Part 3 CUSTOMER BEHAVIOR AND E-MARKETING.

6: Consumer Buying Behavior 7: Business Markets and Buying Behavior 8: Reaching Global Markets 9: Digital Marketing and Social Networking

Chapter 8 Reaching Global Markets Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

Learning Objectives Understand the nature of global marketing strategy Analyze the environmental forces that affect global marketing efforts Understand several important international trade agreements Identify methods of international market entry Understand how customization differs from globalization

International Marketing Developing and performing marketing activities across national boundaries International markets provide growth opportunities Many countries offer assistance and research to encourage international business Export.gov, managed by the U.S. Department of Commerce’s International Trade Administration, collects a variety of resources to help businesses who want to export to other countries Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

International Marketing Traditionally, most companies have entered the global marketplace incrementally as they gained knowledge about various markets and opportunities McDonald’s and KFC Born globals – Firms that are international from their inception Often small technology-based firms Earn most of their sales outside the domestic home market eBay, Google, and Logitech Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Environmental Forces in Global Markets Sociocultural Economic Technological Competitive Political, Legal, and Regulatory Ethical and Social Responsibility Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Environmental Forces Environmental forces may be dramatically different in international markets than in domestic markets Research to understand the needs/desires of international customers is crucial to global marketing success Proper environmental analysis of international markets can: Generate financial rewards Increase market share Heighten customer awareness of products Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Sociocultural Forces Difficult to transfer marketing symbols, trademarks, logos, and products to international markets If these are associated with objects that have religious or cultural significance in a particular culture Buyers’ perceptions of different countries influence product adoption and use Consumer preferences for products depend on: Country of origin Product category of competing products

Sociocultural Factors Extent to which a product’s brand image and country of origin influence purchases is subject to variation based on national culture characteristics Cultural differences have implications for: Product development Advertising Packaging Pricing

Sociocultural Forces Social Influences Family Religion Education Health Recreation Language Country of Origin Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Sociocultural Factors Marketing activities are influenced by beliefs and values regarding family, religion, education, health, and recreation Can be difficult to: Adapt marketing efforts to different preferences, tastes, and idioms Transfer marketing symbols, trademarks, logos, and even products to international markets Consumer preferences for products depends on their impression of the country of origin Faster acceptance of a product or service through: Sensitivity to and understanding of cultural differences Cultural similarities Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Economic Forces Global marketers must understand: International trade systems Economic stability/instability of nations Trade barriers Economic disparities between nations Instability is a guaranteed constant in the global business environment Developing nations, while poorer, offer much market potential Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Economic Forces Many differences between nations exist: Currency valuation is an important economic factor in the global business environment Floating exchange rate - Allows the currencies to fluctuate, or float, according to the foreign exchange market Gross domestic product (GDP) – The market value of a nation’s total output of goods and services for a given period; an overall measure of economic standing Gives insights into a nation’s wealth and market potential Standards of living Availability of credit Buying power Income distribution National resources Exchange rates Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

The Top 10 Richest Nations Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Table 8.1 Comparative Analysis of Selected Countries Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Political, Legal, and Regulatory Forces Political, legal, and regulatory forces are often intertwined A nation’s legal and regulatory infrastructure reflect its political situation Elected or appointed officials: Enact legislation Interpret legal decisions Operate regulatory agencies Import tariff – A duty levied by a nation on goods bought outside its borders and brought into the country Quota – A limit on the amount of goods an importing country will accept for certain product categories in a specific period of time Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

The Best Countries for Entrepreneurs Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Nontariff Trade Restrictions Quota Limit on the amount of goods an importing country will accept for certain product categories in a specific period of time Embargo Government’s suspension of trade in a particular product or with a given country

International Trade Exchange controls: Government restrictions on the amount of a particular currency that can be bought or sold Balance of trade: Difference in value between a nation’s exports and its imports Government’s attitude toward importers has a direct impact on economic feasibility of exporting to that country

Ethical and Social Responsibility Forces Accepted business practices vary from country to country Differences exist in ethical standards: Bribery Intellectual property protection Different modes of operation Under the Foreign Corrupt Practices Act: It is illegal for U.S. firms to make large payments or bribes to influence policy decisions of foreign governments Publicly held U.S. corporations are subjected to rigorous internal controls and record-keeping requirements for overseas operations

Ethical and Social Responsibility Forces: Different Cultural Practices Self-reference criterion (SRC) - Unconscious reference to one’s own cultural values, experiences, and knowledge Cultural relativism: Morality varies from one culture to another Business practices are differentially defined as right or wrong by particular cultures

Competitive Forces Arise due to: Interconnected international marketplace Advances in technology Firms that operate internationally should: Be aware of the competitive forces in the countries they target Identify the interdependence of countries and the global competitors in those markets Be mindful of global customers

Table 8.3: Ranking of the Most Competitive Countries in the World Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Technological Forces Advances in technology make international marketing activities affordable and convenient Interactive web systems Instant messaging Podcast downloads Technological infrastructure varies by country Many developing nations are beginning to capitalize on opportunities to surpass existing technology

Regional Trade Alliances, Markets, and Agreements Regional trade alliances create opportunities and impose constraints on international trade North American Free Trade Agreement (NAFTA) European Union (EU) Southern Common Market (MERCOSUR) Asia-Pacific Economic Cooperation (APEC) Association of Southeast Asian Nations (ASEAN) World Trade Organization (WTO)

North American Free Trade Agreement (NAFTA) NAFTA was implemented in 1994, effectively merged Canada, Mexico, and the USA into one market of nearly 4600 million consumers. Eliminated all tariffs to create a free trade area Merged Canada, Mexico, and the United States into one market Provides additional opportunities to integrate trade among all the nations in the Western Hemisphere Dominican Republic–Central American Free Trade Agreement (CAFTA-DR)

European Union (EU) An economic and political union established in 1993 after the ratification of the Maastricht Treaty by members of the European Community (established in 1958) and since expanded to include numerous Central and Eastern European nations The establishment of the EU expanded the political scope of the European Economic Community, especially in the area of foreign and security policy, and provided for the creation of a central European bank and the adoption of a common currency, the euro (€). Currently, there are 28 member states including UK. Works toward: Standardizing business regulations and requirements, import duties, and value-added taxes Eliminating customs checks Creating a standardized currency for use by all members

Productivity vs. Vacation Time Discussion Point Productivity vs. Vacation Time U.S. is the most productive country in the world On average, take less vacation days annually than other countries Studies show that GDP per hours works in higher in some European countries Research also reveals that breaks from work actually increase productivity Does less vacation time make the United States more or less competitive? Why is America the 'no-vacation nation'? (CNN) -- Let's be blunt: If you like to take lots of vacation, the United States is not the place to work. 'Americans work like robots'

Southern Common Market (MERCOSUR) Established the Treaty of Asunción in 1991 to unite Argentina, Brazil, Paraguay, and Uruguay as a free trade alliance Venezuela joined in 2006. Currently, Bolivia, Chile, Colombia, Ecuador, and Peru are associate members. Promotes free circulation of goods, services, and production factors among the countries Establishes a common external tariff and commercial policy Asunción (亚松森)-the capital and largest city of Paraguay.

Asia-Pacific Economic Cooperation (APEC) APEC established in 1989 and it promotes open trade and economic and technical cooperation among 21-member nations. The alliance represents approximately 41 percent of the world’s population, 54 percent of world GDP, and nearly 44 percent of global trade. Facilitates business and its practice of allowing the business/private sector to participate in a wide range of APEC activities. Q: Is USA a member of APEC? A: Yes, and USA is one of the 13 initial members.

Association of Southeast Asian Nations (ASEAN) ASEAN was established in 1967, promotes trade and economic integration among member nations As of 2010 the ASEAN has 10 member states, one candidate member state, and one observer state. Members have expressed that there will be no common currency or fully free labor flows between members

The World Trade Organization (WTO) An entity that promotes free trade among member nations by eliminating trade barriers and educating individuals, companies, and governments about trade rules around the world Founded in 1995 and has 160 members (as of 2014). Successor to General Agreement on Tariffs and Trade (GATT) – An agreement among nations to reduce worldwide tariffs and increase international trade Dumping – Selling products at unfairly low prices Click here to access the WTO homepage

Modes of Entry into International Markets Stage 1 – No regular export activities Stage 2 – Export via independent representatives (agents) Stage 3 – Establishment of one or more sales subsidiaries internationally Stage 4 – Establishment of international production/manufacturing facilities Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Fig. 8.1: Levels of Involvement in Global Marketing Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Importing and Exporting Importing: Purchase of products from a foreign source Exporting: Sale of products to foreign markets Enables firms of all sizes to participate in global business Entails minimal effort and cost Modifications may be the major expenses in adapting a product for the foreign market

Trading Company A company that links buyers and sellers in different countries Is not involved in manufacturing and does not own assets related to manufacturing Acts like a wholesaler; purchases products in one country for a low price and sells them to buyers in another country Reduces risk to the company wanting to trade internationally

Licensing When potential markets are found across national boundaries, and when production, technical assistance, or marketing know-how is required, licensing is an alternative to direct investment. The licensee (the owner of the foreign operation) pays commissions or royalties on sales or supplies used in manufacturing An attractive alternative when: Resources for direct investment are not ________ Product sold is outside the core __________ of a company A foreign country is politically _________ available competency unstable

Franchising Franchising is a form of licensing in which a company (franchiser) grants a franchisee the right to market its product, using its name, logo, methods of operation, advertising, products, and other elements associated with the franchiser’s business. In return for a financial commitment and an agreement to conduct business in accordance with the franchiser’s standard of operations p.215

Benefits of International Franchising Allows franchisers to minimize the risks of international marketing: The franchiser does not have to put up a large capital investment The franchiser’s revenue stream is fairly consistent because franchisees pay a fixed fee and royalties The franchiser retains control of its name and increases global penetration Franchise agreements ensure a standard of conduct and protect the franchise name

Three Forms of Contract Manufacturing Contracting manufacturing occurs when a company hires a foreign firm to produce a designated volume of the firm’s product to specification and the final product carries the domestic firm’s name. Contracting of noncore operations from internal production within a business to an external entity that specializes in that operation ________________ Outsourcing Moving a business process that was done domestically at the local factory to a foreign country, regardless of whether the production accomplished in the foreign country is performed by the local company or a third party _________________ Offshoring Contracting with an organization to perform some or all business functions in a country other than the country in which the product will be sold Offshore outsourcing

Joint Venture Joint venture – A partnership between a domestic firm and a foreign firm or government Popular in industries requiring _______ investments May be a political necessity because of laws and regulations Strategic alliances – A partnership that is formed to create a competitive advantage on a worldwide basis Represented by an agreement to work together Partners retain their distinct identities Each partner bringing a core competency to the union ____________- Companies cooperate and compete large Co-opetition

Direct Ownership Direct ownership is a possibility that a company makes a long-term commitment to marketing in a foreign country that has a: __________ market __________ political and economic environment Owning facilities may be too expensive for many firms Multinational enterprise: Firm that has operations or subsidiaries in many countries Subsidiaries may be semi-autonomous or part of a network led by headquarters Promising Suitable

Table 8.5 - Marketing Mix Issues Internationally

Customization vs. Globalization of International Marketing Mixes Marketers must realize that similarities and differences exist across all countries Customization: Adapting marketing strategy and marketing mixes according to cultural, regional, and national differences The traditional approach to marketing Globalization – The development of marketing strategies that treat the entire world (or its major regions) as a single entity Entails producing standardized products, promotion campaigns, prices, and distribution channels for all markets Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Globalization Developing marketing strategies globally as for a single entity Standardized products Promotion campaigns Prices Distribution channels for all markets Opportunities generated by global presence ________ to local market differences Exploit economies of global scale Exploit economies of global scope Mine optimal locations for activities and resources _________ the transfer of knowledge across locations Adapt Maximize

The 10 Largest Global Corporations Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Organizational Architecture Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Video Case 8.1 Evo: the Challenge of Going Global

Summary   Evo is an active sports retailer that has unexpectedly become a global distributor. Founded as an online store in 2001, the company opened its Seattle-based retail store four years later; this combination of e-commerce and physical stores allows evo to carry a greater selection and extend its global reach while providing customers with a way to interact with its products. Approximately 5 percent of evo’s business comes from outside the United States, but the company has been constrained by its relationships with international vendors. Evo hopes to work with its vendors to make global selling more feasible. In the meantime, the company continues to ship directly to consumers and engage with its fans through the Internet.

1. What are both the positive and negative outcomes from using exclusive dealer agreements that restrict global distribution?   Vendors create exclusive dealer arrangements with evo to avoid saturating markets overseas and to maintain control over their products. By limiting distribution, manufacturers are able to exert some control over other elements of the marketing mix, such as price. Because retailers often do not own many of the brands they sell, manufacturers can maintain the right to determine where their products are sold and how much to distribute to the company. If consumers from foreign countries try to order these brands, they will receive notification that their order has been canceled.

2. What are the unique product features that could make evo a global brand?   Evo creates global brand exposure through the Internet. The company launched evoTrip as a service for adventurous sports enthusiasts who want to travel. EvoTrip arranges the trips with the goal to connect people to local cultures, communities, and sports. In addition to increasing its customer base, evoTrip allows the organization to form relationships with consumers overseas. Evo’s fans also find ways to ship the company’s products internationally.

3. What should evo's marketing strategy be to go global?   Evo should continue to build strong relationships with global consumers and with its vendors to make global selling more feasible. The company might also choose to continue to open more physical stores and create its own brand of products that it could distribute internationally.