1. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill C H A P T E R F I V E GLOBAL MARKETING AND WORLD TRADE

2. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS AFTER READING CHAPTER 5 YOU SHOULD BE ABLE TO: Describe the nature and scope of world trade from a global perspective and its implications for the United States. Explain the effects of economic protectionism and the implications of economic integration for global marketing practices. Understand the importance of environmental factors (cultural, economic, and political) in shaping global marketing efforts. Describe alternative approaches firms use to enter and compete in global markets. Identify specific challenges marketers face when crafting worldwide marketing programs.

3. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-1 Illustrative world trade flows (billions of dollars) Rest of world intratrade: 175 Western Europe intratrade: 1430 194 227 241 279 382 381 313 365 137 140 200 393 Asia / Pacific Rim intratrade: 632 North America intratrade: 465

4. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-AA Countertrade Effect The practice of using barter rather than money for making global sales. 20% of world trade involves countertrade. Popular with many Eastern European nations.

5. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-BB Trade Feedback Effect As a country’s exports increase, its national output and income increase, which leads to a increase in the demand for imports. Hence, imports affect exports and vice versa. This Trade Feedback Effect is one argument for free trade among nations.

6. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-CCa United States Perspective US is the world’s leader in gross domestic product (GDP), which is the monetary value of all goods and services produced in a country during one year. US % share of world exports has shifted downward over the past 25 years, while its % share of world imports has increased.

7. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-CCb United States Perspective Balance of trade is the difference in the monetary value of a nation’s imports and exports. Since 1975 imports to the US have significantly exceeded exports each year. Japan and China combine for about half of the total US trade deficit. The three largest importers of US goods are Canada, Japan, and Mexico. The three largest exporters to the US are Japan, Canada, and Mexico.

8. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-2 Porter’s “diamond” of national competitive advantage Company strategy structure and rivalry Number of companies in an industry Intensity of competition Public or private owner Related and supporting industries Existence of supplier clusters Factor conditions Natural resources Education and skill levels Wage rates Demand conditions Size of market Sophistication of consumers Media exposure of products

9. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-DD Concept Check 1.What is the trade feedback effect? 2.What variables influence why some companies and industries in a country succeed globally while others lose ground or fail?

10. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-3 How protectionism affects world trade Protectionism Decreased Global Trade Increase Prices Tariffs Quotas Limit Supply Limit Supply

11. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-EE Economic Protectionism Protectionism is the practice of shielding one or more sectors of a country’s economy from foreign competition through the use of tariffs or quotas. Tariffs are a government taxes on goods and services entering a country, primarily to raise the price on imports. Quotas are restrictions placed on the amount of a product allowed to enter or leave a country.

12. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-4 15 Countries of the European Union Great Britian Ireland Germany Netherlands Austria Finland Sweden Italy Portugal Spain France Luxembourg Belguim Denmark Greece

13. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-FF Rise of Economic Integration European Union (EU) 15 European countries forming a single market composed of 390 million consumers with a GDP only slightly less than that of the US. The EU has resulted in: 1.fewer government regulations and tariffs 2.greater uniformity in product and packaging standards 3.fewer regulatory restrictions on transportation, advertising, and promotion 4.removal of most tariffs that directly affect pricing

14. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-GG North American Free Trade Agreement (NAFTA) PP5-GG North American Free Trade Agreement (NAFTA) NAFTA NAFTA became effective in 1994 and consists of the US, Canada and Mexico, creating a marketplace of about 380 million consumers. Provisions are similar to those of the EU Negotiations are under way to expand NAFTA to a 34 country Free Trade Area of the Americas by 2005, and will include the US, Canada, Mexico, and Latin American and Caribbean countries.

15. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-HH Global Competition among Global Companies for Global Customers Exists when firms originate, produce, and market their products and services worldwide. The automobile, pharmaceutical, apparel, electronics, aerospace, and telecommunication fields represent industries with sellers and buyers on every continent.

16. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-II Strategic Alliances Strategic alliances are agreements among two or more independent firms to cooperate for the purpose of achieving common goals such as competitive advantage or customer value creation. They are becoming a common way in which firms are meeting the demands of global competition.

17. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-B Global companies and marketing strategies Type of Global Company Type of Marketing Strategy International Firm Multinational Firm Transnational Firm Extension of its home country marketing strategy Multi-domestic marketing strategy Global marketing strategy

18. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-JJa Three Types of Global Companies International Firm: engages in trade and marketing in different countries as an extension of the marketing strategy in its home country. Generally, they market their existing products and services in other countries the same way they do in their come country. Multinational Firm: views world as consisting of unique parts and markets to each part differently. Multinationals use multi-domestic marketing strategies, which means they have many different product variations, brand names, and advertising programs as countries in which they do business.

19. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-JJb Three Types of Global Companies Transnational Firm: views world as one market and emphasizes cultural similarities or universal consumer needs and wants more than differences. They employ global marketing strategies, which means standardized strategies adapted as cultures dictate.

20. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-KK Global Consumers Global Consumers consist of customer groups living in many countries or regions of the world who have similar needs or seek similar features and benefits from products and services.

21. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-LL Concept Check 1.What is protectionism? 2.NAFTA was designed to promote free trade among which countries? 3.What is the difference between a multi- domestic marketing strategy and a global marketing strategy?

22. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-C Cultural Appreciation Aspects of culture Values Customs Symbols Language

23. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-MMa Cultural Diversity Values represent personal or socially preferable modes of conduct or states of existence that are enduring. Why doesn’t McDonald’s sell hamburgers in India? Customs are norms and expectations about the way people do things in a specific country. Why were 3M executives perplexed concerning lukewarm sales of Scotch-Brite floor cleaner in the Philippines?

24. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-MMb Cultural Diversity Cultural Symbols are things that represent ideas and concepts. By wisely using cultural symbols, global marketers can tie positive symbolism to their products and services. Language: Global marketers should not only know the native tongues of countries in which they market, but also the nuances and idioms of a language.

25. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-NN Economic Considerations Stage of Economic Development Economic Infrastructure Consumer Income and Purchasing Power Currency Exchange Rates

26. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-OO Political-Regulatory Climate Political Stability PRS Group is an agency that tracks the risk associated with trading in various countries. Generally, trade among nations depends upon political stability. Trade Regulations ISO 9000 standards refer to standards for registration and certification of a manufacturer’s quality management and quality assurance system.

27. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-PP Concept Check 1.Semiotics involves the study of ____________? 2.When foreign currencies can buy more US dollars, are US products more or less expensive for the foreign customer?

28. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-5 How Purchasing Power differs Around the World

29. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-6 Alternative global market-entry strategies Amount of a firm’s financial commitment, risk, marketing control, and profit potential Low Joint Venture Direct Ownership ExportingLicensing High

30. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-QQ Crafting a Worldwide Marketing Effort Product and Promotion Strategies Selling Products Globally 1.Product Extension 2.Product Adaptation 3.Product Invention By recognizing cultural and buying motive differences, firms can sell the same products to different countries by adapting their advertising. Some companies use dual adaptation, which means modifying both product and promotion messages.

31. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-7 5 Product & Promotion Strategies for Global Marketing Same Product Adapt Product Create New Product Same Promotion Adapt Promotion Communication adaptation strategy Product Extension Strategy Product Adaptation Strategy Dual Adaptation Strategy Product Invention Strategy

32. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-8 Channels of Distribution in Global Marketing Channels Between Nations Seller Channels Within Foreign Nations Seller’s International Marketing Headquarters Final Consumer

33. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-RR Crafting a Worldwide Marketing Effort Pricing Strategy Countries may impose considerable competitive, political, and legal constraints of the pricing latitude of global companies. Economic factors such as the costs of production, selling, and tariffs, plus transportation and storage costs, also affect global pricing decisions. Dumping is when a firm sells a product in a foreign country below its domestic price or below its actual cost. Gray Market (parallel importing) is a situation where products are sold through unauthorized channels of distribution.

34. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-D Global Marketing Practices That Affect Pricing Dumping is when firms sell a product in a foreign country below its domestic price or below its actual cost. Gray Marketing or Parallel Importing is a situation where products are sold through unauthorized channels of distribution.

35. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS PP5-SS Concept Check 1. Products may be sold globally in three ways. What are they? 2. What is dumping?