1. Global Marketing and R&D
LECTURE 09
Global Marketing and R&D
EMBA BA804
© Ram Mudambi, Temple University

2. Outline Introduction – why are marketing and R&D special?
Global marketing
International segmentation
Local responsiveness - product adaptation
Distribution and communications
Pricing
Global R&D
The location of R&D
The key to successful knowledge management – cross-functional integration

3. Conglomerates
From the 1940s to the 1960s, conglomerates were recommended as a way to reduce volatility in business earnings and cash flow
Single business
Related diversified
Unrelated diversified
US FIRMS*
1949
1974
42.0%
14.4%
25.7%
42.3%
4.1%
20.7%
*Rumelt, 1982

4. Why do investors value multinationality?
The classic study of Morck and Yeung (1991)  global diversification of operations creates little in terms of shareholder value.
It is intangibles that MNCs can leverage across borders to create value
Marketing intangibles – market knowledge
R&D intangibles – technological knowledge
Why should an MNC be valued at a premium compared to a domestic firm?
Because it can leverage intangible assets from a far-flung network that domestic firms cannot imitate.
Of the two – marketing (e.g., advertising and brand based) and R&D – the latter were found to have stronger effects on firm value.

5. Recall the Smile of Value Creation*
Added
* Mudambi, JIBS 2007
R&D
Knowledge
Marketing
Vertically integrated firm
Inputs
Markets
VALUE CHAIN DISAGGREGATION
Location 1
Location 2
Location 3
Location 4

6. GLOBAL MARKETING

7. Globalization of Markets and Brands
Global culture is penetrating the remotest corners of the world
A Tibetan monk who is a fan of David Beckham
Overstatement?
Cultural and economic differences slow the trend toward global tastes and preferences
The renewed interest in local traditions can be seen as more of a complement to globalization than a substitute for it.

8. Market Segmentation Identifying distinct groups of
consumers whose purchasing
behavior differs from other
in important ways.
geography
demographics
Social-cultural
factors
Psychological
Marketing mix
adjusted to
reflect differing
purchasing
patterns in
segments.

9. Market Segmentation Segments that transcend national borders.
Two
main
issues
in the
differences
between
countries
Structure of
market
segments
within
countries

10. Product and technical standards.
Product Attributes
Cultural differences.
Economic differences.
Product and technical standards.

11. Cultural Differences Range of dimensions:
Social structure
Language
Religion
Education
Most important - the impact of tradition.
Impact is greatest in foodstuffs and beverages.
Also, scent preferences differ from country to country.
Some tastes and preferences becoming cosmopolitan:
Coffee (Japan and Great Britain).
American-style frozen dinners (Europe).
Levitt’s global culture still a long way off.

12. Economic Differences
Consumer behavior is influenced by economic development.
Consumers in highly developed countries tend to have extra performance attributes in their products.
Consumers in less developed countries tend not to demand these extra performance attributes.
Cars: no air-conditioning, power steering, power windows, radios and cassette players.
Product reliability is more important.
Consumers in the most developed countries are often unwilling to sacrifice preferred attributes for lower prices.

13. Distribution Strategy
Three aspects:
Retail concentration
Channel length.
Channel exclusivity
Choice of channel:
Cost/benefit of each alternative vary from country to country.
Longer channel => higher price, but
cuts selling costs in fragmented market.
provides market access.
Concentrated
Fragmented
Short
Long Channel
No Outsiders

14. A Typical Distribution System
Manufacturer Inside the Country
Manufacturer Outside the Country
Import Agent
Wholesale Distributor
Retail Distributor
Final Customer

15. Distribution Can Present Interesting Problems

16. Communications Strategy
Channels
direct selling
sales promotion
direct marketing
advertising
International communication occurs
when a firm uses a marketing
message to sell its products in
another country.

17. Communications Strategy
Effectiveness of international communications can be impacted by:
Cultural barriers - Need to develop cross-cultural literacy.
Country of origin (COO) effects:
Receiver of the message evaluates it based upon the status of the sender.
Emphasize/de-emphasize foreign origin.
Noise levels.
Tends to reduce the effectiveness of a message.
Developed countries - high.
Less developed countries - low.
Push versus Pull:
Push emphasizes personal selling.
Pull depends on mass media advertising.

18. Attractiveness of Push versus Pull Strategies
Pull = selling to large
market segments.
Push = selling
complex products.
Product Type and
Consumer
Sophistication
Factors
Channel
Length
Pull = long
distribution channel.
Push = short
Media
Availability
Pull = access to
advertising media.
May be legal
Restrictions.

19. Push-Pull Mix Push Pull consumer goods few print or electronic media
sufficient print
and electronic
media available
Push
industrial or
complex
products
short
distribution
channels
few print or
electronic media
available
consumer goods
long
Pull

20. Global Advertising Standardized: Non-standardized:
Significant economic advantages.
Scarce creative talent.
Many global brand names.
Non-standardized:
Messages in one country may fail in another.
Advertising regulations can be a restriction.

21. Messages that don’t travel - 1
The name Coca-Cola in China was first rendered as Ke-kou-ke-la. After thousands of signs had been printed Coke discovered that the phrase means "bite the wax tadpole" or "female horse stuffed with wax" depending on the dialect. Coke then researched 40,000 Chinese characters and found a close phonetic equivalent, "ko-kou-ko-le," which can be loosely translated as "happiness in the mouth."

22. Messages that don’t travel - 2
In Taiwan, the translation of the Pepsi slogan "Come alive with the Pepsi Generation" came out as "Pepsi will bring your ancestors back from the dead."
Also in Chinese, the Kentucky Fried Chicken slogan "finger-lickin' good" came out as "eat your fingers off."
When General Motors introduced the Chevy Nova in South America, it was apparently unaware that "no va" means "it won't go."

23. Messages that don’t travel - 3
Ford’s Pinto flopped in Brazil. The company found out that Pinto was Brazilian slang for "tiny male genitals".
Parker Pen’s ballpoint pen ads in Mexico were supposed to say "It won't leak in your pocket and embarrass you." In Spanish the ads said "It wont leak in your pocket and make you pregnant."
In Mexico, Perdue Chicken's slogan, "It takes a tough man to make a tender chicken," was translated as "It takes a hard man to make a chicken aroused."

24. Messages that don’t travel - 4
Hunt-Wesson introduced its Big John products in French Canada as Gros Jos before finding out that in local slang it means "big breasts." However, the name problem did not have a noticeable effect on sales.
Colgate introduced a toothpaste in France called Cue, the name of a notorious porno mag.
An Italian campaign for Schweppes Tonic Water rendered the name as Schweppes Toilet Water.
Kinki Nippon Tourist Company was mystified when it entered English-speaking markets and began receiving requests for unusual sex tours. The owners soon changed its name.

25. Advertising in New Delhi

26. Pricing Strategy Price discrimination. Strategic pricing.
Different prices, different countries, same product.
Strategic pricing.
Regulatory factors:
Price controls.
Antidumping.

27. Pricing Strategy Using Arbitrage Price discrimination:
Charging what the market will bear.
Two factors:
Must keep national markets separate
Different price elasticities
Arbitrage:Charging different prices in different countries for same product.
Doesn’t always work.
Ford in Germany and Belgium
Sometimes it does.
Ford in UK and Belgium
Using Arbitrage

28. Determinants of Demand Elasticity
Income level and competitive conditions determine elasticity.
Elasticity (price) tends to be be greater in countries with low income levels.
Elasticity (demand) tends to be greater in countries where there are many competitors.

29. Price discrimination - textbook marketing
The Hill textbook sells for $130 in the US
$60 to $80 in Europe
$30 to $40 in Asia
Sites like have appeared to take advantage of this arbitrage opportunity
US Courts have upheld the legality of such “gray” market operations

30. Configuring the Marketing Mix
Culture
Economy
Competition
Standards
Distribution
Gov’t Regs
Product Attributes
Distribution Strategy
Communications Strategy
Pricing Strategy
Differences here
Require variation here

31. R & D IN A GLOBAL CONTEXT

32. New Product Development
Technological Innovation
Creative
Destructive
Critical to stay
on leading edge
of technology
Apply technology to
developing products
Consumers’ want.
Design product
for cost
effective
manufacture.

33. Leading-edge research is carried out worldwide. Centralization is
The Location of R&D
New product development is greater where:
More money spent on R&D.
Underlying demand is strong.
Consumers are affluent.
Competition is intense.
Leading-edge research is carried
out worldwide. Centralization is
no longer as important.
Competence-exploiting
subsidiaries
Competence-creating
subsidiaries

34. The innovation-integration dilemma
Subunits evolution to competence-creation requires a great deal of local learning
Two requirements for this to happen:
Autonomy
‘Local embedding’
Competence-creating subunits are very innovative, but using this innovation is a challenge

35. The knowledge network & integration
Location 2
Learning in
location 2
P = Parent firm
S,S’ = Subunits S’ 4
HQ location
Transfer from subunit located in location 2
Location 1 P S 4
Learning in
location 1 2
Transfer from subunit located in location 1
Central HQ inflows

36. Innovation vs. integration
High
Isolated
freedom
Connected
freedom
Innovation
Autonomy
Local
embeddedness
Semi-connected
freedom
Isolated
control
Connected
control
Low
Low
High
Integration, connectivity

37. The social dimension
The negative effects of subunit autonomy depend on linkages to the parent firm
The most effective links are inter-personal
Frequent inter-unit communication leads to ‘Lateral socialization’
Knowledge tends to flow along frequently used channels

38. Knowledge flows – the social dimension
Best
practice
Frequency of
communication
the
‘In’ group
High
Moderate
flows
High
flows No
flows
Low
flows
Low
Value of
knowledge
Low
High

39. Cross-Functional Integration
Using cross-functional development teams:
Led by “heavyweight” project manager.
Composed of at least one member from each key function.
Physically co-located to create camaraderie and facilitate communication.
Clear plan and goals.
Incentives to attain goals.
Develop own processes for communication and conflict resolution.

40. Takeaways
MNEs that create value do so on the basis of their marketing and R&D intangibles
The extent of local adaptation is driven by cultural and institutional factors – link between marketing and overall strategy
Cross-cultural literacy is crucial in protecting and developing marketing intangibles like brands
Global knowledge management requires enhanced communications protocols
The innovation – integration dilemma
Cross-functional international teams