Developing a Global Vision Lamb, Hair, McDaniel Chapter 4 Developing a Global Vision 2010-2011 CHAPTER 5 Developing a Global Vision Marketing cannot be accomplished in isolation. Even though the marketing function resides with marketers, the concept of marketing must permeate the entire organization.

Chapter 4 Developing a Global Vision Learning Outcomes LO 1 Discuss the importance of global marketing LO 2 Discuss the impact of multinational firms on the world economy LO 3 Describe the external environment facing global marketers

Chapter 4 Developing a Global Vision Learning Outcomes LO 4 Identify the various ways of entering the global marketplace LO 5 List the basic elements involved in developing a global marketing mix LO 6 Discover how the Internet is affecting global marketing

Rewards of Global Marketing Chapter 4 Developing a Global Vision Rewards of Global Marketing Discuss the importance of global marketing LO1

Rewards of Global Marketing Chapter 4 Developing a Global Vision Rewards of Global Marketing Having a global vision means… Recognizing and reacting to international marketing opportunities Using effective global marketing strategies Being aware of threats from foreign competitors Notes: Over the past 20 years, world trade has climbed from $200 billion a year to over $7 trillion. Discussion/Team Activity: Discuss ways that small- and medium-sized firms can compete in a global environment with limited resources. LO1

Beyond the Book Emerging Markets LO1 Chapter 4 Developing a Global Vision Emerging Markets Beyond the Book NOTES: In recent years, manufacturers world-wide have been enticed by the enormous business potential presented by emerging global market. Roughly half of executives surveyed by Deloitte’s Global Manufacturing Practice expect their companies to locate or expand in emerging markets in Eastern Europe, Southeast Asia, Latin America, and India. More than two-thirds of executives expect their company to locate or expand in China. Increasing revenues and market share are cited as the most important reason for investing in emerging markets (mentioned by 84 percent of executives surveyed). Other reasons indicated by executives include reducing costs (77 percent), using low-cost suppliers (69 percent) and achieving faster time to market (61 percent). The five challenges executives expect to meet to achieve success in emerging markets [EM]:  to deliver different product offerings that meet the unique needs of new EM customers. In many cases, at dramatically lower price points than in developed markets to locate R&D facilities in EM to acquire deeper customer knowledge, and to build, market, and distribute tailored products to rethink how to effectively recruit, develop, deploy, and connect people globally provide autonomy at the local level, while leveraging the strengths of their established management know-how to detect, correct, and manage risks presented by EM, such as the protection of intellectual property Source: Deloitte's Global Manufacturing Industry Practice, Deloitte Touche Tohmatsu, May 1, 2007 LO1

Importance of Global Marketing to the U. S. Chapter 4 Developing a Global Vision Importance of Global Marketing to the U. S. U.S. exports a fifth of industrial production. One of every 10 jobs in U.S. is supported by exports. U.S. businesses export over $800 billion in goods. Exports account for 25 percent of U.S. economic growth. U.S. is world’s leading exporter of farm products. Notes: The U.S. derives about 12 percent of its GDP from world trade, with the impact on the U.S. economy summarized on this slide. France, Britain, and Germany derive more than 19 percent of their GDP from world trade. About 85 percent of all US exports of manufactured goods are shipped by 250 companies; less than 10 percent of all manufacturing businesses (25,000 companies) export goods on a regular basis. Only large multinational companies have serious attempted to compete worldwide. However, more smaller companies are now pursuing international markets. LO1

The Fear of Trade and Globalization Chapter 4 Developing a Global Vision The Fear of Trade and Globalization Millions of Americans have lost jobs Millions fear losing jobs Threat of outsourcing if workers do not accept pay cuts Vulnerability to operations moving offshore Notes: The negatives of global trade are shown on this slide. Discussion/Team Activity: Discuss examples of the downside of globalization. Debate the ethical issues associated with foreign “sweatshops.” LO1

Benefits of Globalization Chapter 4 Developing a Global Vision Benefits of Globalization Expands economic freedom Spurs competition Raises productivity and living standards Offers access to foreign capital, global export markets, and advanced technology Promotes higher labor and environmental standards Acts as a check on government power Notes: Traditional economic theory says that globalization relies on competition to drive down prices and increase product and service quality. Business goes to the countries that operate most efficiently and have the technology to produce what is needed. Labor is cheaper in many countries. LO1

Discuss the impact of multinational firms on the world economy Chapter 4 Developing a Global Vision Multinational Firms Discuss the impact of multinational firms on the world economy Notes: Multinational corporations are those heavily engaged in international trade, moving products and services across national boundaries. Many multinational corporations are enormous. Wal-Mart’s annual sales are larger than the GDP of all but 30 nations in the world. The role of multinational corporations in developing nations is a subject of controversy. Critics claim that the wrong kind of technology is transferred to developing nations. For example, capital-intensive technology does not substantially increase employment. Multinationals sometimes support oppressive regimes if it is in their best interests. Another criticism is that firms take more wealth out than they bring in. LO2

Stages of Global Business Development Chapter 4 Developing a Global Vision Stages of Global Business Development 1 2 4 3 Companies operate in one country and sell into others Set up foreign subsidiaries to handle sales Virtual operation Operate an entire line of business in another country Notes: Multinationals often develop their global business in stages, as shown on this slide. LO2

Global Marketing Standardization Chapter 4 Developing a Global Vision Global Marketing Standardization Global Marketing Standardization Notes: Multinational corporations operate somewhat differently in each country, with a strategy of providing different product features, packaging, and advertising. Communication and technology have made the world smaller, and thus the emergence of global markets for standardized products, as opposed to segmented foreign markets with different products. This concept is global marketing standardization. Even though global marketing standardization should enable companies to lower production and marketing costs, success is based on variation, not on offering the same product everywhere. Discussion/Team Activity: Discuss products and services that are successfully marketed as globally standardized products. Examples: Camay soap, Crest toothpaste, Head and Shoulders shampoo, and Pampers diapers. Production of uniform products that can be sold the same way all over the world. LO2

External Environment Facing Global Marketers Chapter 4 Developing a Global Vision External Environment Facing Global Marketers Describe the external environment facing global marketers LO3

External Environment Facing Global Marketers Chapter 4 Developing a Global Vision External Environment Facing Global Marketers Economic and Technological Development Culture Notes: Many of the same external environmental factors that operate in domestic markets also apply to global markets. Political Structure Natural Resources Demographic Makeup LO3

Chapter 4 Developing a Global Vision Culture Culture The common set of values shared by its citizens that determine what is socially acceptable. Notes: Culture underlies the family, the educational system, religion, and the social class system. Culture influences product preferences and the marketing mix. A company with no understanding of a country’s culture is doomed to failure. Furthermore, cultural blunders lead to misunderstandings and perceptions of rudeness. Each country has its own unique customs and traditions that determine business practices and influence negotiations. Language is an important aspect when translating product names, slogans, production instructions, and promotional messages. LO3

Economic and Technological Development Chapter 4 Developing a Global Vision Economic and Technological Development Developed Country Less Developed Country Complex, sophisticated industries Basic industries Notes: The second factor in the external environment is the level of economic development in countries where a global marketer operates. In general, complex and sophisticated industries are found in developed countries, and more basic industries are found in less developed nations. LO3

Political Structure and Actions Chapter 4 Developing a Global Vision Political Structure and Actions No private ownership Minimal individual freedom Little central government Maximum personal freedom Notes: The third variable is political structure. Government policies run the spectrum from no private ownership and minimal individual freedom to little central government and maximum personal freedom. As rights of private property increase, government-owned industries tend to decrease. The least amount of business regulation fosters the strongest economies. Countries include Australia, Canada, New Zealand, the United Kingdom, and the United States. Others are Singapore and Hong Kong. The countries with the most inefficient regulations and political structures are Bolivia, Burkina Faso, Chad, Costa Rica, Guatemala, Mali, Mozambique, Paraguay, the Philippines, and Venezuela. Furthermore, governments have been known to expropriate the assets of multinational corporations. President Hugo Chavez of Venezuela ordered oil companies to set up joint ventures controlled by Petrolos de Venezuela, the state oil company, and has targeted more than 700 plants for expropriation. LO3

Legal Considerations LO3 Tariff Quota Boycott Exchange Control Chapter 4 Developing a Global Vision Legal Considerations Tariff Quota Boycott Exchange Control Market Grouping Trade Agreement A tax levied on goods entering a country Limit on the amount of a product entering a country Exclusion of products from a country Foreign exchange must be sold to a control agency Common trade alliance An agreement to stimulate international trade Discussion/Team Activity: 1. Discuss examples of each of the legal considerations described above. LO3

Political and Legal Considerations Chapter 4 Developing a Global Vision Political and Legal Considerations The Uruguay Round made changes in world trading practices Entertainment, pharmaceuticals, integrated circuits, and software Financial, legal, and accounting services Agriculture Textiles and apparel And created a new trade organization: The World Trade Organization Notes: The Uruguay Round, adopted in 1994 and signed by 148 nations, is an agreement to lower trade barriers worldwide. The agreement has reduced tariffs by one-third worldwide and should raise global income by $235 billion annually. The agreement covers services, intellectual property rights, and trade-related investment measures such as exchange controls. The Uruguay Round made the following changes in world trading practices: * Protection of patents, copyrights, and trademarks for twenty years. * Licensing standards for professionals cannot discriminate against foreign applicants. * Reduction in farm subsidies in Europe, opening new opportunities for U.S. exports. * The phase-out of strict quotas limiting imports from developing countries. * A new trade agreement, the World Trade Organization (WTO), replaced the old General Agreement on Tariffs and Trade (GATT). Discussion/Team Activity: 1. Discuss the impact of counterfeit products on global trade. LO3

Doha Round LO3 Began in 2001 Highly contentious from the beginning Failed in summer, 2008 First multilateral free trade act failure since WWI Cost of Failure: $100 billion annually LO3

Political and Legal Considerations Chapter 4 Developing a Global Vision Political and Legal Considerations CAFTA NAFTA European Union Agreements and Organizations Online: World Trade Organization (WTO) Do you really know what the World Trade Organization is about? Get informed by reading the facts at the WTO Web site? Notes: The trend toward globalization has resulted in the creation of additional agreements and organizations: specifically the Central America Free Trade Agreement, the North American Free Trade Agreement, the European Union, the World Bank, and the International Monetary Fund. NAFTA, ratified in 1993, created the world’s largest free trade zone. The agreement includes Canada, the United States, and Mexico. The main impact of NAFTA has been the opening of Mexican markets to U.S. companies and removing Mexican licensing requirements, quotas, and tariffs that limited transactions. The real question is whether NAFTA can continue to deliver rising prosperity in its member countries. The newest trade agreement—the Central America Free Trade Agreement—was instituted in 2005. It will reduce tariffs to CAFTA countries—the US, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The European Union was ratified in 1993 by twelve member countries in Europe. In 2004, the EU expanded from 15 members to 25 members. Two more countries joined by 2007. The primary goal of the EU is to create a unified European market. However, many regulations are not standardized, and productivity and living standards differ greatly with some of the new member countries from the former Soviet satellites. The EU is a very attractive market with the purchasing power almost equal to that of the U.S. However, with different languages and individual country cultures, Europe will always be more diverse than the U.S. and product differences will continue. A different problem facing global marketers is the possibility of a protectionist movement by the EU against outsiders. Discussion/Team Activity: Access the NAFTA Website at http://www.mac.doc.gov/nafta for more information. Discuss the pros and cons of NAFTA as it affects the U.S. economy. http://www.wto.org Online LO3

Marketing Considerations: Chapter 4 Developing a Global Vision Demographic Makeup Marketing Considerations: Population density Urban or rural Personal income Age Notes: Population density information alone is not particularly useful to marketers. They also need to know if populations are urban or rural, the level of personal income and distribution of wealth, and the age demographics. Discussion/Team Activity: What marketing opportunities exist in developing countries where population growth is occurring? LO3

Shortages in Natural Resources… Chapter 4 Developing a Global Vision …Create: International dependencies Shifts of wealth Inflation and recession Export opportunities if resources are abundant Stimulus for military intervention Notes: Petroleum shortages have created wealth for oil-producing countries such as Norway, Saudi Arabia, and the United Arab Emirates. Other natural resources that affect international marketing include climate and water resources (affecting agricultural conditions), precious metals, and timber. LO3

Natural Resources LO3 Petroleum Foodstuffs Precious metal Timber Water Chapter 4 Developing a Global Vision Natural Resources Petroleum Foodstuffs Precious metal Timber Water LO3

External Environment Facing Global Marketers Chapter 4 Developing a Global Vision External Environment Facing Global Marketers Natural Resources Cultural • values • language • dependence • customs • independence • traditions Slide animation: 1) Global marketers face the same environmental factors as they do domestically: culture, economic and technological development, political structure and actions, demography, and natural resources. 2) Cultural considerations include societal values, attitudes and beliefs, language, and customary business practices. 3) A country’s economic and technological status depends on its stage of industrial development, which, in turn, affects average family incomes. 4) The political structure is shaped by political ideology and such policies as tariffs, quotas, boycotts, exchange controls, trade agreements, and market groupings. 5) Demographic variables include the size of a population and its age and geographic distribution. 6) And a country’s natural resources can heavily influence the nature of global marketing in can and must do. Demography • urban v. rural Global Marketing Mix • young v. old Economic Development • purchasing power Political Structure • tariffs Technological Development • quotas • boycotts • exchange controls LO3 • market controls • trade agreements

Global Marketing by the Individual Firm Chapter 4 Developing a Global Vision Global Marketing by the Individual Firm Identify the various ways of entering the global marketplace LO4

Global Marketing Questions Chapter 4 Developing a Global Vision Global Marketing Questions What are our options in selling abroad? How difficult is global marketing? What are the potential risks and returns? Notes: The global environment should be carefully considered prior to entering the global marketplace. Concrete answers to the above questions would likely encourage U.S. firms to enter the international arena. Online Caterpillar Heavy Equipment Is it obvious from Caterpillar’s home page that it is in the apparel business? Visit the Caterpillar Web site to find out. Does CAT handle the manufacturing and distribution of any of its apparel in any markets? Does that surprise you? Why or why not? http://www.cat.com Online LO4

Why “Go Global”? LO4 Earn additional profits Chapter 4 Developing a Global Vision Why “Go Global”? Earn additional profits Leverage a unique product or technological advantage Possess exclusive market information Saturated domestic markets Excess capacity Utilize “economies of scale” LO4

Risk Levels for Global Entry Chapter 4 Developing a Global Vision Risk Levels for Global Entry Low risk/low return High risk/ high return Risk Return Export Licensing Contract Manu- facturing Joint Venture Direct Invest- ment Notes: Exhibit 4.1 diagrams the risk levels for entering the global marketplace. Five methods of entering global markets are shown on this slide, in order of risk. Exporting is usually the least complicated and least risky alternative for entering the global marketplace, however it also has the lowest rate of return. On the other hand, direct investment offers the highest rate of return, but is accompanied by the highest risk. The U.S. Commercial Service offers several programs to help beginning exporters, as well as established global businesses. Services include marketing research, trade events, locating qualified buyers and partners, and global business consulting. LO4

Entering the Global Marketplace Chapter 4 Developing a Global Vision Entering the Global Marketplace Licensing Legal process allowing use of manufacturing/patents/knowledge Contract Manufacturing Private-label manufacturing by a foreign country Joint Venture Domestic firm buys/joins a foreign company to create new entity Export Sell domestically produced products to buyers in other countries Direct Investment Active ownership of a foreign company/manufacturing facility Discussion/Team Activity: Discuss examples of companies that have entered the global marketplace in each of the ways described on this slide. LO4

Export Intermediaries Chapter 4 Developing a Global Vision Export Intermediaries Buyer for Export Assumes all ownership risks and sells globally for its own account. Export Broker Plays the traditional broker’s role by bringing buyer and seller together. Export Agent Acts like a manufacturer’s agent for the exporter in the foreign market. Notes: Instead of selling directly to foreign buyers, a company may decide to sell to intermediaries located in its domestic market. Three types of intermediaries are described on this slide. LO4

The Global Marketing Mix Chapter 4 Developing a Global Vision The Global Marketing Mix List the basic elements involved in developing a global marketing mix LO5

Product and Promotion LO5 Same One Product Product One Message Chapter 4 Developing a Global Vision Product and Promotion One Product One Message Product Adaptation Message Invention Same Change Online: Disneyland Resort Paris How does Disney vary its park information to suite specific cultural tastes? Compare the presentation of theme park information for the U.S., Hong Kong, and Paris resorts. What similarities and differences do you notice? Notes: An important decision is to alter the product or the promotion for the global market. One Product / One Message: Global marketing standardization means developing a single product for all markets and promoting it the same way worldwide. However, even a same product/same message strategy may require changes to suit local needs. Product Invention: This refers to creating a new product or drastically changing an existing product. For example, consumers in different countries use products differently, requiring different product characteristics. Product Adaptation: Products, including packaging, are slightly altered to meet local conditions. Message Adaptation: The same basic product is maintained, but the promotional strategy is altered to position the product effectively in different countries. Promotion varies in different countries. Language barriers, translation problems, and cultural differences create headaches. LO5 http://www.disney.go.com Online

Place (Distribution) LO5 Chapter 4 Developing a Global Vision Place (Distribution) Adequate distribution is necessary for success in global markets Some countries have complicated systems Lack of distribution infrastructure and cultural differences create problems Innovative distribution systems can create competitive advantage LO5

Chapter 4 Developing a Global Vision Pricing Must consider transportation and insurance costs, taxes and tariffs Determine what customers will spend Ensure that foreign buyers will pay price May need to simplify a product to lower price Don’t assume that low-income countries are willing to accept lower quality LO5

Exchange Rates LO5 Exchange Rates Chapter 4 Developing a Global Vision Exchange Rates Exchange Rates The price of one’s currency in terms of another country’s currency. LO5

Dumping LO5 Trying to increase an overseas market share Chapter 4 Developing a Global Vision Dumping Trying to increase an overseas market share Temporarily distributing products to overseas markets to offset slack demand at home Lowering unit costs by exploiting large-scale production Attempting to maintain stable prices during periods of exchange rate fluctuations Notes: Dumping is considered to be the sale of an exported product at a price lower than that charged for the same or like product in the exporter’s home market. This is regarded as price discrimination that can harm the importing nation’s competing industries. Dumping may occur as a result of business strategies that include the points listed above. LO5

Countertrade LO5 Countertrade Chapter 4 Developing a Global Vision Countertrade Countertrade A form of trade in which all or part of the payment for goods or services is in the form of other goods or services. Notes: A common type of countertrade is straight barter. A second form is the compensation agreement where a company provides technology and equipment for a plant, and agrees to take full or partial payment in goods produced by that plant. LO5

The Impact of the Internet Chapter 4 Developing a Global Vision The Impact of the Internet Discover how the Internet is affecting global marketing LO6

The Impact of the Internet Chapter 4 Developing a Global Vision The Impact of the Internet Opening an e-commerce site puts a company in the international marketplace Internet Economy remains hindered by brick and mortar rules, regulations, and habits The promise of “borderless commerce” and the global “Internet economy” are still being restrained by the old brick-and-mortar rules, regulations, and habits. In Germany, for instance, retailers do not allow returns after 14 days. American-based companies, such as Lands’ End, that have unconditional return policy cannot mention that on their German Web sites. The Japanese and Scandinavian consumers are reluctant to use credit cards and the French do not like to reveal private information online. LO6

International Marketing Coca-Cola is the best global brand in 2009 Five Creative Coca-Cola Commercials from 2009 Toyota, also one of the top Global Brands in 2009, offers different ads for different markets: Australian ad for dual drivetrains LO6