1. INTERNATIONAL MARKETING
Culture
Product strategies
Legal issues

2. Learning Objectives Identify impact of culture on
Values
Perception of reality
Product choices
Response to marketing activity
Identify the impact of levels of income, costs of living, and fluctuating exchange rates
Identify advantages and disadvantages of product standardization, adaptation, and customization under different circumstances
Identify some legal issues that must be considered by firms doing business abroad

3. An Effective Billboard Advertisement?
VERY DIRTY CLOTHES
CLOTHES GETS WASHED WITH THE ADVERTISED DETERGENT BRAND
SQUEEKY CLEAN CLOTHES

4. International Marketing: Considerations and Outcomes
MKT 465 COVERS INTERNATIONAL MARKETING IN MORE DETAIL

5. Definitions
Culture: “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man as a member of society.”
Alternative definition: “Meanings that are shared by most people in a group [at least to some extent]”. (Adapted from Peter and Olson, 1994)
We tend to associate the word “culture” with behavior. However, the term is technically defined as a set of “shared meanings.” This, obviously, is a somewhat deeper definition, focusing more on the basis for the observed behaviors.
A concept related to that of culture is socialization--the way that one learns to be part of a society. For example, mathematics books in the United States may focus on the calculation of interest, which is not a legitimate concept in most countries governed primarily by Muslim law. 4

6. Cultural Lessons
Diet Coke is named Light Coke in Japan—dieting was not well regarded
Red circle trademark was unpopular in Asia due to its resemblance of Japanese flag
Packaging of products is more important in some countries than in U.S.
Advertisement featuring man and dog failed in Africa—dogs were not seem as man’s best friend 5

7. More Cultural Lessons...
Cologne ad featuring a man “attacked” by women failed in Africa
Food demonstration did well in Chinese stores but not in Korean ones--older women were insulted by being “taught” by younger representatives
Pauses in negotiations
Level of formality 6

8. Very Brief Review of Economics
Exchange rates
Floating (supply and demand)
Fixed
Trade balances and their impact on exchange rates
Measuring country wealth
Gross domestic product
Nominal vs. “Purchasing power parity”
Nominal: Amount of dollars that can be bought with the amount of income. Used for imported products.
Purchasing power parity adjusted: The buying power—based on a weighted average of costs—in the respective country relative to U.S.
Global trade implies that purchasers in one country must pay others. Although, as we will see later, transactions often take the form, at least in part, of barter, it is often necessary that a buyer or seller convert money from one currency to another. While certain currencies are “closed,” so that it is generally not possible to freely convert money into some other form, active markets exist for the exchange of others.
Between 1947 and the early 1970s, exchange rates between major currencies were “fixed” according to the Bretton Woods Agreement, which also established the first GATT. However, in the 1970s, it became infeasibly expensive for members to support the dollar at its artifically high level, and “floating” exchange rates resulted. Here, the prices of various currencies are essentially determined by supply and demand. Note that, while in the old days, U.S. currency was backed by gold, those who hold American dollars are no longer guaranteed to be able to convert their dollars. The value of the U.S. dollar, and many other currencies, is entirely based on confidence in the currency.
One might wonder what keeps a country from going excessively overboard and buying excessively. Basically, when a country spends more than it earns abroad, its currency will experience downward pressure as its supply increases relative to demand. Thus, the value of the currency will decline, and foreign imports will become less attractive as they become more expensive. Conversely, the country’s products will tend to decline in cost (as measured in foreign currency) abroad, and its exports will tend to increase.
There are, however, some complications to this picture. One way to increase the “demand” for currency is to borrow heavily abroad. Thus, because of its heavy borrowing, U.S. interest rates, compared to the rest of the World, are rather heavy, and a strong demand for the dollar exists (so that investors can lend this currency to American borrrowers).

9. Historical Euro-U.S. Dollar Exchange Rates
Source: U.S. Federal Reserve Bank

10. Fluctuating exchange rates
Help reduce trade imbalances
A country that imports more than it exports will have a less valuable currency (demand for other countries’ currency drives down the price of the country’s currency)
Imported items will become more expensive and thus less attractive
In other countries, the country’s “cheap” currency will its exports more attractive
Result in:
Variations in the demand for a firm’s exports over time
Variations in the cost of the firm’s products abroad (or a change in margins)
Common currencies across partner countries (e.g., Euro) reduce fluctuations and help long term planning, but may perpetuate trade imbalances

11. Demand for Currency Depends On
Trade deficit (demand for foreign currency to fund this reduces value) or trade surplus (demand for country’s currency by other countries drives up value)
Interest rates: Higher interest rates (real) attract foreign investors (especially for “stable” U.S. bonds and equities), thus increasing demand for, and the cost of, the currency
Inflation: Reduces the attractiveness of holding the currency

12. Nominal vs. Purchase Parity Adjusted Gross Domestic Products (GDPs)—Examples (2016)
Source: World Bank

13. Cautions on Interpreting Per Capita Figures
Averages are not very meaningful!
Regional variations—costs of living are very high in Shanghai, Seoul, and Buenos Aires
Socio-economic differences—different groups of people buy different things
Some countries have “informal” (off-the-books) economies with much lower prices than official ones
Comparison to U.S. dollar and U.S. costs is arbitrary and PPP figures will change based on fluctuations in Dollar value

14. Some contributors to cost of living
Labor: Services may be much less expensive when low cost labor is available
Environmental regulations (e.g., tolerance for pollution, carbon emissions)
Safety regulations
Local availability of resources (e.g., cost of scarce or abundant land), natural resources

15. Government Policy and Spending
Some countries have high taxes, with the government covering certain costs (e.g., health care, education)
Although some costs are covered, a lesser part of income is available to be spent
Highly progressive tax rates (where higher income households pay a higher percentage of income in taxes) result in smaller markets for luxury products
Taxes can come in multiple forms: income, sales tax, excise taxes (specific taxes on specific products such as cars), and “sin” taxes on “bad” things such as alcohol, tobacco, sugared drinks, and “luxuries”
End results:
“Leveling” of income—less inequality, but also less incentive to produce
Consumer have less control over what they can buy
Long waiting lists may develop for certain government services (demand outstrips supply)

16. Why are online auctions and resale of used goods popular in Germany?
High tax rates mean that one has to work a long time to buy items
Spending more time searching for better deals incurs less of an opportunity cost—e.g.,
If an individual who makes $25.00 per hour pays 60% tax, he or she only takes home (1-0.6)*$25.00=$10.00 net.
He or she has to earn $50.00 to spend $20.00
Taking time to find a deal that only costs $15.00 means that ($20-$15)/0.4=$12.50 less has to be earned

17. Approaches to Product Introduction
● Customization
Standardization ●
Adaptation
Completely new product made for each country
Products sold across the World are identical
Adjustments are made in regions or countries to accommodate infrastructure, cultural, economic, or other differences
Complete customization or standardization are rare—modest adjustments are usually made
Not suitable for the Middle East!

18. Reasons for Standardization
Avoiding high costs of customization, if applicable
Technological intensity
Reduced confusion
International compatibility among product group components
Faster spread of rapid life cycle products
Convergence of global consumer tastes/needs
Country of origin positioning

19. Standardization—Advantages
Benefits
Economies of scale
More resources available for development effort
Better quality possible
Rapid product life cycles may make extensive adaptation infeasible

20. Standardization—Disadvantages
Unnecessary features
Vulnerability to trade barriers
Strong local competitors

21. Product Adaptations
Mandatory—required by laws of nature or laws of government
Legal requirements
Infrastructure
“Discretionary”—not required by natural or human laws but often not really “optional” in practice (needed to compete with brands that do offer adaptations)
Local tastes
Fit into cultural environment

22. Mandatory Adaptation Issues
Infrastructure differences—e.g., electricity supplies vary among countries in
Voltage
Frequency (time between flips in polarity under alternating current)
Plugs
Conflicting rules between countries—it may not be possible to make a product that would be simultaneously legal in both of two countries

23. Some Examples of Mandatory Adaptations
Artificial sweeteners permitted (approved for use in different countries)
Product specifications (e.g., alcohol percentage in beverages)
Warning labels
Safety features
Anti-pollution features

24. Country of Origin Effects
Perception of product
quality (e.g., Japan, Germany)
elegance and style (e.g., France, Italy)
Historical associations
Positioning strategies
Emphasis on origin (e.g., French wine)
De-emphasis/obfuscation of country of origin (e.g., French beer, American products with French language labels)

25. Flops in the Transplantation of Advertising
Man and his dog
“Follow the leader—he’s on a Honda!”
Detergent ad
“Get your teeth their whitest!”

26. International Brand Adaptations
Chevy Nova did not do well in Latin America (“no va.”)
A Japanese soft drink which did not sell well in English speaking countries…

27. U.S. Laws of Interest…
Anti-trust: It is illegal for U.S. firms to participate in collusion and other anti-competitive activities abroad. Most countries have such laws; not all enforce these.
Foreign Corrupt Influences Act: It is illegal for U.S. firms to pay bribes abroad.
Anti-boycott laws: It is illegal for U.S. firms to participate in a boycott of Israel or even certify that one’s firm does not do business with Israel. Technically, it is illegal to participate in all non-U.S. Government sanctioned boycotts, but the emphasis is on Israel.
Trading With the Enemy:
It is illegal to trade at all (with few exceptions) with enemy certain states (e.g., North Korea, Iran, Libya).
Exports of certain technologies (mostly with potential for military use) is heavily restricted.
Extra-territoriality: U.S. courts will often take jurisdiction over cases of violations of U.S. law that occurred entirely abroad.