DECISION FRAMEWORK Developed Markets Developing Markets Emerging Markets Key Decisions: Product Design, Choosing an Entry Mode, Targeting, Building Brand Equity *

Decision Criteria for Country Selection Market Size and Growth Risk (Political & Economic; Internal & External) Government Regulations Competitive Environment Local Infrastructure Country Classification –Platform – gathering intelligence and establish a network (Singapore, Hong Kong) –Emerging Market – Vietnam, Kazakhstan –Growth Markets – The Czech Republic, China, Brazil –Maturing Markets – Japan, Germany

The Triad Framework NAFTA US Canada Mexico Total Population – 425M GDP - $17.1 trillion EU Total Population – 460M GDP - $12.86 Japan – GDP- $4.22, Population – 127M Australia GDP – $666B,Populati on – 20M New Zealand – GDP $106B, Population – 4M Elements from: China –GDP $10T, Population – 1.3B India – GDP $4.0T, Population – 1.1B

The Trouble with India India has under invested in infrastructure for 60 years and are 10 to 12 years behind Crumbling roads, jammed airports, and power blackouts could hobble growth With no transit in Bangalore, Indian technology firms Infosys technologies ltd. Spends %5 million a year on buses minivans, and taxis to transport its 18,000 employees to and from Electronics City. Growth is running at 9% plus this year

Real estate prices have shot through the roof with some prices doubling in the past year Highways, modern bridges, world class airports,reliable, and clean water desperately fall short in supply Economic losses from congestion and poor roads alone are as high as $6 billion a year Intel recently chose Vietnam as opposed to India because of the lack of reliable power and water in India This is why India’s exports are less than 1% where China’s is 7%.

If the infrastructure development gets delayed,the economic development, job creation, and foreign investment get delayed as well GDP growth would run 2% points higher if the country had decent roads, railways, and power The problems are even contributing to overheating in the economy India today is where China was a decade ago Fortunately after decades of under investment and political inertia, India’s political leadership has awakened to the magnitude of the infrastructure crisis

Example : The first phase of a new subway in New Delhi was completed in 2005 On the whole there are so many infrastructure challenges, but also there are a lot of opportunities to assist meeting those challenges This is why so many multinational companies are flocking to India ranging from tourist class hotel rooms to telecom While the laws of supply and demand would indicate that India’s infrastructure gap can be filled, that logic ignores the corrosive effect of the country’s politics

None of the solutions to India’s infrastructure challenges are simple, but business leaders some enlightened government officials, and even ordinary citizens are chipping in to help make things better Unless the nation shakes off its legacy of bureaucracy, politics, and corruption its ability to build adequate infrastructure will remain in doubt as will its economic destiny

The Chinese Century Already a commercial giant, China is aiming to be the worlds next great power You may know all about the world coming to China – about the hordes of foreign business people setting up factories and boutiques and show rooms, but you probably know less about how China is going out into the world Through its foreign investments and appetite for raw materials, the worlds most populous country has already transformed economies from Angola to Australia At present China is turning that commercial might into real political muscle, striding onto the global stage and acting like a nation that very much intends to become the world’s next great power.

China seems ready to challenge and possibly even undermine some of Washington’s other foreign policy goals China is still a poor country whose leaders face so many problems China is an environmental dystrophic, its cities air foul beyond imagination and its clean water is scarce The most immediate priority for China’s leadership is less how to project itself internationally than how to maintain stability in a society that is going through the sort of social and economic change that, in the past, has led to chaos and violence

Chinas objective is to ensure a steady supply of natural resources, so that its economy can sustain the growth that officials hope will keep a lid on unrest at home This is the reason why china has reached out to resource rich democracies like Australia and Brazil as much as it has to such international pariahs as Sudan and Burma Assuming a bigger global presence has forced Beijing to learn the art of international diplomacy Within its own neighborhood there are signs that Chinas behavior is changing in more constructive ways

Today Chinas relations with its neighbors are viewed as positive at the expense of the US. There are some China watchers who fear a point to two factors: modernization of China’s defense forces and the risk of war over Taiwan China’s military spending has increased nearly 300% in the past decade After 200 years Chinas prospects are now better than ever and the opportunities of its people improve each year As China gets richer its population will press for a more democratic freedoms and its ruling elite mindful of the need for change will grant them

Three Dimensional – The markets of Japan, Korea, and China Asia is one of the worlds most dynamic regions, and offers multiple opportunities for business and investors Asian consumers have different tastes, preferences, and moderated by different income levels. A tendency has occurred to group these countries together but should not be done because they are so different GDP and purchasing power –o Japan – $4.80 trillion, $4 trillion –oChina - $1.84, $7 trillion –oKorea - $.72 trillion, $1 trillion Japan Korea and China differ in their brand orientations, attitudes toward domestic and foreign products, quality and price perceptions, and product feature preference

Brand Orientation Japan –Most brand conscious and status conscious –Love high end luxury goods –Country represents 20% of Gucci’s world –Prefer brands that contribute to their senses of identity and self expression –Highly group oriented consumers Korea –Sophisticated tastes –Show immense passion for new experiences and favor premium and expensive imported products –Great interest in generational fads and select products that follow their generations judgments and preferences China –Prefer luxury goods –Brand and status conscious –Consider luxury goods to be personal achievements, bringing higher social status –Purchasing behaviors are regional –Fourth largest market –“The new Japanese” –Wealthy people hungry for brands and fanatical about spending

Domestic VS. Foreign Japan –Consumers extremely demanding and have different perceptions of product made in other countries they are generally accepting of quality foreign products. –Dominated by well established companies such as Canon, Sony, and Toyota Korea –Consumers hold negative attitudes toward foreign businesses; the majority believes that these businesses transfer local wealth to other countries and crowd out small establishments –Consumers very product and demonstrate a complicated love hate relationship with foreign brands –Korea campaigns require significant re-branding – use of localized brands to influence local perceptions –Country is increasingly comfortable with the presence of foreign companies China –Attitudes toward foreign products differ depending on consumers age groups –Believe imported products under foreign brands names are more dependable –Foreign companies such as Nike Nokia Sony have replaced well known brands –Country’s consumers are inspired by design and function they prefer domestic brands because of their food value for the money

Quality and Price Japan –Consumers are the worlds strictest when it comes to demand for product quality and they clearly articulate their needs desires about a product or package operation –Foreign companies don’t fully understand and meet consumers needs expectations struggle with their investments –To cater to them manufacturers have adopted a total quality approach Korea –Consumption has been sluggish since the financial crisis of –Younger generation is at the forefront of a new and emerging patter and holds opposing expectations of preferences for low priced and high priced goods China –Price sensitive and try to safeguard their income for investment –Market is lucrative with growing demand foreign brands

Technology Features Japan –oConsumers prefer high tech gadgets –oConsumer are willing to pay for better cooler features and technological sophistication –oBecause of small living quarter, manufacturers have become experts at minimizing and creating multifunction devices Korea –oMost wired country in the world is a leader in internet usage and high the industries such as mobile phones, liquid crystals, and semiconductors –oCyberspace reaches more than ¼ of the population China –oImperative for companies o understand the major difference in consumer behavior between generations –oYoung consumers are passionate about the latest developments –o40’s and 50s consumers are price conscious, brand loyal, and less sensitive to technology

Recommendations Marketers need to tailor country specific strategies to target consumers in Korea, Japan, and China The existence of strategically equivalent segments suggests a geocentric approach to global markets Similarities allow for standardized strategies across national boundaries Companies not only preserve consumer orientation, but also reduce the number of marketing mixes they have to offer

A Model For Selecting Foreign Markets Preliminary Opportunities Country Priority Listings Probable Opportunities 1. Macro Level Research (General Market Potential) Economic statistics The political environment Social structure Geographic features 2. General Market Relating to the Product Growth trends for similar products Cultural acceptance of such products Availability of market data Market size State of development Taxes and duties Possible Opportunities 3. Micro Level Research (Specific Factors Affecting the Product) Existing and potential competition Ease of entry Reliability of information Sales Projections Cost of Entry Probably product acceptance Profit potential “Feel” 4. Target Markets Corporate factors affecting implementation Rejected Countries

Opportunity Matrix LMHLMH H M L Business & Political Risk Measured Over Time Market Opportunity

Market Stage Infancy Developing Mature (Types of after markets.) 1.Customers 2.Product Introduction 3.Distribution 4.Price 5.Competitive Strategies

Criteria Used in Choosing Entry Strategies External CriteriaInternal Criteria Market risk factor Competition in the market Political conditions Market conditions Future market potential Availability of desired distribution outlets Availability of venture capital Availability of know-how Time orientation Need for control Degree of internationalization Urgency of going international Ability to handle international risk

Entry Decisions: Strategic Parameters InputProcessOutput A strategic plan including: * Motivation(s) for entry  Decision rules for  * Mode of entry site(s) selection (risks control, legal issues) * Inventory of own* Operational and resources implementation programs * Inventory of competitors resources * Market intelligence * IP protection

International Market Entry – Funnel Approach Regional FocusMode of EntryRegional Focus The “Triad” Japan North America Europe Trading companies Exporting Licensing Manufacturing Joint Ventures Strategic Alliances Management Contracts Using an entry into one National marketing as a stepping stone for launching market Penetration into other markets Identification of A Lead Country (Function of the Firm Size) Emerging Markets Latin America Venezuela Argentina Brazil Columbia Chile Pacific Basin China India Middle East Or various clustering schemes e.g. “seekers” vs. Climbers* Less Developing Regions *A popular clustering approach consists of criteria such as development level (urbanization, life expectancy, infant mortality, literacy rte, per capita GDP), Economic Performance (GPD, inflation, investment foreign trade and debt, etc., and Political and Economic Liberalization.

The Spectrum of International Business Involvement Inactive Exporting Proactive Exporting Licensin g Franchising Turnkey Contract Joint Venture Management Contract Strategic Alliance Direct Investment Less involved More involved Contractual Relations/Arrangements

HENKEL CASE Theoretical & Strategic Cosiderations

FRAMEWORK OF GLOBAL STRATEGY FORCES Position and Resources of Business and Parent Company Organization’s Ability To Implement a Global Strategy Appropriate Setting for Global Levers Major Market Presentation Product Standardization Activity Concentration Uniform Marketing Integrated Competitive Moves Industry Globalization Drivers: Major Market Cost Factors Environmental Factors Competitive Factors Benefits/Costs of Global Strategy

The EPRG Framework (Companies’ Philosophies on International Involvement) Ethnocentric Orientation: Firms are guided by a domestic market extension concept. (Disney – in the past) Polycentric Orientation: Firms are guides by a multi-domestic market concept. (Some of the car companies) Regiocentric Orientation: Firms view world regions as distinct markets. (Pepsi Co., Otis) Geocentric Orientation: The world is perceived to be a potential market regardless of geographic location or nationality. (McDonalds, IBM)

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