The Scope and Challenge of International Marketing Chapter 1

Learning Objectives LO1 The benefits of international markets LO2 The changing face of U.S. business LO3 The scope of the international marketing task LO4 The importance of the self-reference criterion (SRC) in international marketing LO5 The increasing importance of global awareness LO6 The progression of becoming a global marketer

Global Perspective: Global Commerce Causes Peace Global commerce during peace time Commercial aircraft and space vehicle industries Mobile phone industry Individuals and small companies International markets are ultimately unpredictable Flexibility means survival In times of peace, international trade flourishes as relationships between countries improve. This has a ripple effect and a positive impact of the economies of all countries involved.

Events and Trends Affecting Global Business The rapid growth of the World Trade Organization and regional free trade areas The trend toward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe The burgeoning(迅速成长的) impact of the Internet, mobile phones, and other global media on the dissolution of national borders The mandate to properly manage the resources and global environment for the generations to come The impact of Sino-Korean FTA on China’s Business

The Internationalization of U.S. Business Increasing globalization of markets Increasing number of U.S. companies are foreign controlled Increasing number of foreign companies building and buying manufacturing plants in the U.S. Increasing difficulty for domestic markets to sustain customary rates of growth

Foreign Acquisitions of U.S. Companies The ownership of many U.S. businesses is located with companies headquartered outside of the U.S. It is interesting to see that a company like Burger King is British and Seven Eleven is Japanese, brands in our daily life that we consider “American.” Exhibit 1.1 Foreign Acquisitions of U.S. Companies, Sources: Compiled from annual reports of listed forms, 2012. 1-6

Exhibit 1.2 Selected U.S. Companies and Their International Sales The changing world economy has created unique opportunities for marketers. A product that has reached the end of its lifecycle in a mature western market may have tremendous potential in emerging markets such as Brazil, Russia or China. The reduced barriers and access to cross-border trade makes it possible for firms to source from various countries, reduce costs and sell worldwide. Deregulated markets in the former USSR and Eastern Europe, increasing competition, and open foreign investment policies in Asia, South America, and Africa have created new opportunities. It has allowed businesses to expand internationally. Source: Compied from annual reports of listed firms, 2012 1-7

Chinese Merge and Acquisition Chinese companies recently surpassed Germany's to become the world's No 2 in terms of acquisitions, having spent $21.8 billion on such moves. "Culture shock and staff integration are usually more troubling to a merger than financial and technical integration," said Peter Promnitz, CEO of Mercer(美世)in Asia-Pacific, one of the world's largest human resources consulting firms. In a Mercer survey of 607 top executives around the world, about 35 percent surveyed said they consider staff integration the biggest challenge.

Gigante, one of Mexico’s largest supermarket chains, now has several stores in Southern California, including this one in Anaheim. On store shelves are a variety of Bimbo bakery products. Grupo Bimbo, a growing Mexican multinational, has recently purchased American brand-named firms such as Oroweat, Webers, Sara Lee, and Mrs. Baird’s Bread. 1-9

Photo Caption: A Citibank branch in the heart of Brazil on a rainy day. The address on the Avenida Paulista is 1776—how American! One of the world’s great multinational corporations barely survived the financial debacle of October 2008. Perhaps its red, white, and blue umbrella logo protected it from “adverse weather” on Wall Street? Indeed, during the past few years, its international operations have performed much better than its domestic ones. In particular, emerging markets such as China, India, and Brazil proved relatively resilient during the global financial crisis that began in 2008. 1-10

International Marketing Definition International Marketing is the performance of business activities designed to Plan, Price, Promote, and Direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit. According to the American Marketing Association (AMA) "international marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives."

The International Marketing Task Four One Three Two What makes international marketing so much more complicated than domestic marketing are the various uncontrollable factors that companies have to encounter in international markets in addition to all the uncontrollable factors they would normally face in domestic markets. The uncontrollables in a foreign country could range from political or legal regulations that are unique to a country, competition, to consumer tastes and socio-cultural differences that are new to the company. Exhibit 1.3: The International Marketing Task illustrates the environment in which a firm operates in global markets. Case 1–1, Starbucks-Going Global Fast, is a good way to think about the marketing mix and the effects of uncontrollables and controllables both in the domestic and foreign environments. How would you have done things differently to overcome some of the problems illustrated in the case? Starbucks is looking to boost its overall rate of growth by applying its business formula to other nations that lack a Starbucks-type chain. In doing so, it is helping to change aspects of the material culture of those countries it enters, to feel more like the U.S. At the same time, Starbucks has found that to succeed internationally, it must customize aspects of its operations and marketing to local conditions, by introducing new versions of its basic drinks that appeal to local tastes for example. 1-12

Environmental Adaptation Ability to effectively interpret the influence and impact of the culture in which you hope to do business Cultural adjustments Establish a frame of reference Avoid measuring and assessing markets against the fixed values and assumptions of your own culture

The Self-Reference Criterion and Ethnocentrism The key to successful international marketing is adaptation to the environmental differences from one market to another Primary obstacles to success in international marketing SRC Associated ethnocentrism

SRC and Ethnocentrism SRC is an unconscious reference to One’s own cultural values, experiences, and knowledge as a basis for decisions Dangers of the SRC Failing to recognize the need to take action Discounting the cultural differences that exist among countries Reacting to a situation in an offensive to your hosts Ethnocentrism Notion that one’s own culture or company knows best

SRC and Ethnocentrism Ethnocentrism and the SRC can influence an evaluation of the appropriateness of a domestically designed marketing mix for a foreign market The most effective way to control the influence of ethnocentrism and the SRC is to recognize their effects on our behavior

Framework for Cross-cultural Analysis Define business problem or goal Home-country vs. foreign-country cultural traits, habits, or norms Consultation with natives of the target country Make no value judgments Isolate the SRC influence Examine it carefully to see how it complicates the problem Redefine the problem Without SRC influence Solve for the optimum business goal situation

Developing a Global Awareness Tolerance of cultural differences: Understanding cultural differences and accepting and working with others whose behavior may be different from yours Knowledge of cultures, history, world market potential, and global economic, social, and political trends

Approaches to Global Awareness Select individual managers specifically for their demonstrated global awareness Develop personal relationships in other countries Have a culturally diverse senior executive staff or board of directors

Stages of International Marketing Involvement No direct foreign marketing Infrequent foreign marketing Regular foreign marketing International marketing Global marketing

No Direct Foreign Marketing Products reach foreign markets indirectly Trading companies Foreign customers who contact firm Wholesalers Distributors Web sites Foreign orders pique（激起） a company’s interest to seek additional international sales

Infrequent Foreign Marketing Caused by temporary surpluses Variations in production levels Increases in demand Firm has little or no intention of maintaining continuous market representation Foreign sales decline when demand or surplus decreases May withdraw from international markets Little or no change in company organization or product lines

Regular Foreign Marketing Firm has production capacity devoted to foreign markets Firm employs domestic or foreign intermediaries Uses its own sales force Sales subsidiaries in important markets Products allocated or adapted to foreign markets as demand grows Firm depends on profits from foreign markets

International marketing Companies are fully committed to and involved in the international marketing activities Such companies seek markets all over the world and sell products that are a result of planned production for markets in various countries.

Global Marketing Company treats world, including home market as one market Market segmentation decisions no longer focused on national borders Defined by income levels, usage patterns, or other factors More than half of revenues come from abroad Organization takes on global perspective

Factors Favoring Faster Internationalization Companies with either high technology and/or marketing-based resources are better equipped to internationalize than more traditional manufacturing companies (Tseng et. al., 2007) Smaller home markets and larger production capacities favor internationalization (Fan & Phan, 2007) and Firms with key managers well networked internationally are able to accelerate the internationalization process (Freeman and Cavusgil, 2007) Refer to text page 20, footnotes for the references on this slide.

The Orientation of International Marketing Environmental/cultural approach Relate the foreign environment to the marketing process Illustrate how culture influences the marketing task The cultural environment within which the marketer must implement marketing plans can change dramatically from country to country The text addresses issues relevant to any company marketing in or into any other country or groups of countries, however slight the involvement or the method of involvement. Hence this discussion of international marketing ranges from the marketing and business practices of small exporters, such as a Colorado-based company that generates more than 50 percent of its $40,000 annual sales of fish-egg sorters in Canada, Germany, and Australia, to the practices of global companies such as Microsoft, Mary Kay, and Johnson & Johnson, all of which generate more than 50 percent of their annual profits from the sales of multiple products to multiple country-market segments all over the world.

Questions How will Shanghai FTA affect the international market? What are the impacts of Sino-Korean FTA on Chinese Cosmetic Business? What are some of the problems that Chinese companies have met in the internationalization of the business?