1. Thrive in the Marketing Environment: The World Is Flat
Chapter Three

2. Chapter Objectives
Understand the big picture of international marketing and the decisions firms must make when they consider globalization
Explain how international organizations such as the World Trade Organization (WTO), economic communities, and individual country regulations facilitate and limit a firm’s opportunities for globalization
Understand how factors in a firm’s external business environment influence marketing strategies and outcomes in both domestic and global markets
Explain some of the strategies that a firm can use to enter global markets
LECTURE NOTES:
Whether they’re at home or moving into the global marketplace, marketers know that it’s critical to clearly understand what’s going on around them in order to make good decisions. This chapter discusses global marketing, and elements of the external environment that are examined as part of the situation analysis. By the end of this chapter, you will have learned to:
1) Understand the big picture of international marketing and the decisions firms must make when they consider globalization
2) Explain how international organizations such as the World Trade Organization (WTO), economic communities, and individual country regulations facilitate and limit a firm’s opportunities for globalization
3) Understand how factors in a firm’s external business environment influence marketing strategies and outcomes in both domestic and global markets
4) Explain some of the strategies that a firm can use to enter global markets
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3. Global Marketing
The successful global business sets its sights on markets around the world, but it needs to act locally by adapting its business practices to unique conditions in other parts of the globe.
World trade refers to the flow of goods and services among different countries—the value of all the exports and imports of the world’s nations. World trade activity steadily increases year by year.
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4. Take a Bow: Marketing on the Global Stage
The global marketplace
World trade: The flow of goods and services among different countries—the value of all the exports and imports of the world’s nations
LECTURE NOTES:
Individuals today participate in a global marketplace, whether they realize it or not. For example, many of the goods you consume are manufactured or harvested in foreign lands. Proponents of the global marketplace and free trade argue that it benefits us all, because it allows people in developing and least developed countries to enjoy the same economic benefits as citizens of more developed countries. Others warn of problems such as global warming and stress the need for international agreements that would force industries and governments to develop and adhere to environmental standards to protect the future of the planet. But critics feel that limits on trade are necessary to protect domestic industries or ensure the safety of American consumers. For example, the growth in world trade in recent years has been accompanied by a glut of unsafe products, many of which have come from China.
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5. Figure 3-1 North American Trade Flows (in Billions of Dollars)
LECTURE NOTES:
Not all nations participate equally in world trade. Knowing who does business with whom is essential to developing an overseas marketing strategy. As this figure shows, North America trades merchandise most heavily with Asia, Europe, and Latin America.
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6. Take a Bow: Marketing on the Global Stage
Countertrade: A type of trade in which goods are paid for with other items instead of with cash
Barter is common form of countertrade
LECTURE NOTES:
Did you know that the currency of as many as 70 percent of all countries (including China) is not convertible, meaning that it cannot be spent or exchanged outside the country’s borders?
In other countries, because sufficient cash or credit is simply not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return for tax breaks from the local government. This countertrade accounts for between 20 and 25 percent of all world trade.
SUPPLEMENTAL INFORMATION:
There are six key forms that countertrade can take: 1) offset; 2) counter purchase; 3) tolling; 4) barter; 5) buyback: and 6) switch trading. Each form of countertrade is briefly explained below; additional information can be found at
Offset Countertrade: Commonly used in the purchase of military goods by governments. Direct offset countertrade occurs when the supplier uses materials or parts obtained from the importing country when manufacturing the goods (e.g. airplanes). Indirect offset countertrade agreements force the suppliers of imported goods to invest in some type of industrial relationship unrelated to the items being imported.
Counter purchase Agreements: In order to obtain an order, foreign suppliers must first agree to buy products from the importing country. This helps the importing country to generate exports, which in turn reduces the payment deficit that results from importing goods from another country.
Tolling: Sometimes manufacturers lack the financial capital to buy raw materials from other countries suppliers. Tolling occurs when the supplier provides the manufacturer with the raw material necessary to create goods and essentially rents out the factory facility to produce some type of finished good using the raw materials supplied. The produced goods are in turn sold to the final user who pays cash back to the supplier (not the manufacturer).
Barter: Barter is a form of countertrade in which products change hands—not money. For example, country A trades goods to country B, that uses the services, products, raw materials, etc. to pay for the purchase. Barter is most common in undeveloped countries.
Buyback: This form of countertrade occurs when providers of equipment or capital agree to provide their goods or services in exchange for a portion of the goods that will be produced using the equipment.
Switch Trading: When countries engage in bilateral trading agreements over long periods of time, imbalances often accumulate, in that one partner may build up a large credit surplus over the other country. Switch trading occurs when the country with the credit surplus imports goods from a third country, and uses the credit surplus from their trading partner to pay for the newly imported goods. “ For example, Brazil at one time had a large credit surplus with Poland. These surpluses can sometimes be tapped by third countries so that, for example the UK exports to Brazil could be financed from the sale of Polish goods to the UK or elsewhere.” (London Countertrade Roundtable). This process is called switch trading because the documentation papers, and shipping destination are “switched” while the goods are in route, typically when at sea.
Source: London Countertrade Roundtable Web site: retrieved October 28, 2008.
Additional information on countertrade may be found at the London Countertrade Roundtable Web site:
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7. In some countries, because sufficient cash or credit is simply not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return for tax breaks from the local government. Countertrade accounts for about 25 percent of all world trade.
Countertrade
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8. Going Global?
When firms consider going global, they must make a number of decisions. The first two crucial decisions are as follows:
--Is it in the best interest of the firm to remain in the home market or to go where foreign business opportunities exist?
--Which global markets are most attractive?
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9. Figure 3-2 Steps in the Decision Process for Entering Global
LECTURE NOTES: Entering global markets involves a sequence of decisions.
• Step 1. “Go” or “no go”—is it in our best interest to focus exclusively on our home market or should we cast our net elsewhere as well?
• Step 2. If the decision is “go,” which global markets are most attractive? Which country or countries offer the greatest opportunity for us?
• Step 3. What market-entry strategy and thus what level of commitment is best? As we’ll see, it’s pretty low risk to simply export products to overseas markets, while the commitment and the risk is substantial if the firm decides to build and run manufacturing facilities in other countries (though the payoff may be worth it).
• Step 4. How do we develop marketing mix strategies in the foreign markets— should we standardize what we do in other countries, or develop a unique localized marketing strategy for each country?
Each of these decisions will be examined in more detail on the following slides.
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10. Deciding to Go Global
Must consider market conditions and competitive advantage when making a decision
Chinese firms such as Chery are now exporting their brands to other countries, including the U.S.
LECTURE NOTES:
In deciding whether or not to go global, a firm must consider both market conditions in the domestic and global markets, as well their competitive advantage. Typically, many firms decide to go global when domestic demand declines, particularly if demand in foreign markets seems to be growing.
Not all competitive advantages “travel well” when marketing products abroad while others offer an even stronger advantage abroad than they do domestically. For example, developing countries typically do not have the engineering expertise, highly trained workers, or high-tech facilities associated with many tech firms based in the U.S. Key U.S. exports include food, industrial supplies, tourism and entertainment.
Of course, it isn’t only Western countries that are going global. For years China was a huge export market for Western firms as consumers there began to prosper and crave foreign goods. Now the Chinese are turning the tables as they carve out a larger role in the global marketplace. Dozens of Chinese companies have global ambitions, including government owned Chery Automobile. Chery, founded in 1997, realizes that growth in its home Chinese market has slowed while competition has increased, and it sees opportunities around the globe. Chery has overseas plants in Iran, Russia, Ukraine, Indonesia, Egypt, and Uruguay; it plans to expand overseas assembly plants to include Argentina and India. Watch for a flood of new, low-priced cars from Asia—including one that features a karaoke player in the dashboard!
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11. Understand International, Regional and Country Regulations
Initiatives in international regulation and cooperation help trade
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
Protectionism restricts trade
Quotas, embargoes, and tariffs
Economic communities help to promote trade
LECTURE NOTES:
Unfortunately, even the most formidable competitive advantage does not guarantee success in foreign markets because the local government may “stack the deck” in favor of domestic competitors and which hinder foreign competitors from expanding into markets.
Two initiatives in particular have been helpful in reducing trade barriers:
General Agreement on Tariffs and Trade (GATT)
Following World War II, the United Nations created the this International treaty for the purpose of reducing import tax levels and trade restrictions.
World Trade Organization (WTO) Later, in 1984, GATT created the World Trade Organization. The World Trade Organization’s purpose is to supervise and liberalize international trade and WTO members account for over 97% of world trade. Its most important functions include overseeing the implementation, administration and operation of the covered agreements, as well as providing a forum for negotiation and for settling disputes. Unfortunately, product piracy abroad continues to be a problem, costing American firms millions of dollars annually.
WEBSITE NOTE: Visit the WTO for more information. In particular, it might be beneficial to look at the RESOURCES FOR STUDENTS (
Governments that enact a policy of protectionism set import quotas (, or use embargoes (trade prohibition with a country), or tariffs (taxes on imported goods) to restrict foreign competition.
Economic communities are composed of groups of countries that band together to promote trade among themselves while facilitating trade with countries outside of the community. From a marketing standpoint, economic communities are helpful in setting policies related to product content, advertising, and packaging labels. The most well known economic communities include NAFTA and the European Union. However, there are a number of other economic communities around the world, as shown in Table 3.1.
World Trade Organization
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12. Environmental Scanning Yields Opportunities
LECTURE NOTES:
Large packaged goods companies like Heinz continually scan the global environment to identify opportunities to sell their products in new markets. This ad is from Egypt.
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13. TECHNOLOGICAL ENVIRONMENT
ECONOMIC ENVIRONMENT
POLITICAL/LEGAL ENVIRONMENT
Global
Marketing Environment
COMPETITIVE ENVIRONMENT
SOCIOCULTURAL ENVIRONMENT
Deciding the depth of international involvement requires careful attention to the relevant environmental dimensions
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14. The Economic Environment: Indicators of Economic Health
Key economic indicators:
Gross domestic product (GDP): Total dollar value of goods/services a country produces within its borders in a year
Gross national product (GNP): Value of all goods and services produced by a country’s citizens or organizations
Economic infrastructure Quality of country’s distribution, financial, and communications systems
LECTURE NOTES:
Marketers need to understand the state of the economy from two different perspectives: (1) the overall economic health and level of development of a country, and (2) the current stage of its business cycle.
GDP is the most commonly used measure of economic health – the higher, the better. Of course, GDP alone does not provide the information marketers need to decide if a country’s economic environment makes for an attractive market. They also need to consider whether they can conduct “business as usual” in another country. The economic infrastructure refers to the quality of a country’s distribution, financial, and communications systems. For example, in poorer countries without good road systems, sellers may use donkey carts, hand trucks, or bicycles to deliver goods to the many small retailers who are their customers. A marketer of perishable goods should be very concerned about the viability of entering into a such a market.
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15. Table 3-2 Selected Comparisons of Economic and Demographic Characteristics
LECTURE NOTES:
For example, this table was created based on data that can be found within the World Fact book website. Does any of the information shown here surprise you?
Per capita GDP is computed by taking the total GDP and dividing it by the number of people in a country. The per capita GDP is often the better indicator of economic health since it is adjusted for the population size of each country.
DISCUSSION NOTE: Students may be surprised at the size of the poverty levels for China versus the other countries shown, particularly the U.S. The birthrate per 1000 population may also be of interest.
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16. The Economic Environment: Level of Economic Development
Least developed country (LDC)
Economic base is often agricultural
Developing countries
Economy shifts emphasis from agriculture to industry
Developed countries
Offer wide range of opportunities for international marketers
LECTURE NOTES:
When marketers scout the world for opportunities, it helps if they consider a country’s level of economic development to understand the needs of people who live there and the infrastructure conditions with which they must contend. In doing so, they also look at what steps the country is taking to reduce poverty, inequality, and unemployment. Analysts also take into account a country’s standard of living, which is an indicator of the average quality and quantity of goods and services a country consumes. Based on these factors, the level of economic development of a particular nation can be determined.
Least developed countries are at the lowest stage of economic development. Standard of living is low, and such countries represent poor choices for firms to seeking to market discretionary items and luxury products. Agriculture often forms the basis of the economy. Opportunities for expansion into these types of countries are limited to firms that sell inexpensive goods that are staples (e.g., rice) or otherwise related to necessities (cloth for clothing).
When an economy shifts its emphasis from agriculture to industry, standards of living, education, and the use of technology rise. These countries are developing countries. Currently, developing countries are strong markets for products such as PCs. Marketers also see such countries as the future for products related to skin care and mobile phones. Brazil, Russia, India and China are amongst the largest developing countries, and are commonly referred to as BRIC countries.
Developed countries include as the U.S., United Kingdom, Canada, Australia, France, Italy, Germany and Japan and as such are the most sophisticated markets available offering a variety of lucrative opportunities to global marketers. Collectively, these countries are often referred to as the Group of Eight, or G8 for short.
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17. The Economic Environment: The Business Cycle
All economies go through periods of:
Prosperity
Recession
Recovery
Depression
Inflation
Do sales of all goods and services suffer in a recession? If not, name some goods and services that may in fact sell better during a recession than during times of prosperity.
LECTURE NOTES:
The business cycle describes the overall pattern of changes or fluctuations of an economy.
All economies go through cycles of prosperity (high levels of demand, employment, and income), recession (falling demand, employment, and income), and recovery (gradual improvement in production, lowering unemployment, and increasing income). A severe recession is a depression, a period during which prices fall but there is little demand because few people have money to spend and many are out of work Inflation occurs when prices and the cost of living rise while money loses its purchasing power because the cost of goods escalates.
The business cycle is especially important to marketers because of its effect on customer purchase behavior. During times of prosperity, consumers buy more goods and services.
DISCUSSION NOTE #1: Ask students to identify what the economy is doing now in their state. Then visit and review the data shown to identify states and countries that are currently in recession. It might also be worthwhile to show students the variety of information available on the economy.com website.
DISCUSSION NOTE #2: Not all products and services suffer during a recession. The text describes how dollar stores and frozen foods enjoyed strong sales during the recession of Challenge students to identify some other instances where people might opt for less expensive alternatives (e.g., fixing a car, or buying a used vehicle rather than a new car).
Economy.com
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18. Competitive Environment
An increasing number of firms around the globe engage in competitive intelligence (CI) activities, the process of gathering and analyzing publicly available information about rivals. The firm uses this information to develop superior marketing strategies
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19. The Competitive Environment: Analyzing the Market and Competition
Competitive intelligence: Gathering and analyzing publicly available information about rivals to develop superior marketing strategies
Collected from news media, the Internet, and publicly available government documents
LECTURE NOTES:
A second important element of a firm’s external environment is the competitive environment. Competitive intelligence is one method that firms use to assess the strengths and weaknesses of the competition, or their marketing strategies. Most information is available from free sources such as those shown here. A more controversial source of information is called dumpster diving, which as the name suggests, involves going through competitors trash in order to access potentially private information. CI activities provides marketers with a variety of information that can be helpful in identifying a firm’s competitive advantage, and developing marketing strategy.
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20. The Competitive Environment: Competition in the Microenvironment
Competition for consumer’s discretionary income
Product competition
Brand competition
Name some examples of competition at each level for the iPhone.
LECTURE NOTES:
Competition at the microenvironment occurs at three different levels:
1) At the broad level, marketers compete for consumer’s discretionary income (the money left over after people have paid for necessities). This level of competition includes ALL possible uses – for example, a consumer might choose to make a larger payment on a credit card, spend discretionary funds buying a new cell phone, eating out at a restaurant, or attending a movie.
2) Product competition: Competition at this levels consists of alternate products that satisfy the same consumer’s needs/wants. For example, an individual desiring Internet access has the choice of DSL or satellite internet.
3) Brand competition: The most direct form of competition occurs among brands offering similar goods/services (with respect to perceived benefits).
DISCUSSION NOTE:
Discretionary income competition – could be literally anything
Product competition – land-based phone systems, Internet based phone systems (VOIP),
Brand competition – Students should have no trouble listing the brand names of a variety of smart phones
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21. The Competitive Environment: Competition in the Macroenvironment
Competition in the macroenvironment (overall structure of industry)
Monopoly
Oligopoly
Monopolistic competition
Perfect competition
LECTURE NOTES:
Competition within the macroenvironment relates to the overall structure of the industry.
Monopoly: A monopoly exists when one seller controls a market. Because the seller is “the only game in town,” it feels little pressure to keep prices low or to produce quality goods or services. Within the U.S., monopolies are limited as they violate antitrust regulations and limit competition. Utility companies that serve a given area are probably the closest example of a monopoly in the United States.
Oligophies: In an oligopoly, there are a relatively small number of sellers, each holding substantial market share, in a market with many buyers. Because there are few sellers, the actions of each directly affect the others. Airline industries would be an example.
Monopolistic competition occurs when there are many sellers who compete for buyers in a market. Each firm, however, offers a slightly different product, and each has only a small share of the market. This form of competition probably best characterizes the overall structure that competition takes within the U.S.
Perfect competition: exists when there are many small sellers, each offering basically the same good or service. In such industries, no single firm has a significant impact on quality, price, or supply. Perfect competition is truly rare. Agricultural markets may be the closest example.
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22. The Technological Environment
Technology:
Provides firms with important competitive advantages
Profoundly affects marketing activities
Can transform industries
Patent:
Legal document giving inventors exclusive rights to produce/sell a particular invention in that country
LECTURE NOTES:
The technological environment profoundly affects marketing activities and can provide firms with an important competitive advantage. Of course, the Internet and continuing innovations in Internet applications is the biggest technological change in marketing. For example, it’s affected distribution by allowing some firms to sell direct while reaching a much larger market. It has also created an entirely new venue for marketing communications, including , banner ads, web sites, social networking. Technology can transform industries making existing products obsolete. Think about the music industry as an example – your parents listened to vinyl records and eight track tapes, technologies which have been replaced now by digital formats.
When firms develop a new process or implement a new technology in the creation of a product, they typically apply for a patent as a means of protecting their investment.
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23. Roadblocks at the border
Often a company’s efforts to expand into foreign markets are hindered by roadblocks designed to favor local businesses over outsiders.
Examples of roadblocks are Quotas, Embargoes, and Tariffs
Many governments set import quotas on foreign goods to reduce competition for their domestic industries. Quotas can make goods more expensive to a country’s citizens because the absence of cheaper foreign goods reduces pressure on domestic firms to lower their prices.
An embargo is an extreme quota that prohibits specified foreign goods completely.
Governments also use tariffs, or taxes on imported goods, to give domestic competitors an advantage in the marketplace by making foreign competitors’ goods more expensive than their own products.
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24. The Political and Legal Environment: Political Constraints on Business
Retaliatory actions against American businesses sometimes occur as a result of political activity or war
Political constraints on trade are commonly imposed:
Economic sanctions
Nationalization
Expropriation
LECTURE NOTES:
Political actions of a government often constrain business. For example, invasions, wars, and even actions such as a newspaper printing cartoons that highly offend those of a certain nationality or religion can trigger retaliatory action around the globe. In such times, it’s common for symbols of the offending country’s culture, like McDonald’s Golden Arches for the U.S., to be the first target of boycotts, demonstrations, vandalism, and in some cases destruction.
Beyond these types of actions or of course a declaration of war, commonly imposed constraints include economic sanctions, nationalization, and expropriation.
Economic sanctions prohibit trade with another country and cut off access to markets (as the United States has done with several countries, including Cuba and North Korea). Although serious in nature, economic sanctions can be lifted over time.
Nationalization occurs when a domestic government takes over the businesses and facilities of a foreign entity doing business within it’s borders, and reimburses the foreign company (often not for the full value).
Expropriation is even more serious, and happens when a domestic government seizes a foreign company’s assets without any reimbursement.
While the potential for any of these actions occurring in a global market cannot be predicted with 100% accuracy, it certainly needs to be considered. Firms that have frequent regime changes are particularly worrisome. To keep track of the level of political stability or instability in foreign countries, firms often engage in formal or informal analyses of the potential political risk in various countries, or hire specialized consulting firms to do this for them.
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25. The Political and Legal Environment: Regulatory Constraints on Business
Regulatory constraints on trade often restrict the marketing of goods
Local content rules
Human rights issues may limit foreign countries’ business opportunities
LECTURE NOTES:
Governments and economic communities regulate what products are allowed in the country, what products should be made of, and what claims marketers can make about them. For example, local content rules are a form of protectionism that stipulates a certain proportion of a product must consist of components supplied by industries in the host country or economic community. For example, under NAFTA rules, cars must have 62.5 percent of their components made in North America to be able to enter Mexico and Canada duty-free.
Some governments and companies actively try to protect human rights by denying business opportunities to countries that mistreat their citizens. (For example, those that use child labor or which pay wages far below local poverty levels).
The U.S. Generalized System of Preferences (GSP) is a program Congress established to promote economic growth in the developing world. GSP regulations allow developing countries to export goods duty-free to the United States. The catch is that each country must constantly demonstrate that it is making progress toward improving the rights of its workers
While some people think it’s not our government’s place or a business’s place to dictate how other countries or firms treat their citizens, establishing work conditions standards for foreign business partners is not only the ethical and socially responsible thing to do, it’s also a smart business practice as abuse of foreign labor in the construction of American goods can make for very bad publicity at home.
For example, in 2007, Gap again faced disturbing publicity when news reports surfaced that an Indian company forced children as young as 10 years old to work 16 hours a day for no pay to hand-embroider decorations on blouses for Gap Kids. Gap, embarrassed by the reports, established a grant of $200,000 to improve working conditions, pay back wages, and provide an education for the children.
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26. The Sociocultural Environment
Key sociocultural considerations:
Demographics
Cultural values
Individualism
Collectivism
Social norms and customs
Language
Ethnocentrism
LECTURE NOTES:
The sociocultural environment refers to the characteristics of the society, the people who live in that society, and the culture that reflects the values and beliefs of the society. Whether at home or in global markets, marketers need to understand and adapt to the customs, characteristics, and practices of its citizens as these factors affect people’s responses to products and promotional messages in any market.
Demographics: Examining statistics that measure observable aspects of the population, including its size, age, gender, ethnicity, income, education, occupation and family structure is the first step in this process, as it helpful in predicting the size of markets for many products. The use of demographics is discussed in more detail in Chapter 7.
Cultural values every society has a set of cultural values, or deeply held beliefs about right and wrong ways to live, that it imparts to its members. Differences in values between one country and another often explains why marketing efforts that are a big hit in the U.S. can flop abroad. For example, One important dimension on which cultures differ is their emphasis on collectivism versus individualism. In collectivist cultures, such as those we find in Venezuela, Pakistan, Taiwan, Greece, and others, people tend to subordinate their personal goals to those of a stable community. In contrast, consumers in individualist cultures, such as the United States, Australia, Great Britain, Canada, and the Netherlands, tend to attach more importance to personal goals than they do to those of the larger community. This difference can be a big deal to marketers who appeal to one extreme or the other—try selling a garment that is “sure to make you stand out” to consumers who would much prefer to “fit in.”
Social norms are specific rules dictating what is right or wrong, acceptable or unacceptable. Norms flow from values and dictate how people within a country dress, speak, and otherwise behave. For example, beef is taboo in India, while few Americans could even stomach the though of eating dog meat or horsemeat, food which is common elsewhere abroad.
Customs are related to norms. In the contest of meals, a custom would dictate when dinner should begin (6 pm or 7 pm in the U.S. vs. 9 pm or later in Europe.) Customs can also relate to things such as eye contact, personal space, and whether giving one kiss or two on the cheek is a proper greeting. Marketers who don’t know the local customs when working abroad are at a severe disadvantage in transacting businesses.
Language barriers can be very problematic, particularly when slogans or brands names are “literally” translated from one language to another. The textbook discussed several examples of poorly translated phrased that misrepresent the intended message. For example, when Coors Brewing Company put its slogan, "Turn it loose" into Spanish; it was read as "Suffer from diarrhea". Thus it’s vital for marketers to work with local people who understand the subtleties of language to avoid confusion.
Finally, it’s important to understand that ethnocentrism is common. Ethnocentrism is the tendency to prefer products or people of one’s own culture. In many countries, the willingness to try goods made in other countries comes slowly.
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27. Market Entry Strategies
Exporting
Contractual Agreements
Strategic Alliances
Direct investment
COMMITMENT - RISK
Exporting: a firm sells its products in global markets and cushions it against downturns in its domestic market. A firm can sell its products on its own or rely on intermediaries to represent it in the target country.
Contractual Agreements: with a company in the foreign country to conduct some or all of its business there.
Strategic Alliance: a joint venture with one or more domestic firms in the target country. Strategic alliances allow companies easy access to new markets, especially because these partnerships often bring with them preferential treatment in the partner’s home country.
Direct Investment: A firm expands internationally through ownership, usually by buying a business in the host country outright. Instead of starting from scratch in its quest to become multinational, buying part or all of a domestic firm allows a foreign firm to take advantage of a domestic company’s political savvy and market position in the host country.
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28. Table 3.6 Market Entry Strategies
LECTURE NOTES:
Exporting: If a firm chooses to export, it must decide whether it will attempt to sell its products on its own or rely on intermediaries to represent it in the target country. These specialists, or export merchants, understand the local market and can find buyers and negotiate terms. The advantages and disadvantages of exporting and other strategies are displayed on the slide.
Contractual Agreements: The next level of commitment a firm can make to a foreign market is a contractual agreement with a company in that country to conduct some or all of its business there. Two of the most common forms of contractual agreements are licensing and franchising:
In a licensing agreement, a firm (the licensor) gives another firm (the licensee) the right to produce and market its product in a specific country or region in return for royalties on goods sold.
Franchising is a form of licensing that gives the franchisee the right to adopt an entire way of doing business in the host country. Again, there is a risk to the parent company if the franchisee does not use the same-quality ingredients or procedures, so firms monitor these operations carefully.
Firms that choose to develop an even deeper commitment to a foreign market enter a strategic alliance with one or more domestic firms in the target country. These relationships often take the form of a joint venture in which two or more firms create a new entity to allow the partners to pool their resources for common goals.
Direct investment: An even deeper level of commitment occurs when a firm expands internationally through ownership, often when it buys a business in the host country outright. Instead of starting from scratch in its quest to become multinational, buying part or all of a domestic firm allows a foreign firm to take advantage of a domestic company’s political savvy and market position in the host country.
Evaluating WHICH market-entry strategy is most appropriate for a given country can be difficult, and firms often rely on assessments of country risk. Country risk is “the threat that a country will become politically or economically unstable.” One source of information that can be very helpful is the Country Risk Web site, which can be found at
WEB SITE NOTES: The Web site is divided into several sections. The Guide section of the site serves as a portal to other Web Country resources. Specifically, visitors to this Web site can find background information, ratings on a variety of topics, and helpful statistics. Corruption ratings, political stability information, and many other helpful pieces of information are available on the site. Also of interest in the Reviews section of the Web site provides both editorial and user contributed country analyses.
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29. How “Global” Should a Global Marketing Strategy Be?
Product-level decisions: the marketing-mix strategy:
Standardization vs. localization
Standardization: Offer the same products in all markets
Localization: Offer a customized marketing mix for each country
LECTURE NOTES:
In addition to “big picture” decisions about how a company will operate in other countries, managers must decide how to market their product in each country. They may need to modify the famous Four Ps—product, price, promotion, and place—to suit local conditions. This decision boil down to a choice between following a policy of standardization or localization for the marketing mix strategy.
If a standardization strategy is chosen, the same strategy used in the home market is applied in the same way abroad. Proponents of standardization argue that the world has become so small that basic needs and wants are the same everywhere, so why not enjoy economies of scale by spreading the costs of product development and promotional materials across multiple markets?
In contrast, those in favor of localization feel that the world is not that small; you need to tailor products and promotional messages to local environments. These marketers feel that each culture is unique, with a distinctive set of behavioral and personality characteristics.
Once the basic strategy of standardization or localization is chosen, it’s time to tweak the marketing mix.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

30. How “Global” Should a Global Marketing Strategy Be?
Tweaking the marketing mix
Product decisions:
Straight extension strategy
Product adaptation strategy
Product invention strategy
Backward invention
Promotion decisions:
Whether or not to modify
LECTURE NOTES:
A firm has three choices when it decides on a product strategy:
1. Sell the same product in the new market.
2. Modify it for that market.
3. Develop a brand-new product to sell there.
A straight extension strategy is used when a firm offers the same product in both domestic and foreign markets.
A product adaptation strategy occurs when a firm offers a similar but modified product in foreign markets.
The product invention variation requires a firm to develop a new product for foreign markets.
By contrast, backward invention occurs when a firm develops a less advanced product to serve the needs of people living in countries without electricity or other elements of a developed infrastructure.
Promotion Decisions: Marketers must also decide whether it’s necessary to modify how they speak to consumers in a foreign market. Some firms endorse the idea that the same message will appeal to everyone around the world, while others feel the need to customize it. As you might expect, many marketers at least choose to translate the message into the dominant language, but the prevalence of English world wide does allow marketers the flexibility of running an English language ad globally. However, clever ad executions can avoid the language barrier entirely. During the 2006 World Cup, MasterCard ran ads that appeared in 39 countries, so its ad agency came up with a spot called “Fever,” in which 100-odd cheering fans from 30 countries appear. There’s no dialogue, so it worked in any language.
VIDEO NOTES:
The Monster.com video features Ted Gelvar, Global Marketing officer for Monster.com discussing product decisions in the context of Monster’s entry into the Chinese market.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.

31. How “Global” Should a Global Marketing Strategy Be?
Tweaking the marketing mix
Price decisions:
Products are often more expensive to produce for foreign markets
Free trade zones
Gray market goods
Dumping
Distribution decisions:
Getting the product to remote locations is often difficult
LECTURE NOTES:
Price decisions You may be surprised to learn that it is often more expensive to manufacture a product IN a foreign market than at home. This is because there are higher costs stemming from transportation, tariffs, differences in currency exchange rates, and the need to source local materials.
To ease the financial burden of tariffs on companies that import goods, some countries have established free trade zones. These are designated areas where foreign companies can warehouse goods without paying taxes or customs duties until they move the goods into the marketplace.
Costs are important of course, because the influence the ultimate price set for the product. One danger of pricing too high is that competitors will find ways to offer their product at a lower price, even if they do so illegally. Gray market goods are items that are imported without the consent of the trademark holder. While gray market goods are not counterfeit, they may be different from authorized products in warranty coverage and compliance with local regulatory requirements. For example, some of you may have gotten your hands on the International version of the textbook for this course, which is only supposed to be sold outside of the U.S. This would be an example of a gray market good.
Another unethical and often illegal practice is dumping, in which a company prices its products lower than it offers them at home. This removes excess supply from home markets and keeps prices up there.
Distribution Decisions Getting your product to consumers in a remote location can be quite a challenge. It’s essential for a firm to establish a reliable distribution system if it’s going to succeed in a foreign market. For example, in least developed countries, marketers may run into problems when they want to package, refrigerate, or store goods for long periods.
© 2012 Pearson Education, Inc. publishing as Prentice-Hall. 31

32. Group Activity
Formulate either a brief standardized or local strategy in a foreign country (of your choice) for a product:
Make a SLEPT analysis
Describe how the it will affect weather to chose standardized or localized strategy
Explain your strategy (the marketing mix).