or face regulatory barriers, Domestic companies receive assistance like

tax credits from the government.

DOMESTIC MARKETING (CONTD..) What should the country do….keep

supporting the domestic companies or allow international companies to operate more freely?

There should be balance

INTERNATIONAL MARKETING Fragmented and diverse markets Data collection formidable task, requiring

higher budget Political factors frequently vital Variety of financial climates Currencies differing in real value and

stability

EVOLUTION OF GLOBAL MARKETINGWorldview of a firm’s business activities can be described as the EPRG framework (Perlmutter, 1969; Chakravarthy and Perlmutter, 1985).

Its four orientations are1. Ethnocentric2. Polycentric3. Regiocentric4. Geocentric

ETHNOCENTRIC The home country is superior and the needs

of the home country are most relevant Controls are highly centralized The organization and technology implemented

in foreign locations will essentially be the same as in the home country.

Assumes products and practices that succeed at home will be successful everywhere

Leads to a standardized or extension approach E.g. export marketing.

POLYCENTRIC (MULTI DOMESTIC) Each country is unique and therefore

should be targeted in a different way Adapts to the different condition of

production and marketing in different location to maximize profit in each location.

This leads to localised product. Control with affiliates is highly

decentralized and The communication between them are also

limited.

REGIOCENTRIC (MULTINATIONAL) The world consists of regions (e.g. Europe, Asia, the

Middle East). The firm tries to integrate and coordinate its

marketing programme within regions, but not across them.

E.g. The NAFTA or European Union market◦ Some companies serve markets throughout the world

but on a regional basis Ex: General Motors had four regions for decades: GMNA:GM North America GME : GM Europe GMLAAM: GM Latin America/Africa/Mid-East GMAP: GM AsiaPacific

GEOCENTRIC (GLOBAL) Entire world is a potential market Strives for integrated global strategies Also known as a global or transnational company Retains an association with the headquarters

country Pursues serving world markets from a single

country or sources globally to focus on selected country markets

Leads to a combination of extension and adaptation elements

Think global, act local

7

The International Marketing Environment

Political/legalforces

Economicforces

1

2

Environmentaluncontrollablescountry market A

Environmentaluncontrollablescountrymarket B

Environmentaluncontrollablescountrymarket C

Competitivestructure Competitive

Forces

Level of Technology

Price Product

Promotion Place

Geography and

Infrastructure

Foreign environment(uncontrollable)

Structure ofdistribution

Economic climate

Cultural forces

3

45

6

7Political/

legalforces

Domestic environment(uncontrollable)

(controllable)

Cultural Differences…..

In Bulgaria shaking your head “no” means that the person is listening, not that they disagree with you.

Subway found difficulties in finding a type of floor for their stores in India.(it took two years to find it)

Sending a woman to conduct business negotiations in the Middle East might be offensive to some Middle Eastern businessmen who typically don't socialize in public with women.

Cultural differences….

In some Asian cultures, bowing, rather than shaking hands, is a more acceptable form of greeting.

Other etiquette concerns can include eating customs in business dinners, bringing and giving gifts when appropriate, differences in body language and dress and even methods of negotiation.

The MGM Grand, one of the largest hotels and casinos in Las Vegas, had to rebuild its multi-million dollarentrance because the tiger’s mouth that wasat the entrance was offensive to the Chinese customers visiting their location

When Nike learned that this stylized “Air” logo resembled “Allah” in Arabic script, it apologized and pulled the shoes from distribution.

Cultural Differences…..

Facebook and YouTube banned in China and Pakistan

Access Wikipedia and flickr are restricted in Pakistan

Social Differences…..

Tariff Barriers

Nontariff Barriers: ◦ Quota◦ Domestic Subsidy◦ Administrative delays◦ Boycotts and Embargoes◦ Local content requirements

Protectionism…..

Types of barriers Tariff

◦ Direct taxes and charges imposed on imports◦ Generally straightforward and easy for the

company to administer◦ They are visible and known quantity and so

can be accounted for by companies when developing their marketing strategies

◦ Used as a means for collecting revenues and protecting domestic industries

◦ Useful tool for politicians to show that they are actively trying to protect their home markets.

Types of barriers Tariff

◦ Common form of tariffs are Specific- charges are imposed on particular product by weight or

volume Ad valorem: charge is the straight percentage of the value of

goods Discriminatory: charge is for goods coming from particular

countries

For example, Company XYZ produces cheese in Scotland and exports the cheese, which costs $100 per pound, to the United States. A 20% ad valorem tariff would require Company XYZ to pay the U.S. government $20 to export the cheese. A specific tax would involve charging $30 dollars per pound of cheese whether cheese sold for $100 or $200 per pound.

Quotas A restriction on the amount of good that can

enter or leave a country during a period of time Two reason for imposing import quotas

◦ Protect domestic producers by placing the limit on amount of goods allowed to enter the country. Domestic producers win by protecting the market

share but consumers lose because of high price and less selection due to lower competition.

Other loser could be the domestic producers who need to import intermediate goods for the production.

◦ To force the companies of other nations to compete against one another for the limited amount of imports allowed.

Quotas Reason for imposing export quotas

◦ To maintain adequate supplies of product in the home market: for e.g. companies exporting natural resources

◦ Restrict supply on world markets to increase the price of the goods: for e.g. Middle east countries attempts to restrict the world’s supply of crude oil to earn greater profits.

Embargoes A complete ban on trade in one or more

products with a particular country Typically applied to accomplish political

goals Example: US embargo on trade with Cuba.

Administrative delays Regulatory controls designed to impair the

rapid flow of imports into a country Examples

◦ Requiring international air carriers to land at inconvenient airports

◦ Requiring product inspections that damage the product itself

◦ Purposely under staffing customs offices to cause unusual delays

◦ Requiring special licences that take long time to obtain

Local content requirements Law stating that a certain portion of end

product consists of domestically produced goods

Employ local resources in their production especially labour.

Proactive Profit and growth goals Managerial urge Technology

competence/unique product

Foreign market opportunities/market information

Economies of scale Tax benefits

Reactive Competitive pressures Domestic market: small

and saturated Overproduction/excess

capacity Unsolicited foreign

orders Extend sales of

seasonal products Proximity to

international customers/psychological distance

Major motives for starting exportInternationalization motives

Source: adapted from Albaum et al. (1994, p. 31)

9-32

Types of entry modes

Export

Intermediate

Hierarchical

Factors to be considered when undertaking foreign market entry Degree of control Degree of risk Commitment of organisational and financial

resources Flexibility

10-34

Export modes

11-35

Intermediate modes

Difference between licensing and franchising

Licensing Franchising

The term royalties is normally used

Management fees is regarded as the appropriate term

Products or even the single product are the common element

Covers the total business including know-how, goodwill, trademarks and business contracts

Usually taken by well established business

Tends to be start up situation

Terms of 16-20- years are common

Agreement is normally for 5 years sometime extending to 11 years.

Licensee are in strong position to operate the licence

Franchisee is very definitely selected by franchisor

Very little benefit from ongoing research is passed on to the licensee

The franchisor is expected to pass on to its franchisee the benefits of ongoing research programme 11-

36

12-37

Hierarchical modes

Domestic-based representatives

Resident sales representatives

Foreign sales subsidiary

Sales and production subsidiary

Region centres

12-38

Domestic-based sales representatives/

manufacturer’s own sales force

12-39

Residentsales representatives/

sales subsidiary

12-40

Sales and production subsidiary

12-41

Region center

China with international trade

A day in the global economy.

Globalisation Integration of world economies

through the reduction of barriers to the movement of trade, capital, technology, and people.

Broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations

The world economy - Glossary Gross Domestic Product (GDP)=A country’s total output of goods and

services Balance of (merchandise) trade=

exports-imports World output=sum of all countries’ GDPs World trade=total exports + imports Disposable income=total income-

essential purchases

The world economy - Glossary Foreign Direct Investment (FDI)=Foreign manufacturing/operations located

in a host country Foreign Portfolio investment=short

term foreign investment in equities, commodities, currencies etc.

These are a key source of financial flows between countries

FDI V FPI

FPI (Foreign Portfolio Investment) Passive ownership of foreign securities

such as stocks or bonds for the purpose of generating financial returns

Form of international investment but not direct investment which seeks control of business abroad and represents a long term commitment

Not more than 10% of ownership in the enterprise according to UN

WORLD TRADE *(exports + imports) and world output

World trade growing at <6%p.a 1990-2000.◦ 7.1% in 2007 (2008 forecast = 8.0%)

World GDP growing at <2% p.a. 1990-2000◦ 5.1% in 2007 (2008 forecast =4.6 %)

Exports and imports of goods % GDP (2000)

Region/country Exports Imports

N. America 17%(27) 23%(20)

W. Europe 40%(32) 40%(40)

Japan 8%(.4) 6%(1)

Asia 27%(14) 23%(14)

Latin America 6%(12) 6%(11)

( )=1948

Share of global exports and imports of services (2000) – top 5 exporters

Region/country Exports Imports

North America 19% 14%

U.K. 7% 6%

France 6% 4%

Germany 6% 9%

Japan 5% 8%

Recent international marketing trends

Changing balance of economic power Trading blocs Cultural convergence

Big Emerging Markets (2008 GDP forecast)

China (10.1)India (7.9%)

S. Korea (5.3%)Mexico (3.1%)Brazil (4.5%)

Argentina (5.7%)S. Africa (5.1%)Poland (5.1%)Turkey (5.3%)

Trade Blocs

‘Regional economic arrangements’ (from free trade to economic union)