1. 12-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Chapter 12 I nternational M arketing and R & D 12

2. 12-2 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Lecture/Chapter Topics The Globalisation of Markets and Brands Market Segmentation Product Attributes Distribution Strategy Communication Strategy Configuring the Marketing Mix New Product Development

3. 12-3 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. The Globalisation of Markets and Brands Theodore Levitt argued that world markets were becoming increasingly similar, making it unnecessary to localise the marketing mix. Levitt’s theory has become a lightening rod in the debate about globalisation.

4. 12-4 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. The Globalisation of Markets and Brands The current consensus is that although the world is moving towards global markets, the continuing persistence of cultural and economic differences among nations acts as a major brake on any trend towards global consumer tastes and preferences. In addition, trade barriers and differences in product and technical standards also constrain a firm's ability to sell a standardised product to a global market.

5. 12-5 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Market Segmentation Market segmentation involves identifying distinct groups of consumers whose purchasing behaviour differs from others in important ways. Firms must adjust their marketing mix from segment to segment.

6. 12-6 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Market Segmentation Firms also need to consider the existence of segments that transcend national borders and understand differences across countries in the structure of segments. Segments that transcend national borders include consumers with compelling similarities that lead to similarities in purchasing behaviour.

7. 12-7 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Market Segmentation Where there are no such similarities, firms must customise the product, the packaging, or the way in which the product is marketed in order to maximise performance in the market. Global market segments are more likely to exist in industrial products than in consumer products.

8. 12-8 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Product Attributes Products sell well when their attributes match consumer needs. If consumer needs were the same everywhere, a firm could sell the same product worldwide. But consumer needs do vary from country to country, depending on culture and the level of economic development.

9. 12-9 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Product Attributes Cultural Differences –Countries differ along a range of cultural dimensions including:  tradition  social structure  language  religion  education –Among these dimensions, there is evidence of the trends Levitt identified.

10. 12-10 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Product Attributes Economic Development –A country’s level of economic development has important marketing implications. –Firms based in highly developed countries tend to build a lot of extra performance attributes into their products. –Consumers in less developed nations tend to prefer more basic products.

11. 12-11 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Product Attributes Product and Technical Standards –National differences in product and technological standards force firms to customise the marketing mix. –Differing government-mandated product standards can rule out mass production and marketing of a standardised product. –Differences in technical standards also constrain the globalisation of markets.

12. 12-12 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy A firm’s distribution strategy is a critical element of the marketing mix. If a firm manufactures its product in a particular country, it can sell directly to the consumer, to the retailer or to the wholesaler. The same options are available to a firm that manufactures outside the country.

13. 12-13 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy A typical distribution system

14. 12-14 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy Differences between Countries –Retail Concentration  In some countries the retail system is very concentrated, while in other countries it is fragmented.  In a concentrated system, a few retailers supply most of the market.  In a fragmented system there are many retailers, no one of which has a major share of the market.

15. 12-15 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy Differences between Countries (Cont’d) –Channel Length  Channel length refers to the number of intermediaries between the producer and the consumer.  When the producer sells directly to the consumer, the channel is very short.  When the producer sells through an import agent, a wholesaler and a retailer, a long channel exists.

16. 12-16 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy Differences between Countries (Cont’d) –Channel Exclusivity  An exclusive distribution channel is one that is difficult for outsiders to access.  Japan's system is an example of a very exclusive system.

17. 12-17 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy Differences between Countries (Cont’d) –Channel Quality  Channel quality refers to the expertise, competencies and skills of established retailers in a nation, and their ability to sell and support the products of international businesses.  The quality of retailers is good in most developed countries, but is variable at best in emerging markets and less developed countries.

18. 12-18 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Distribution Strategy Differences between Countries (Cont’d) –Choosing a Distribution Strategy  The choice of distribution strategy determines which channel the firm will use to reach potential consumers.  Since each intermediary in a channel adds its own markup to the products, there is generally a critical link between channel length and the firm's profit margin.  A long channel can be beneficial because it economises on selling costs when the retail sector is very fragmented.

19. 12-19 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Communicating product attributes to prospective customers is a critical element in the marketing mix and is partly determined by the channel choice. Communication channels available to a firm include: – Direct selling – Sales promotion – Direct marketing – Advertising

20. 12-20 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Barriers to International Communication –International communication occurs whenever a firm uses a marketing message to sell its products in another country. –The effectiveness of a firm's international communication can be jeopardised by:  cultural barriers  source and country of origin effects  noise levels

21. 12-21 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Push versus Pull Strategies –The main choice with regard to communication strategy is between a push strategy (emphasises personnel selling) and a pull strategy (emphasises mass media advertising). –The choice between the strategies depends upon:  product type and consumer sophistication  channel length  media availability

22. 12-22 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Product Type and Consumer Sophistication –Firms in consumer goods industries that are trying to sell to a large segment of the market tend to prefer a pull strategy. –Firms that sell industrial products or other complex products favour a push strategy.

23. 12-23 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Channel Length –Using direct selling to push a product through many layers of a distribution channel can be very expensive. –A firm may try to pull its product through the channels by using mass advertising to create consumer demand.

24. 12-24 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Media Availability –A pull strategy relies on access to advertising media. –A push strategy is more attractive when there is limited access to mass media.

25. 12-25 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy The Push-Pull Mix –Push strategies tend to be emphasised:  for industrial products and/or complex new products  when distribution channels are short  when few print or electronic media are available

26. 12-26 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy The Push-Pull Mix (Cont’d) –Pull strategies tend to be emphasised:  for consumer goods products  when distribution channels are long  when sufficient print and electronic media are available to carry the marketing message

27. 12-27 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Global Advertising –Should a firm standardise its advertising worldwide? –Standardised advertising is an option:  If it has significant economic advantages  If creative talent is scarce and one large effort to develop a campaign will be more successful than numerous smaller efforts  If brand names are global

28. 12-28 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Global Advertising (Cont’d) –Standardised advertising is not an option:  If cultural differences among nations are significant  If country-specific differences in advertising regulations may block the implementation of standardised advertising

29. 12-29 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Communication Strategy Global Advertising (Cont’d) –Dealing with Country Differences  Some firms have been trying tactics to capture the benefits of global standardisation while responding to individual cultural and legal environments.  A firm may select some features to include in all its advertising campaigns while localising other features.

30. 12-30 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Pricing strategy is an important component of the overall international marketing mix. Price Discrimination –A firm can maximise profits by using price discrimination (charging consumers in different countries different prices for the same product). –For price discrimination to work the firm must be able to keep national markets separate and different price elasticities of demand must exist in different countries.

31. 12-31 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Price Elasticity of Demand –The price elasticity of demand is a measure of the responsiveness of demand for a product to changes in price. –Demand is elastic when a small change in price produces a large change in demand. –Demand is inelastic when a large change in price produces only a small change in demand.

32. 12-32 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Elastic and Inelastic Demand Curves

33. 12-33 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy The elasticity of demand is determined by a number of factors including: – income level – competitive conditions In general, price elasticities tend to be greater in countries with lower income levels and higher numbers of competitors.

34. 12-34 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Strategic Pricing –Strategic pricing has three aspects: i.Predatory pricing ii.Multi-point pricing iii.Experience curve pricing

35. 12-35 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Predatory Pricing –Predatory pricing involves using the profit gained in one market to support aggressive pricing, designed to drive competitors out, in another market. –Once the competitors have left the market, the firm can raise prices and enjoy high profits. –Predatory pricing may violate antidumping regulations.

36. 12-36 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Multi-Point Pricing Strategy –Multi-point pricing refers to the fact that a firm’s pricing strategy in one market may have an impact on a rival’s pricing strategy in another market. –Aggressive pricing in one market may elicit a competitive response from a rival in another critical market. –For managers, it is important to centrally monitor pricing decisions around the world.

37. 12-37 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Experience Curve Pricing –Firms pursuing an experience curve pricing strategy on an international scale price low worldwide in an attempt to build global sales volume as rapidly as possible, even if this means taking large losses initially. –A firm using experience curve pricing believes that several years in the future, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less aggressive competitors.

38. 12-38 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Regulatory Influences on Prices –The use of either price discrimination or strategic pricing may be limited by national or international regulations. –A firm’s freedom to set its own prices is constrained by antidumping regulations and competition policy.

39. 12-39 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Antidumping Regulations –Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it. –Antidumping rules set a floor under export prices and limit firms’ ability to pursue strategic pricing.

40. 12-40 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Competition Policy –Most industrialised nations have regulations designed to promote competition and restrict monopoly practices. –These regulations can be used to limit the prices that a firm can charge.

41. 12-41 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Pricing Strategy Competition Policy (Cont’d) –The Australian Competition and Consumer Commission (ACCC) enforces competition policy and monitors predatory pricing. –The New Zealand Commerce Commission (NZCC) administers that country’s Trade Practices Act 1974 and monitors predatory pricing under the Act’s misuse of market power provisions (s. 46).

42. 12-42 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Configuring the Marketing Mix Standardisation versus customisation is not an all or nothing concept. Most firms standardise some things and customise others. Decisions about what to customise and what to standardise should be driven by a detailed examination of the costs and benefits of doing so for each element in the marketing mix.

43. 12-43 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development The Location of R&D –New product ideas come from the interaction of scientific research, demand conditions and competitive conditions. The rate of new-product development is greater in countries where: –More money is spent on basic and applied research and development –Demand is strong –Consumers are affluent –Competition is intense

44. 12-44 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development Integrating R&D, Marketing and Production –Commercialisation of new technologies in international firms may require different versions of a new product to be produced for different countries. –New product development efforts should be closely coordinated with the marketing, production and materials management functions.

45. 12-45 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development Integrating R&D, Marketing and Production (Cont’d) –Close integration between R&D and marketing is required to ensure that product development projects are driven by the needs of customers. –Integration between R&D and production can help a company design products with manufacturing requirements in mind.

46. 12-46 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development Integrating R&D, Marketing and Production (Cont’d) –Designing for manufacturing can lower costs and increase product quality. –Integrating R&D and production can also help lower development costs and speed products to market. –Minimising time to market and development costs may require the simultaneous development of new products and new processes.

47. 12-47 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development Cross-Functional Teams –Cross-functional integration is facilitated by cross-functional product development teams. –Effective cross-functional teams should:  be led by a heavyweight project manager with status in the organisation  have members from all the critical functional areas  have members located together  have clear goals  have an effective conflict resolution process

48. 12-48 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. New Product Development Building Global R&D Capabilities –R&D and marketing need to be integrated to adequately commercialise new technologies. –This may require R&D centres in North America, Asia and Europe that are closely linked by formal and informal integrating mechanisms with marketing operations in each country in their regions and with the various manufacturing facilities.

49. 12-49 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Summary of Main Themes This chapter discussed the marketing and R&D functions in international business. A persistent theme of the chapter is the tension that exists between the need to reduce costs and the need to be responsive to local conditions, which raises costs.