Global Markets

World Trade U.S., Europe, Canada, China, Japan together are about 2/3 of world trade Not all trade is for money Countertrade – The practice of using barter rather than money for making global sales Popular with Eastern European nations (rice for corn) Volvo of North America traded Volvos for oil with Siberia, then sold oil for cash and paid for U.S. ads

World Trade The argument for free trade – Trade Feedback Effect As exports rise, its national output and income rise, leading to more imports. This demand for imports stimulates exports of other countries. Increased demand for exports increases their economic activity, creating more income, stimulating their need for more imports.

World Trade U.S. Perspective World leader of Gross Domestic Product (GDP) Monetary value of all goods and services produced in a country during one year Among leaders in world exports Aerospace, chemical, office equipment, information technology, pharmaceutical, telecommunications, professional services Has decreased over the last 30 years World imports have increased

World Trade U.S. Perspective Balance of Trade The difference between monetary value of a nation’s exports and imports U.S. has balance of trade deficit Imports have exceeded exports since 1975 Imports and exports are 10 to 15 times what it was in 1970’s

World Trade U.S. Perspective Canada, Mexico, and Japan are largest importers of U.S. goods (~44%) Canada, China, Mexico, and Japan are largest exporters to U.S. Japan, South Korea, and China are about 80% of the total U.S. balance of trade deficit

Borderless Economic World Trends influencing landscapes of global marketing Decline of economic protectionism by individual countries Formal economic integration and free trade among nations Global competition among global companies for global customers Networked marketspace

Borderless Economic World Decline of Economic Protectionism Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas. Tariffs are a government tax on goods or services entering a country, primarily serve to raise prices on imports. Average tariff on manufactured goods is 4% Substantial effect on world trade and prices Japan tariff on U.S. rice imports costs Japanese consumers $6 billion annually

Borderless Economic World Decline of Economic Protectionism Quotas are restrictions placed on amount of a product allowed to enter or leave a country. Mandated or voluntary, legislated or negotiated by gov’t U.S. has sugar quota to protect domestic producers

Borderless Economic World Decline of Economic Protectionism General Agreement on Tariffs and Trade International treaty that limits barriers and promotes world trade through reduction of tariffs Did not address nontariff trade barriers, caused disputes among nations World Trade Organization Created to address more broad trade issues 147 member countires, 90% of world trade Sets rules to govern member trade Hear and decide trade disputes among members

Borderless Economic World Rise of Economic Integration Countries with similar economic goals formed trade groups or signed agreements to promote free trade European Union 25 member countries eliminated barriers to trade across borders 380 million consumers, combined GDP larger than the U.S. 12 countries adopted a common currency, the euro Don’t have to market products nation by nation any longer (same product, same price)

Borderless Economic World Rise of Economic Integration North American Free Trade Agreement Lifted many trade barriers between Canada, Mexico, and U.S. 400 million consumers Negotiations to create a 34 country free trade area including U.S., Canada, Mexico, Latin America, Caribbean countries Stimulated trade flows among members as well as cross-border retailing, manufacturing, and investment

Borderless Economic World Rise of Economic Integration Asian Free Trade Agreements Japan, Hong Kong, Singapore, South Korea, Taiwan, Thailand, Malaysia, and Indonesia Less formal, but have reduced tariffs among these countries

Borderless Economic World Global Competition Among Global Companies for Global Consumers Created by lack of “borders” among trade Global Competition exists when firms originate, produce, and market products and services worldwide Soft drinks, cosmetics, cereals Pepsi vs. Coca-Cola

Borderless Economic World Global Competition Among Global Companies for Global Consumers International Firms market their products/services in foreign countries the same as they do in their home country Avon sells their products using the same marketing strategy in Asia, Europe, and South America pretty much the same as they do in the U.S.

Borderless Economic World Global Competition Among Global Companies for Global Consumers Multinational Firms view the world as consisting of unique parts and markets to each part differently Multidomestic marketing strategy – have as many different product variations, brand names, and advertising programs as countries in which they do business Basically the same product idea, just different brand names, product variations, and marketing strategies Mr. Clean is Mr. Proper in Europe, Africa, and Middle East

Borderless Economic World Global Competition Among Global Companies for Global Consumers Transnational Firms view the world as one market and emphasizes cultural similarities across countries or universal customer needs and wants more than differences Global marketing strategy – practice of standardizing marketing activities when there are cultural similarities and adapting them when cultures differ Global brand – a brand marketed under same name in multiple countries with similar centrally coordinated marketing programs

Borderless Economic World Global Competition Among Global Companies for Global Consumers Consist of consumer groups living in many countries or regions of the world who have similar needs or seek similar features and benefits from products or services

Borderless Economic World Emergence of a Networked Global Marketplace Internet technology Exchange of goods, services, and information from companies anywhere to customers anywhere at any time and at a lower cost

Global Environmental Scan Three kinds of uncontrollable environmental variables that are very different than domestic markets Cultural Diversity Economic Considerations Political-Regulatory Climate

Global Environmental Scan Cultural Diversity To create beneficial exchange relationships with global consumers, marketers must be sensitive to cultural differences of different societies Cross-cultural Analysis The study of similarities and differences among consumers in two or more nations or societies, involves understanding of values, customs, symbols, and languages

Global Environmental Scan Cultural Diversity Values Represent personally or socially preferable modes of conduct or states of existence that tend to persist over time McDonald’s does not sell beef in India Cultural values influence behavior

Global Environmental Scan Cultural Diversity Customs What is considered normal and expected about the way people do things in a specific country Japanese women give Japanese men chocolate on Valentine’s Day Business gifts are expected in many countries Japanese business executives listen more in negotiations Germans “dress up” more, muted business suits are appropriate for most meetings

Global Environmental Scan Cultural Diversity Cultural Symbols Things that represent ideas and concepts Important because different objects may mean different things in different countries Semiotics is the study of symbols North Americans think superstitious about #13, Japanese think the same way about #4 A thumbs-up sign is positive in U.S., offensive in Russia and Poland

Global Environmental Scan Cultural Diversity Language Must know the language and also the slang About 100 official languages, but about 3,000 different languages are spoken Principal languages globally are English, French, and Spanish Back translation is where a translated word or phrase is retranslated into the original language by a different interpreter to catch errors

Global Environmental Scan Cultural Diversity Cultural Ethnocentricity The belief that aspects of one’s culture are superior to another’s Consumer Ethnocentrism Tendency to believe that it is inappropriate, indeed immoral, to purchase foreign-made products Unpatriotic, harm domestic industries, cause domestic unemployment Makes global marketing more difficult

Global Environmental Scan Economic Considerations Includes Compare economic development Assessment of economic infrastructure Measurement of consumer income Recognition of currency exchange rates

Global Environmental Scan Economic Considerations Stage of Economic Development Two classifications of economic development Developed countries have somewhat mixed economies Private enterprise dominates, substantial public sectors as well U.S., Canada, Japan, most of Western Europe Developing countries are moving from agriculture to industrial economy Already made the move (Brazil, China, Israel) Locked in pre-industrial (Sri Lanka, Tanzania)

Global Environmental Scan Economic Considerations Economic Infrastructure A country’s communications, transportation, financial, and distribution systems

Global Environmental Scan Economic Considerations Consumer Income and Purchasing Power Household income varies between nations As middle-income households increase, the greater the nation’s purchasing power tends to be

Global Environmental Scan Economic Considerations Currency Exchange Rates Price of one country’s currency expressed in terms of another country’s currency. When foreign currencies can buy more U.S. dollars, U.S. products are less expensive for the foreign consumer

Global Environmental Scan Political-Regulatory Climate Political Stability Internal political problems Terrorism War Trade Regulations Rules that govern business practices (these are trade barriers) All commercials in Malaysia have to be made in Malaysia Auto replacement parts in Japan have to be Japanese

Global Market-Entry Strategies Exporting Licensing Joint Venture Direct Investment

Global Market-Entry Strategies Exporting Exporting is producing goods in one country and selling them in another country. Allows a company to make the least number of changes to product, organization, corporate goals Provides less local employment than other ways of entry

Global Market-Entry Strategies Exporting Indirect Exporting is when a firm sells its domestically produced goods in a foreign country through an intermediary. Little commitment, little risk, little profit Ideal for those with no overseas contacts Direct Exporting is when a firm sells its domestically produced goods in a foreign country without intermediaries. Believe that they will have large amount of sales More risk, potentially more profit Main entry strategy for small-medium companies

Global Market-Entry Strategies Licensing Licensing is where a company offers the right to a trademark, patent, trade secret, or other similarly valued item of intellectual property in return for a royalty or a fee. Low risk, capital-free entry into foreign country Foreign licensee gets competitive advantage, foreign country gets employment opportunity

Global Market-Entry Strategies Licensing Disadvantages Lose control of product Reduces potential profits Creates its own competition Reputation may be harmed

Global Market-Entry Strategies Licensing Contract manufacturing U.S. company contract with foreign firm to manufacture products according to stated specifications, then sold in that country or shipped to U.S. to be sold Contract Assembly U.S. company send products to foreign country and they assemble them into final product In both, the U.S. firm gets lower work wages and the foreign country gets employment

Global Market-Entry Strategies Licensing Franchising Fastest growing market-entry strategy McDonald’s is a global franchiser

Global Market-Entry Strategies Joint Venture Joint ventures are where a foreign company and a local firm invest together to create a local business. Share ownership, control, profits Advantages One company doesn’t have to enter market alone (may not have the resources alone) Foreign gov’t may require a joint venture Disadvantages Disagreements between the two companies

Global Market-Entry Strategies Direct Investment Direct Investment is where a domestic firm invests in and owns a foreign subsidiary or division. Big commitment from company Usually follows one of the other market-entry strategies

Worldwide Marketing Program Product Product extension is selling the same product in all countries Works when target market is alike, shares same needs and uses for product Coca-Cola, Levi’s, Gillette razors Levi's webpage Product adaptation is when the product is changed is some way to make it more appropriate for a foreign country. Gerber baby food (rabbit meat in Poland), Maybelline make-up

Worldwide Marketing Program Product Product invention is when a totally new product is created for a certain country. Promotion Identical promotional strategy is usually used for product extension and product adaptation strategies. Can adapt message for certain countries Can use a dual adaptation strategy by modifying both product and promotional strategies

Worldwide Marketing Program Distribution (Place) Usually determined by the foreign country’s stage of economic development Pricing Some countries impose considerable restraints on pricing German officials told Wal-Mart that prices were too low Economic factors (production costs, selling, tariffs, transportation) affect global pricing

Worldwide Marketing Program Pricing Can receive fines/penalties Dumping is when a firm sells a product in a foreign county below its domestic price or below its actual cost. Used to build market share Can’t be sold domestically, want to “get rid of” Foreign companies can set large tariffs if they suspect this