CHAPTER 19

THE GLOBAL MARKETPLACE

CLASS NOTES

OBJECTIVES:

· Discuss how the international trade system, economic, political-legal, cultural, and technological environments affect a company's global / international marketing decisions.

· Describe three primary approaches to entering international markets.

· Review how companies adapt or standardize their marketing mixes for international markets.

I. The global marketplace— why the interest now?

· The world is shrinking rapidly with the advent of faster communication, transportation, and reduction of trade and investment barriers: the globalization mandate!

· Globalization drivers (George Yip)

1. Market—common customer needs, global customers & channels, transferable marketing, leading markets

2. Competitive—competitors globalized, interdependence of countries, high exports & imports

3. Cost—scale economies, scope economies, sourcing advantages, difference in country costs, fast changing technology

4. Government—favorable trade policies, foreign investment, compatible technical standards, common marketing regulations

· International trade is booming and now accounts for 1/4 of US' gross domestic product.

Income groups (GNP per capita, per year)	GNP per capita ($) in 2002	% of World GNP	2002 Population (millions)	State of Economic Development
High income (GNI > $9,076)	26,310.0	80.5	965	Advanced, industrialized, post-industrialized
Upper-middle income ($2,936< GNI <$9,075)	5,040.0	5.4	331	Industrializing
Lower-middle income ($736> GNI < $2,935)	1,390.0	10.5	2,400	Less developed (LDC)
Low income (GNI< $735)	430.0	3.6	2,500	Preindustrialized
World (total)		$ 31.5 trillion	6.2 billion

Source: The World Bank Data (2002): http://www.worldbank.org/data/countrydata/countrydata.html

· But everyone does not embrace international trade:

Protectionism is increasing in many regions.

Outpouring of opposition in Seattle, Prague, Washington, DC, and recently in Miami. Why?

Bottomline: world is becoming smaller and every company operating in a global industry, whether big or small, must assess and establish their position.

II. Why do so many US firms lack the ability to compete in the world marketplace?

· 5 US companies account for 12% of our exports

· 2,300 exporting firms represented 82.5% of the total ($463 billion) in 1993.

Global/ international firms face several major problems:

1. High debt, inflation, and unemployment have resulted in highly unstable governments and currencies.

2. Governments are placing more regulations on foreign firms.

3. Protectionist tariffs and trade barriers.

4. Corruption.

III. Background thoughts about international business

· Globalization is on a continuum. It is not an ALL or NOTHING decision.

· Globalization tends to infer integration and some element of standardization

· Not all industries or companies are adequately fit for global strategies.

· WHAT firm does is not changed, but HOW it does it.

· AMA definition of Marketing—

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organization objectives. The 4 Ps still exist.

· Global marketing—marketing activities coordinated and integrated across multiple country markets. View world as ONE market.

· International marketing—older term encompassing foreign trade analysis, environmental differences, and all marketing efforts in foreign countries, whether coordinated or not (foreign marketing)

· Multidomestic market(ing)—marketing efforts that cater to local consumer preferences and functional requirements widely differ from marketplace to marketplace.

IV. Major decisions in international marketing (Figure 19.1)

1. Review and understand the global business environment.

2. Deciding whether TO GO international. (sometimes this decision is made for the company.)

3. Deciding which markets to enter.

4. Deciding how to enter the market.

5. Deciding on the appropriate marketing program.

V. The global business environment— extension of macroenvironment considerations from Chapter 4.

A. Factors affecting the global business environment that are encountered in the domestic market.

· International trade system: tariffs, NTBs, quotas, exchange controls.

· GATT and the World Trade Organization: reducing of tariffs and trade barriers and encouraging world trade.

· Regional Free Trade zones: some good and some bad.

B. Economic environment— income distribution and industrial structure important.

· Subsistence economies

· Raw material exporting economies

· Industrializing economies

· Industrial economies

C. Political-legal environment— the following should be considered in deciding whether to do business in a specific country:

· Monetary regulations.

· Political stability

· Government bureaucracy

· Attitudes toward international trading.

D. Cultural environment— it is more than folkways, norms and taboos. It is an underlying framework, invisible hand, or control mechanism that guides a person's decision process or governs behavior.

· Is culture inherited or earned?

· Static vs. dynamic

· Thought—

No matter now hard man tries, it is impossible for him to divest himself of his own culture, for it has penetrated to the roots of his nervous system and determines how he perceives the world.…. people cannot act or interact in any meaningful way except through the medium of culture. ( Clark, 1990, p.74)

· Marketing principles

Strategy

Research CULTURE Global

Mix Marketing

Consumer Behavior

E. Technological environment— what infrastructures exist to support a global operation and/ or products?

VI. Deciding whether TO GO international— actually the current situation is not a GO or NO GO decision, rather HOW TO GO.

· Reasons companies might consider international expansion:

1. NOT EXCESS INVENTORY.

2. Global competitors attacking the domestic market.

3. Foreign markets might offer higher profit opportunities. Consider the PLC by internationalizing the concept.

4. Domestic markets might be shrinking.

5. Need an enlarged customer base to achieve economies of scale.

6. Customers expanding abroad.

· Expansion requires a competitive advantage, preferable a sustainable one.

Firm specific competitive advantage

PLUS

Country specific comparative advantage

YIELDS

Enhanced returns.

VII. Deciding which markets to enter— Global marketplace a vast array of opportunities & challenges

A. Screening or evaluation process.

· What is the goal of this process? The firm's marketing objectives and policies must be developed. These are the basis for the screening (evaluation) process.

· Can be subjective

1. Identify regions or countries

· Firm objectives or strategy

· Product/service characteristics

· Subjective information

2. Preliminary screening—consider macro-level characteristics

· Political/economic stability

· Growth potential

· Bureaucracy

· Socio-cultural

· Technological

· Geographic distance (psychic distance)

3. In-depth screening—consider micro-level characteristics

· Competitive intensity

· Trade barriers

· Primary and secondary data

· Comparability of data

4. Final selection

· Personal visit

· Firm objectives or strategy

· Ranking process

· Continuing process—not a snapshot

5. Forecast demand (consider Table 19.1)

VIII. Deciding how to enter the market.— Basic modes of entry into a foreign market (Fig. 19.2)

1. Exporting: direct and indirect

2. Joint venturing: Licensing, franchising, contracting, and strategic alliances

3. Foreign direct investment

· Advantages and disadvantages to the marketing function vary with each mode.

· Height and nature of market entry barriers directly influence the mode??

A. What are entry barriers?

· Who pays?

· Are there any benefits?

1. Tariff vs. nontariff barriers

2. Governmental regulations: Basics issues of "doing business" in a foreign marketplace.

3. Channels of distribution: How easy is the access?

4. Natural barriers: Subjective consumer perceptions.

5. Difference of barriers between advanced and developing nations

B. Each mode involves different managerial skills

· Start up costs are considerable

· Using one mode leverages expertise

C. Exporting mode

1. Indirect option (sometimes by default)

2. Direct option

· How do you get paid?

· Transportation is more efficient

· Transfer of title

· Middlemen functions

· Issue of control over local marketing

· Establishing a sales subsidiary

D. Joint venturing mode

1. Licensing: straight, franchising, OEM

· Definition

· Advantages

· Disadvantages

2. Strategic alliances

· Definition (why?)

· Advantages

· Disadvantages

3. Nonequity strategic alliances

· Distribution

· Manufacturing

· Research and Development

E. Wholly owned subsidiaries: Greenfield or acquisition

· Concept

· Advantages

1. Tariff reduction

2. Lower manufacturing costs

3. Local content

4. Nearness to markets served

5. Coordination on global level

· Disadvantages

1. Risk

2. C.O.O.

3. Cheap—quality

· Necessary elements

1. Firm competitive advantage (FSA) or core competencies

2. Beneficial to use vs. sell or lease

3. Profitable to use FSAs with foreign factor inputs

F. Optimal procedure—first find a way over/around entry barriers, second assess trade-off between strategic plans and product/market situation.

XI. Deciding on the appropriate marketing program.

1. Influenced by the stage of economic development.

2. Consider Fig. 19.3 as a summary.

3. Adapted marketing mix (4 Ps): adjust the elements of the marketing mix to each international target market.

4. Standardized marketing mix: use basically the same elements of the marketing mix in all the company's international markets.

5. International pricing is a challenge.

· Companies face many problems in setting their prices.

· Possibilities in setting prices include:

Charge a uniform price all around the world.

Charge what consumers in each country can pay.

Use a standard markup of its costs everywhere.

· International prices tend to be higher than domestic prices because of price escalation? Really?