CHAPTER 1 MARKETING RESEARCH FOR INTERNATIONAL MARKETING DECISIONS International Business: The New Realities1

Dimensions of Market Globalization Integration and interdependence of national economies: Results from firms’ collective international activities. Governments contribute by lowering trade and investment barriers. Rise of regional economic integration blocs: Free trade areas are formed by two or more countries to reduce or eliminate barriers to trade and investment, such as the EU, NAFTA, and MERCOSUR. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-2

Dimensions of Market Globalization (cont.) Growth of global investment and financial flows: Associated with rapid growth in foreign direct investment (FDI), currency trading, and global capital markets. Convergence of buyer lifestyles and preferences: Facilitated by global media, which emphasize lifestyles found in the U.S., Europe, or elsewhere; firms market standardized products. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-3

Dimensions of Market Globalization (cont.) Globalization of production: To cut costs, firms manufacture in low labor-cost locations, such as Mexico and Eastern Europe. Firms also source services from abroad. Globalization of services: Banking, hospitality, retailing, and other service industries are rapidly internationalizing. Firms outsource business processes and other services in the value chain to vendors overseas. And, in a new trend, many people go abroad to take advantage of low-cost services. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-4

Drivers of Market Globalization Worldwide reduction of barriers to trade and investment: Over time, national governments have greatly reduced trade and investment barriers. The trend is partly facilitated by the World Trade Organization (WTO), an organization of some 150 member nations. Market liberalization and adoption of free markets: The launch of free market reforms in China and the former Soviet Union marked the opening of roughly one-third of the world to freer trade. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-5

Drivers of Market Globalization (cont.) Industrialization, economic development, and modernization: These trends transformed many developing economies from producers of low-value goods to higher-value goods, such as electronics and computers. Simultaneously, rising living standards have made such countries more attractive as target markets for sales and investment. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-6

SOURCE: World Bank (2008) World Bank Development Indicator database. Numbers are based on the Atlas Methodology of the World Bank, a three-year average of the official exchange rate, adjusted for inflation. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-7 Gross National Income in U.S. Dollars

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-8 Gross National Income in U.S. Dollars

Drivers of Market Globalization (cont.) Integration of world financial markets: Enables firms to raise capital, borrow funds, and engage in foreign currency transactions wherever they go. Banks now provide a range of services that facilitate global transactions. Advances in technology: Reduces the cost of doing business internationally by allowing firms to interact cheaply with suppliers, distributors, and customers worldwide. Facilitates the internationalization of companies, including countless small firms. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 2-9

Why do Firms Participate in IB? To seek opportunities for growth through market diversification E.g., Harley-Davidson, Sony, Whirlpool. To earn higher margins and profits Often, foreign markets are more profitable. To gain new ideas about products, services, and business methods E.g., GM refined its knowledge about making small, fuel-efficient cars in Europe. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-10

Why do Firms Participate in IB? (cont.) To better serve key customers that have relocated abroad E.g., when Toyota launched its operations in Britain, many of its suppliers followed suit. To be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products E.g., Dell sources parts and components from the best suppliers worldwide. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-11

Why do Firms Participate in IB? (cont.) To gain access to lower-cost or better-value factors of production E.g., Sony does much of its manufacturing in China. To develop economies of scale in sourcing, production, marketing, and R&D E.g., Boeing lowers its overall costs by sourcing, manufacturing, and selling aircraft worldwide. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-12

Why do Firms Participate in IB? (cont.) To confront international competitors more effectively or to thwart the growth of competition in the home market Chinese appliance maker Haier established operations in the United States, partly to gain competitive knowledge about Whirlpool, its chief US rival. To invest in a potentially rewarding relationship with a foreign partner French computer firm Groupe Bull partnered with Toshiba in Japan to gain insights for developing information technology. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 1-13