1. Chapter Five Global Markets

2. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 2 P&G in Japan P&G ignored cultural differences! 1972 - P&G is the first company to introduce disposable diapers to Japan –80% share of market within a year 1985 - P&G market share has plunged to 8% and the subsidiary is losing $40 million per year. WHY?

3. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 3 Consumer Markets and Convergence Are consumption patterns converging? –The French drink more beer –The Germans drink more wine –The Japanese eat more beef –The Swiss prefer French cheese

4. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 4 But major differences persist…!

5. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 5 Starbucks’ Mexican Dilemma Why don’t Mexicans drink coffee? –5 th largest coffee producer –Mexicans - 2 lbs. a year –Americans - 10 lbs. a year –Swedes - 26 lbs. a year What should Starbucks do?

6. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 6 Global Marketing Considerations Global marketers must consider national differences in: –Ability to buy –Consumer needs –Consumer behavior

7. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 7 Ability to Buy Per capita income Purchasing power parity Income Distribution

8. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 8 Per Capita Income in Selected Countries (US $) Market Exchange Rates Purchasing Power Parity Brazil3,5707,320 Egypt1,4903,690 Germany25,05025,010 Indonesia5702,840 Japan34,12026,460 Kenya3601,010 Mexico5,0808,810 United States34,260

9. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 9 Income Distribution Government tax policies Wealth concentration –Belgium Top 10% = 20% income –Colombia Top 10% = 46% income

10. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 10 The Hidden Economy Informal sector = Income not reported to authorities Peru’s informal sector = –42% construction –45% transportation –16% manufacturing

11. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 11 Changing Views on Informal Sector Assumption: Economic Development Informal Sector Activity Reality = The bulk of new employment in recent years—particularly in developing and transition economies—has been in the informal economy

12. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 12 Globalization –Loss of employment in formal sector Uncompetitive “formal” firms fold following liberalization Uncompetitive “formal” firms fold during currency crises and other global economic shocks –Cost pressures of “formal” FT labor Core of wage employees and periphery of informal workers –Information and communications technology Makes global coordination of informal firms and workers possible Informal Sector Growth: Why?

13. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 13 Informal Sector Growth: Why? (cont’d) Institutions –Lack of enforcement against Corruption Tax evasion Labor and health violations –Red tape of “formal” bureaucratic institutions creates market opportunities for informal players –Tax-related issues Complex, unfair tax codes Lack of effective tax auditing –Lack of political will to change institutions!

14. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 14 Consumer Needs Is Maslow’s hierarchy of needs applicable cross- culturally? Self-actualization Friendship, Love Safety, Food, Shelter Physiological Needs

15. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 15 Consumer Behavior Cultural differences revisited –Life Insurance doesn’t sell in Muslim countries –Processed baby food doesn’t sell in Brazil –Who makes purchase decisions? More joint husband-wife decisions in the U.S. than in Venezuela Power-distance and masculinity/femininity effects

16. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 16 Global Colors and Color Differences The world’s favorite color? –Blue But many colors elicit different responses –Purple = Expensive (in Japan, China, South Korea) –Purple = Cheap in USA Orange is sacred in India

17. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 17 Segmentation A marketing technique that targets a group of customers with specific characteristics

18. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 18 Characteristics of Viable Segments 1.Homogeneous characteristics 2.Adequate profit potential 3.Ability to measure segment characteristics 4.Ability to efficiently communicate to segment 5.Ability to efficiently distribute to segment

19. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 19 Segmentation Key principles: 1.Not everyone in a country needs to buy your product – you just need a large enough segment to be successful 2.How and how much you adapt your marketing mix depends on the characteristics of the segment(s) that you are targeting –Most segmentation should be done at the local level Should we target French housewives or French working women? Avoid “blanket branding” an entire country’s consumers

20. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 20 Global Segments Global segment – transnational consumer segment based on age, social class, lifestyle, behavioral or other segmentation variable –Coca Cola drinkers, teens But for most products and segmentation schemes, national differences DO persist

21. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 21 Just-Like-Us Segment Just-like-us-segment – segments in international markets that resemble a firm’s domestic buyers (a duplication strategy) –Easier because does not require marketing mix adaptation –But may result in few consumers worldwide and limits a firm’s global profit potential –EXAMPLE – If toy manufacturer only targeted children in China they would miss out on a large segment – adults buying toys for themselves!

22. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 22 Business Markets Yes –Cost and performance standards No –Relationship-driven nature of B2B transactions Culture matters! Are business markets less culture-specific than consumer markets?

23. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 23 First Meetings Yes – China and Japan No! – Latin America and the Arab world United States??? Should you present a prospective client with a gift?

24. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 24 Cross-cultural negotiations are a particular challenge Russian tactics: –Emotional outburst, falling asleep, unreasonable requests Arabic tendencies to mix business and personal discussions (polychronic) Americans like to negotiate clear contracts while Chinese prefer to establish personal trust relationships (high vs. low context cultures) Developing Business Relationships

25. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 25 Labor Cost Indices

26. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 26 Labor vs. Capital Intensive Technology The cost-performance criterion is a key consideration for business buyers Business buyers in developed countries choose capital intensive technologies –Capital is cheaper/ labor is more expensive Business buyers in developing countries usually choose labor intensive technologies –Labor is cheaper/ capital is more expensive

27. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 27 National global buyers –Search the world for products used in a single market (Williams-Sonoma) Multinational global buyers –Search the world for products used throughout their global operations (Wal- Mart) Global account management –Marketers assign special executive or teams to address demanding global buyers Global Buyer Types & Configurations

28. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 28 Government Markets – Buying Processes The buying process –Procurement processes vary by country –With some governments, contracts go to the lowest bidder –With other governments, the process is more complex Requirements for using local labor, joint- venturing or investing in local production facilities or ramp-up

29. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 29 Marketing to Governments in Developing Countries Insert figure 5.2, p. 165 here

30. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 30 Bribery and Government Markets Bribery = giving something of value to an individual in a position of trust to influence judgment or behavior Government employees are trusted to do what’s best for the public good Government corruption is more prevalent in emerging markets –But is also present in industrialized countries (ex: Italy)

31. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 31 Transparency International “Corruption is operationally defined as the misuse of entrusted power for private gain.” (TI web site) http://www.transparency.org/

32. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 32 Transparency International (cont’d) “ Transparency can be defined as a principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably.” (TI web site)

33. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 33 1.Corruption Perceptions Index (see text) measures “perception” of corruption among businesses and consumers 2. Bribe Payers Index – (see text) measures actual levels of bribery Transparency International (cont’d)

34. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 34 Which Country Is the Least Corrupt? Source: Transparency International RankCountry 1Finland 2Denmark 3New Zealand 5Singapore 7Canada 13United Kingdom 16USA 18Chile 29Italy

35. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 35 Which Country Is the Most Corrupt? Source: Transparency International RankCountry 51Mexico 54Egypt 59Ghana 69Romania 71India 88Indonesia 91Bangladesh

36. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 36 Source: Transparency International Which Country Pays the Least Amount of Bribes? RankCountry 1Australia 2Sweden 2Switzerland 4Austria 5Canada

37. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 37 Source: Transparency International Which Country Pays the Most Amount of Bribes? RankCountry 17Italy 18South Korea 19Taiwan 20China 21Russia

38. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 38 U.S. Foreign Corrupt Practices Act Forbids U.S. citizens to bribe foreign government employees or politicians – or to give money to agents that is subsequently used to bribe Citizens must report bribery in their organization Records must be transparent and well kept Failure to comply can result in fines and jail time ! –Lockheed Martin Corp. in Egypt

39. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 39 Expediting Payments Small sums paid to civil servants to do their jobs –Unilever and BP Amoco do it! –P&G refused to do it! (Brazil) Used to avoid delays, not gain an unfair competitive advantage Allowed under the U.S. FCPA

40. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 40 Beyond the U.S. FCPA Did the U.S. FCPA put U.S. firms at a competitive disadvantage? Will an OECD anti-bribery pact level the playing field? (34 nations signed on)