BA 178 – Introduction to International Business Discussion Section April 13, 2007 Brian Chen/Sanny Liao

Globalization Last week: globalization of production This week: globalization of market

Identifying markets Def: Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important way (e.g geography, demography, social-cultural factors) Examples: Toyota/Lexis, Old Navy/Gap/Banana Republic, anything else? Can market segmentation extend beyond national borders? Yes.

What factors should firms consider in order to target each market segment? Product attributes Distribution strategy Communication strategy Pricing strategy

How do product attributes differ across markets? Hamburgers do not sell in Islamic countries – cultural differences Kodak sells a lower end camera in Russia – economic development differences Different DVD regional coding – product and technical standards

How do firms adjust their distribution strategy across different markets? The US has less concentrated urban areas and extensive use of cars; Japan has a highly concentrated population, little use of cars in urban centers, and government protection of small retailers  more small retailers, and fewer large chains and malls in Japan. I.e. less retail concentration Other factors that may affect retail concentration: economic development (car ownership), transportation systems, etc. You are a toothpaste manufacturer in China who sells to millions of small retailers, is it worthwhile for you to contact and supply to each retailer? No.  fragmented retail systems are more likely to use intermediaries (longer channel length) Other factors that may affect channel length: internet shopping, large discount superstores such as Wal-Mart

Distribution strategies – cont’d In Japan, relationships between manufacturers, wholesalers, and retailers often go back decades  very hard for outsider to break into. Japan has high channel exclusivity Outsiders can break into the Japanese market more easily with new products Developing countries often have lower quality downstream retailers  poor channel quality Which distribution strategy to take? Benefit and cost analysis.

How do firms adjust their communication strategy to different markets? BARRIERS TO INTERNATIONAL COMMUNICATION A Benetton ad campaign features a black woman breast-feeding a white baby, and a another one shows a black man and a white man handcuffed together – fared well in France but accused of promoting white racial domination in U.S.  cultural barriers Made in Japan, Made in China stickers carry different connotations to buyers  source and country of origin effects Competition from other advertiser  noise levels

Communication strategy, cont’d PUSH VS. PULL STRATEGIES Push strategy: emphasizes on selling Requires a large sales force Good for complex products or when firms need to educate potential consumers about the features of the product Pull strategy: emphasizes on creating demand Less costly when the potential market is big More effective if there is little need to educate customers More effective when channel length is short More cost-effective when media is widely available

How do firms adjust their pricing strategy to different markets? Def: price discrimination exists when consumers in different countries/markets are charged different prices for the same product. Why? What are the necessary conditions for this to be successful? Ability to keep markets separate Difference price elasticity of demand (firms can usually charge a higher price in inelastic markets)

Pricing strategies, cont’d Other pricing strategies: Predatory pricing: price out the competitor Multipoint pricing: compete in different markets Experience curve pricing: economies of scale Regulatory influences Antidumping regulations Under GATT, 2 criteria – “less than fair value” and “material injury to a domestic industry” Competition policies – penalizes monopolistic practices

Finally Importance of new product development Creative destruction How to achieve fast product development Location of R&D Integration of R&D, marketing and production Cross functional teams Building global R&D capabilities