Chapter 1 Introduction to Global Marketing (08. 03 Chapter 1 Introduction to Global Marketing (08.03.2016 / Lecturer: Minli Wan)

Outline Overview of Marketing: Global Marketing: Definition of marketing Principles of marketing Global Marketing: Key concepts related to global marketing Reasons and importance of global marketing Regular marketing vs. global marketing Global marketing strategy (GMS) Management orientations Driving forces and restraining forces affecting global integration and global marketing

Definition of Marketing An organizational function. A set of activities and processes that, along with product design, manufacturing, logistics and services, comprises a firm’s value chain. Figure 1. Value Chain Model (Porter 1985)

Principles of Marketing Value creation: The core of marketing is to surpass competitors by creating more value for customers. Competitive advantage: A firm’s competitive advantage can be achieved by creating more customer value than is competitors. Focus: The focus strategy is regarded as an effective way to create more value.

Value Creation Value = Benefits / Price: Two ways of increasing value: Benefits are combination of the product, promotion and distribution (place) components of the marketing mix => The marketing mix is central to this equation and comprises a marketer’s primary tool. Two ways of increasing value: Improving benefits (improving products; finding new distribution channels; creating better communications) Lowering prices (reducing monetary and/or non- monetary costs). A successful product or brand must be of acceptable quality and consistent with buyer behavior, expectations, and preferences. The marketing mix, which is consisted of product, price, place and promotion, is central to this equation because benefits are a combination of the product, promotion, and distribution (place) components of the mix. And the marketing mix comprises a contemporary marketer’s primary tools. Companies that use price as a competitive weapon may use global sourcing to access cheap raw materials or low-wage labor. Companies can seek to improve process efficiencies or gain economies of scale with high production volumes. Marketers may be able to reduce non-monetary costs by decreasing the time and effort customers expend to learn about or to seek out the product.

Competitive Advantage Competitive advantage is measured relative to rivals in a given industry. If a company is able to offer a combination of superior product, distribution or promotion benefits and lower price than its competitors, this company should enjoy a competitive advantage in an industry. Example: Japanese auto makers made significant gains in the American market in the 1980s by creating a superior value proposition. They offered cars with higher quality and lower prices than those made by American car companies.

Focus Focus is the concentration of attention on a core business or competence: “Nestle is focused: We are food and beverages. We are not running bicycle shops. Even in food we are not in all fields. There are certain areas we do not touch…..We have no soft drinks because I have said we will either buy Coca-Cola or we leave it alone. This is focus.” (Helmut Maucher, former chairman of Nestlé SA) Achieving competitive advantage in a global industry requires executives and managers to maintain a well-defined strategic focus. Specific actions that can take for concentrating on core business or competence: alliances, mergers, acquisitions, divestitures and folding some businesses into other company divisions.

Global Marketing Global marketing is involved in marketing activities across different countries without focusing primarily on national or regional segmentation. An organization engaging in global marketing focuses its resources & competencies on global market opportunities & threats. Global marketing is essential if a company competes in a global industry or one that is globalizing.

Global Industry An industry is global to the extent that a company’s industry position in one country is interdependent with its industry position in other countries. A global industry is an industry in which competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale.

Globalization What is globalization? “Globalization is the inexorable integration of markets, nation-states and technologies to a degree never witnessed before --- in a way that is enabling individuals, corporations and nation-states to reach around the world father, faster, deeper and cheaper than ever before.” (Thomas Friedman) Process of transformation from formerly local or national industries into global ones. Globalization provides companies to develop new products, get new ideas, develop markets, expand brand recognition, and eventually gain profits.

Globalization (Cont’d) Indicators of globalization: The ratio of cross-border trade to total worldwide production; The ratio of cross-border investment to total capital investment; The proportion of industry revenue generated by companies that compete in key world regions.

Reasons for Global Marketing Growth Access to new markets Access to resources Survival Against competitors with lower costs (due to increased access to resources)

The Importance of Global Marketing The world market potential - the market size outside home country is very large: For the U.S. companies, 75% of sales potential is outside the US -> Coca-Cola earns 75% of operating income and 2/3 of profit outside North America; For Japanese companies, 85% of the world market potential is outside Japan; For German companies, 94% of the world market potential is outside Germany.

The Importance of Global Marketing (Cont’d) Companies engaged in global marketing is more likely to achieve competitive advantage. Companies that fail to formulate adequate response to the challenges and opportunities of globalization will be absorbed by more dynamic, visionary enterprises or simply disappear.

Difference between Regular Marketing and Global Marketing: Scope of Activities Product - Market Growth Matrix (Ansoff 1957) This matrix shows that the Market Development strategy is defined as taking existing products into new markets. Wal-Mart’s expansion into some Central American countries is an example of this strategy.   The diversification strategy refers to developing new products for new markets. South Korea’s LG Electronics has created new products for other American home appliance market. Innovations like a $3,000 refrigerator with a built-in flat panel LVD TV have been instrumental in Home Depot’s decision to carry the appliance product line.

Marketing Strategy Differences Single-Country Marketing Strategy Target market strategy Marketing mix (4Ps): Product Price Promotion Place Global Marketing Strategy Global market participation Marketing mix development: 4Ps: Standardization or adaptation Concentration of marketing activities Coordination of marketing activities Integration of competitive moves Since countries and people are different, marketing practices that work in one country will not necessarily work in another. Customer preferences, competitors, channels of distribution, and communication may differ. Global marketers must realize the extend to which plans and programs may be extended or need adaptation. The way a company addresses this task is a reflection of its global marketing strategy(GMS). Global market participation is the extent to which a company has operations in major world markets. Standardization versus adaptation is the extent to which each marketing mix element can be executed in the same or different ways, i.e., in the standardized or adapted ways, in various country markets.

Standardization vs. Adaptation Globalization (Standardization): Developing standardized products marketed worldwide with a standardized marketing mix; Essence of mass marketing. Global localization (Adaptation): Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction; Essence of segmentation; “Think globally and act locally”.

Standardization vs. Adaptation Arabic Read right to left The Faces of Coca-Cola Around the World The design is basically the same but the name is frequently transliterated into local languages The Arabic label is read right to left; the Chinese label translates “delicious/happiness.” Chinese “delicious/happiness

McDonald’s Global Marketing Strategy Marketing Mix Standardization Localized Big Mac Brand name Advertising Slogan “I’m Loving It” Free-standing restaurants Big Mac: $3.54 (U.S. and Turkey) McAloo Tikka potato burger (India) Slang ”Macca’s (Australia) MakDo (Philippines) McJoy magazine, “Hawaii Surfing Hula” promotion (Japan) Home delivery (India) Swiss rail system dining cars $1.83(China) Product Promotion Place Price

Three Additional Dimensions in GMS Concentration of marketing activities: The extent to which marketing mix activities are performed in one or a few country locations. Coordination of marketing activities: The extent to which marketing mix activities are planned and executed interdependently around the globe. Integration of competitive moves: The extent to which a firm’s competitive marketing tactics are inter-dependent in different parts of the world.

Management Orientations Ethnocentric Orientation Polycentric Orientation Regiocentric Orientation Geocentric Orientation

Ethnocentric Orientation Home country is superior to others See only similarities in markets Assumes products and practices that succeed at home will be successful everywhere Leads to a standardized or extension approach to marketing Ethnocentric Orientation leads to a standardized or extension approach. Foreign operations are typically viewed as being secondary or subordinate to the country in which the company is headquartered. Sometimes, valuable managerial knowledge and experience in local markets may go unnoticed. Manufacturing firms may view foreign markets as dumping grounds with little or no marketing research conducted, manufacturing modifications made or attention paid to customer needs and wants. Examples: - In Nissan’s early days of exporting to the U.S. , the company shipped cars for the mild Japanese winters. Executives assumed that when the weather turned cold, Americans would put a blanket over their cars just like Japanese would. Nissan’s spokesperson said “We tried for a long time to design cars in Japan and shove them down the American consumer’s throat. That didn’t work very well.” - Michael Mondavi, former CEO of the wine company said, “Robert Mondavi was a local winery that thought locally, grew locally, produced locally, and sold globally…To be a truly global company, I believe it’s imperative to grow and produce great wines in the world in the best wine-growing regions, regardless of the country or the borders.”

Polycentric Orientation Each country is unique Each subsidiary develops its own unique business and marketing strategies Often referred to as multinational Leads to a localized or adaptation approach that assumes products must be adapted to local market conditions Examples: - Citicorp used this approach until the mid-1990’s when John Reed instilled a geocentric approach. He sought to instill a higher degree of integration among operating units. James Bailey, Citicorp executive said, “We were like a medieval state. There was the king and his court and they were in charge, right? No. It was the land barons who were in charge. The king and his court might declare this or that, but the land barons went and did their thing.” - Jack Welch at GE also sought to instill a geocentric approach.

Regiocentric Orientations A region is the relevant geographic unit and management’s goal is to develop a regional integrated strategy: E.g., the NAFTA or EU market Some companies serve markets throughout the world but on regional basis: E.g., General Motors had four regions for decades At GM, executives were given considerable autonomy in designing autos for their regions.

Geocentric Orientations Entire world is a potential market Strives for integrated global strategies Also known as a global or transnational company Pursues serving world markets from a single country or sources globally to focus on selecting country markets Retains an association with the headquarters country Leads to a combination of standardized (extension) and localized (adaptation) elements Example: GM now assigns engineering jobs worldwide. A Detroit global council determines $7 billion annual budget allocation for new product development. One goal is to save 40% on cost of radios by using only 50 instead of 270 different ones. Basil Drossos, president of GM Argentina said “We are talking about becoming a global corporation as opposed to a multinational company; that implies that the centers of expertise may reside anywhere that best reside.” Other examples: Harley-Davidson (U.S.), Waterford (Ireland), Gap (U.S.)

国 际 管 理 导 向

Driving Forces Affecting Global Integration and Global Marketing Regional economic agreements Converging market needs and wants and the information revolution Transportation and communication improvements Product development costs Quality World economic trends Leverage DRIVING FORCES Regional agreements: NAFTA, EU expansion and single currency. WTO (1994) Market needs and wants and IT: There are cultural universals as well as differences. Common elements in human nature provide the opportunity to create and serve global markets. I.e. soft drinks Companies must recognize that product adaptation is not always necessary and that competitors may be serving global customers. The information revolution which Thomas Friedman calls the democratization of information is one reason for the trend to convergence. CNN and MTV allow people in remote areas to compare their lifestyles to others. Advertising overlapping national boundaries like in Asia or Europe and the mobility of consumers in these markets has allowed for pan-regional positioning. The internet is perhaps the strongest force that allows people everywhere to buy and sell. Transportation and communication: Jets allow around the world travel in less than 48 hours. 1970: 75 million international passengers. 2003: 540 million. Airlines sell each others seats thanks to modern technology. International phone calls are inexpensive and there are many other ways to communicate like fax, e-mail, video conferencing, wi-fi and broadband internet. Transportation costs have fallen. Due to specially designed ships, the cost of shipping autos from Japan to the U.S. is less than the cost to ship from Detroit to either U.S. coast. Intermodal transportation uses 20to 40 foot containers that may be transferred from trucks to railroad cars to ships. Product Development Costs: New pharmaceutical cost in 1976 = $ 76 million; today = $400 million and up to 14 years to get a drug approved. Pharma companies go global to spread the costs. However, only 7 countries account for 75 % of sales.

Leverage Definition: Four types: Leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country; Leverage allows a company to expend less time, less effort or less money when pursuing opportunities in new geographical markets. Four types: Experience transfer; Scale economies; Resource utilization Global strategy

Restraining Forces Affecting Global Integration and Global Marketing Management myopia and organizational culture National controls Opposition to globalization: Globaphobia manifests itself in various ways, including protests or violence directed at policymakers or well- know global companies; Reasons of globaphobia: Depressed wages and job losses; The world’s advanced countries reap most of the rewards of free trade. Management Myopia and Organizational Culture: Ethnocentric companies will not expand geographically. Managers tend to dictate when they should create strong local teams that they can rely upon for market information. Know-it-all local teams won’t listen to management and all-knowing managers won’t listen to local experts. Successful global companies have learned to integrate global vision and perspective with local market initiative and input. National controls: Every country tries to protect its home industries and services through tariff and non-tariff controls. Thanks to organizations like GATT, WTO, NAFTA, EU, and other economic agreements, tariffs have been largely removed in high-income countries. Non-tariff barriers to trade include “Buy Local” campaigns, food safety rules and other bureaucratic obstacles. Opposition to Globalization: Globophobia is the term used to describe an attitude of hostility toward trade agreements, global brands, or company policies that appear to result in hardship for some individuals or countries while benefiting others. Opponents to globalization include college or university students, NGOs and labor unions. Some Americans believe that globalization has sent American jobs—both blue-and white-collar—overseas and also depressed wages at home. In developing countries, many believe that free trade agreements benefits the world’s most advanced countries. An unemployed miner in Bolivia said, “Globalization is just another name for submission and domination. We’ve had to live with that here for 500 years and now we want to be our own masters.”

Assignment Go through exercises I’m going to send to you Preview Chapter 2 The Global Economic Environment

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