Chapter Sixteen: Global Marketing Chapter Objectives 1. Identify the factors that aid the growth of globalization 2. Explain the components of a country market assessment 3. Describe the various market entry strategies 4. List the similarities of and differences between a domestic marketing strategy and a global marketing strategy 5. Explain how ethical issues affect global marketing practices Annotated Chapter Outline PowerPoint Slides Instructor’s Notes The chapter objectives and roadmap are intended to help students understand the content to be discussed. Opening Vignette: Just Don’t do Yoga, Be Yoga! In less than a decade, RIM, the Canadian manufacturer of the BlackBerry, has expanded into 175 countries with over 50 million customers and established partnership relationships with over 550 telecom carriers. Currently, the most of its revenues come from outside of North America. This phenomenal growth is attributed to its superior technology and marketing prowess. Ask Students: Can RIM continue this phenomenal global growth in the coming decade? Topic One: The Growth of the Global Economy—Globalization of Marketing and Production I. Globalization Encompasses a Variety of Developments A. The globalization of production (offshoring) refers to manufacturers’ procurement of goods and services from around the globe to take advantage of national differences in the cost and quality of various production elements. Although it initially affected production alone, offshoring recently has expanded to include services as well. As the text notes, countries such as India have benefited extensively from the globalization of production. With a large, educated workforce India has been able to attract firms from across the world to locate operations there. These operations represent a wide variety of industries from banking to medicine and include insurance, accounting, radiography, etc B. The General Agreement on Tariffs and Trade (GATT) was designed to lower trade barriers that inhibit the free flow of good across borders. C. The International Monetary Fund (IMF), part of the original GATT, focuses primarily on maintaining the international monetary system. D. The World Trade Organization (WTO), which replaced GATT, is the only international organization that deals with global trade among nations in an attempt to ensure that trade flows as smoothly, predictably, and freely as possible. Facilitating trade across borders is not easy, especially when countries have conflicting regulations that impede trade. If possible, visit the two websites and walk students through their FAQ pages to address common questions about each organization. Topic Two: Assessing Global Markets I. The Assessment of Different Markets Relies on Four Criteria A. Political-legal environment: Focus on political and legal restrictions that would either impede or facilitate global commerce. B. Economic environment: Focuses on factors such as demand and supply conditions C. Social-cultural environment: Looks at cultural factors affect or create business opportunities D. Technological environment: Looks supporting infrastructure, technical development, sophistication of labour, and degree of technological innovations in the market. Any entry into a new market, especially into a new country, requires careful planning. A formal market assessment prevents firms from making costly mistakes. Ask Students: Where do companies get information about the PEST conditions in other countries? A. Analyzing Political and Legal Conditions Remind students that this category includes not just the impact of governmental actions but also those of nongovernmental organizations (NGOs). 1. A tariff (duty) is a tax levied on a good imported into a country. a. Tariffs protect domestic industries from foreign competition or penalize other countries for their trade practices. b. Dumping refers to selling a good in a foreign market at a price that is lower than its domestic price or below its cost. 2. Quotas designate the maximum quantity of a product that may be brought into a country during a specified period. Trade negotiations often revolve around reducing or eliminating tariffs, quotas, or similar impediments to trade. Discuss the recent trade battles between Canada and the U.S. (e.g. softwood lumber.) Many foreign producers accuse the United States of limiting market access through unfair tariffs and quotas, whereas the United States insists that it must protect U.S. industries. Ask students: What do you think? Which side would you take in this debate? 3. A boycott pertains to a group’s refusal to deal commercially with a specific organization to protest its policies. For U.S. firms, their country’s unpopular war and controversial foreign policy has led to increasing tension abroad. Many consumers take out their frustration on U.S.-made goods and services. Ask students: Have you ever boycotted a product? What would prompt you to participate in or call one? Consumers are likely to call a boycott if they believe that a marketing practice is unethical or unfair to group of individuals. For example many students demanded that their universities boycott Nike products for their sports teams in protest of Nike’s labour practices. Both governments and independent groups call boycotts. The hyperlink to Ethical Consumer offers a list of current boycotts by various groups. 4. Exchange control refers to the regulation of a country’s currency. a. Exchange rate is the measure of how much one currency is worth in relation to another. b. Countertrade is the trade of goods for other goods, not hard currency, between countries. The Central Bank of a country generally regulates its currency. Many countries try to keep their markets attractive to foreign investors while simultaneously making their goods attractive to foreign buyers through exchange control. Ask students: If the value of the Canadian dollar goes up compared to other currencies, what happens to international trade? Answer: Canadian businesses and consumers will buy more imports, but since the dollar is worth more, exports will go down. 5. Trade agreements are designed to manage and promote trade activities among countries within a specific region. a. Countries that who have signed a trade agreement constitute a trading bloc. Ask students: What trade agreements have you heard of? Can you think of an existing trading bloc? What benefits does belonging to a trading bloc offer members? Answer C b. The European Union is an economic and monetary union that currently contains 25 countries. i. The EU represents a significant restructuring of the global marketplace. ii. All countries in the EU use a single currency, the Euro. c. The North American Free Trade Agreement (NAFTA) covers trade-related issues among the United States, Canada, and Mexico. d. The Central American Free Trade Agreement (CAFTA) exists among the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. e. Mercosur, which means Southern Common Market, covers most of South America. f. The Association of Southeast Asian Nations (ASEAN) aims to build economic stability and lower trade restrictions among its six Asian member nations. Group activity: Brainstorm about how the introduction of a single currency affected various marketing aspects in the EU. The conversion to the Euro presented serious concerns for marketers, most of which have been resolved. But in France, retailers still list prices in both Euros and the now defunct French Franc, which allows consumers, especially older consumers, to make better purchasing decisions. Since the Euro is used across all EU countries, it makes pricing a challenge. Many items do not sell for the same price across the EU. Will different Euro prices irritate consumers? However, having one currency across all EU countries does facilitate trade. For instance, tourists across the EU find it easier to gauge value when everything is priced in Euros. 6. Political Risk Analysis Firms calculate political risk analysis – assessing the political, socioeconomic, and security risks of doing business with a country Ask Students: Make a list of the factors that might be considered as part of calculating political risk. How will the weight the different factors? B. Economic analysis 1. The greater the wealth of a country, the better are the firm opportunities in that particular country, in general. 2. Three major factors determine wealth. a. Overall economic environment. b. Population size and growth rate. c. Real income. A three-part economic analysis indicates whether the country market offers the firm an attractive target. 3. The general economic environment can be measured in various ways. a. A trade deficit occurs when a country imports more than it exports. b. Gross domestic product (GDP), the most widely used measure of economy, reflects the market value of the goods and services produced by a country in a year. c. Gross national income (GNI) consists of GDP plus the net income earned from investments abroad and minus any payments made to nonresidents who contribute to the domestic economy. Each of these standardized measures allow for comparisons across countries. The use of each depends on specific circumstances. Many reports now feature GNI rather than GDP, because it includes the economic impact of firms that earn income from their global operations, unlike GDP, which dramatically undercounts the impact of those activities on the economy of the firms’ home markets. d. The theory of purchasing power parity (PPP) states that if the exchange rates of two countries are in equilibrium, a product purchased in one costs the same in the other, if expressed in the same currency. This index often is called the Big Mac index. Why? What other products could PPP use? Ask students: Why might this measure be important to marketers? A Starbucks Tall Latte index now exists as well. e. Developed by the UN, the human development index (HDI) provides a composite measure of three quality-of-life indicators: i. Life expectancy at birth. ii. Educational attainment. iii. Average incomes, measured by PPP, sufficient to meet the basic needs of life in that country. iv. Scales from 0 to 1. The HDI goes beyond traditional economic measures and considers people’s ability to afford subsistence. Many Western nations score close to 1, whereas many African nations earn the lowest scores in the world. 3. Market size and population growth rates vary; the world’s population is growing dramatically, but that growth has not been equally dispersed. The population of Canada will reach over 33 million people by July 2008. Although that may seem like a large number, other countries are growing at much faster rates. Some Western nations face serious population shortages and will have to rely on immigration to maintain their employment levels. Ask students: Why do India and China offer opportunities for marketers? What about other high population countries, such as some African countries? Answer: Although population and population growth may be important criteria for marketers to consider when entering a market, it must be considered along with other factors such as buying power and income. 5. To design the appropriate marketing mix, marketers must take the real income of persons within a country into consideration. Successful firms make their products accessible to average buyers, which in many countries means offering products in smaller portions that make them affordable. Two thirds of the Chinese population earns less than $25 a month so P&G repackaged its Head & Shoulders shampoo in single-use packets to make it affordable and allowing Head & Shoulders to become the top-selling shampoo in China. Group activity: Break students into groups. Have each group choose a less developed country for a new marketing venture. Then have each group represent a firm considering marketing a new product or service in that country. What adjustments would they have to make to their marketing strategy to be successful with their new venture? C. Analyzing sociocultural factors 1. Culture includes the values, guiding beliefs, understandings, and way of doing things that members of a society share. 2. Culture exists on two levels: visible artifacts and underlying values. Perhaps no other aspect of globalization has posed more difficulties to marketers than culture. Outsiders often have trouble understanding the detailed meanings associated with proper communication in a foreign culture. 3. Hofstede defined several cultural dimensions that marketers use to characterize a culture. a. Power distance: Willingness to accept social inequality as natural. b. Uncertainty avoidance: The extent to which a society relies on orderliness, consistency, structure, and formalized procedures to address daily situations. c. Individualism: Perceived obligation to and dependence on groups. d. Masculinity: The extent to which dominant values are male oriented. e. Time orientation: Short versus long-term orientation. Hofstede’s cultural dimensions offer an effective understanding of the subtle elements of a culture. Taken together, these dimensions enable marketers to group countries together according to their similarity on these dimensions and therefore engage in more efficient planning. Ask students: How would you characterize Canadian culture on these dimensions? How would you characterize other cultures with which you are familiar? D. Analyzing infrastructure and technological capabilities 1. Infrastructure includes the basic facilities, services, and installations needed for a community or society to function. 2. The infrastructure includes transportation, distribution channels, communication, and commerce. A firm’s ability to conduct business in a particular country is in large measure determined by that country’s infrastructure. Group activity: Continue with the group activity above. Have students assess how the current infrastructure in their chosen country will affect the success of their new venture. Answer A Topic Three: Choosing a Global Entry Strategy I. Exporting: Produce goods in one country and sell them in another. Although it entails the least financial risk, it allows for only limited returns. II. Franchising: A contractual agreement between a franchisor and franchisees. The franchisee uses the business name and format developed by the franchisor. III. Strategic Alliance: Collaborative relationship between independent firms in which the firms do not invest in each other. IV. Joint Venture: A foreign firm pools its resources with those of a local firm to form a new company with shared ownership, control, and profits. V. Direct Investment: The firm maintains 100% ownership of its plants, facilities, and offices in the foreign country, often in the form of wholly owned subsidiaries. In each strategy, the risks and rewards change. As risk increases, so do the potential rewards. Exporting represents the lowest risk level for the firm. Group activity: Divide into groups that represent different firms. Each group should outline its product offering and the entry strategy it would choose for its global strategy. Ask students: Why is your chosen entry strategy appropriate for your offering? What criteria did you use to determine your strategy? What risks does your strategy entail, and are the potential rewards worth those risks? Entrepreneurial Marketing 16.1 A Place that Really Hits the Spot In 2008, White Spot opened its first international store in Hong Kong through franchising. The store has been doing well. Ask Students: Why did White Spot choose to enter the Hong Kong market through franchising rather that direct investment or joint venture? Topic Four: Choosing a Global Marketing Strategy I. Segment, Target, and Position in the Target Market. A. Firms may need to alter the positioning of their products in global markets. 1. A single positioning strategy maintains one message. 2. Alternatively, firms may adapt their message to meet local needs. Adjusting the marketing mix and positioning strategy to meet the needs of a new market may represent the most complex topic for global marketing. Chapter Eight discusses segmentation, targeting, and positioning in greater detail. Group Activity: Divide the class into groups. Have them choose a product that they want to introduce into another country. (It may be the same product/firm they used in previous group activity). Have students consider how they would adapt their positioning strategy in the new country. Answer C Case-in-Point Series Entering countries becomes particularly difficult when consumers in that country need to be educated about how to use a particular product. This slide sets up the Case in Point that follows. . By introducing a product that required very little consumer involvement, Nestlé influenced coffee consumption in China. With the 3-in-1 packet, consumers simply added water and automatically had an appealing mix of coffee, creamer, and sugar that met local tastes. II. Define the Global Marketing Mix A. Global product and service strategies can: 1. Sell the same product or service in both the home and the host country market. 2. Sell a similar product or service but include minor adaptations for the host market. 3. Sell totally new products or services. B. Despite some persistent differences, marketers are finding growing convergences in tastes and preferences for many product categories. Ask Students: What products are the easiest to standardize? What makes these products standardizable? Products at the extreme ends of high tech (i.e. electronics, computers, software versus paper and pencil) or high touch (i.e. luxury goods, jewellery versus staple products) continuums are easy to standardize, but those in the middle generally require varying levels of adaptation to local markets. As MTV expanded, it has learned how to balance its global and local content to offer the optimal mix to its viewers. MTV initially took a global standardization approach but quickly learned that cultural differences required various adaptations. In its search for local content, MTV has focused on traditional local music and introducing it to younger audiences. Ask students: What MTV programming do you watch that you think might not be successful in another country? What would be successful? Case-in-Point Series Despite a firm’s best efforts, sometimes an international entry strategy simply does not succeed. At that point, the firm must decide when it should exit the market. This slide sets up the Case in Point that follows. The largest U.S. retailer has had difficulty positioning itself in other countries. Wal-Mart recently exited Germany due to a host of problems. Even Wal-Mart’s everyday low price strategy caused problems in the highly protectionist German marketplace. Wal-Mart is also struggling in Japan where its low price strategy is associated with low quality. Despite its exit from some international markets, Wal-Mart continues to thrive in others. As this lesson shows, every single market is different. C. Global pricing strategies require a careful consideration of different countries’ rules governing the marketplace, as well as the effect of 1. Tariffs. 2. Quotas. 3. Anti-dumping laws. 4. Currency exchange policies. In addition to competitive, cost, and other considerations, global pricing involves additional dimensions that increase its complexity. D. Global distribution strategies determine the length and complexity of the distribution channel by establishing the number of partner firms the seller needs to get its merchandise to the end consumer. Delivering products to local retailers can be incredibly difficult and frustrating. Infrastructure issues often prevent traditional distribution methods and require creative adjustments. Global firms must find distribution strategies that enable them to reach even really remote markets. For instance, Avon sells and delivers cosmetics to customers in the Amazon using canoes. This example could also prompt an ethical discussion on whether or not firms should be marketing hedonic products or services to consumers with very little disposable income. Answer C E. Global communication strategies must consider variations across countries, including 1. Literacy levels. 2. Media availability. 3. Advertising regulations. 4. Languages. 5. Culture 6. Customs. Ask students: How do firms market their products in countries with very low literacy levels? Imagine you are promoting a new soft drink. How would you do it without written communication? Topic Five: Ethical Issues in Global Marketing (LG5) I. Environmental Concerns Increase with Greater Industrialization. A. In particular, waste management, in terms of the amount of waste a firm generates and how it disposes of its waste, has become a crucial topic. B. Global warming continues to dominate many political dialogues. According to the author and commentator Thomas Friedman, the next global growth industry will be green industries, that is, firms that produce scalable green technologies. Ask students: Do you agree? II. Global Labour Issues Cannot be ignored in Developing Countries. A. Working conditions. B. Wages. C. Child labour. Global firms must address the issue of who produces their products—literally, factory workers in developing countries. Most manufacturers do not own the plants in which workers create their goods and therefore must negotiate with factory owners to bring the factory into compliance with global labour standards. Many firms are partnering with labour advocates to improve working conditions and wages. Ask students: Would you buy a product that was made in a factory in another country that you knew paid unfair wages, had poor working conditions, and/or used child labour if it were significantly less expensive than a similar product made under environmentally friendly conditions? III. Globalization Has a Significant Impact on the Host Country Culture. A. Cultural imperialism refers to the belief that one’s own culture is superior to that of other nations. B. Critics of U.S. firms that enter foreign markets claim that U.S. products and services often overwhelm the local culture and replace it with cultural artifacts of the West. How do countries balance their competing desires to participate in the global economy while still holding on to their traditional cultures and lifestyles? This question lies at the heart of the globalization debate. There is no easy answer, and future generations will continue to deal with these enduring challenges. Instructor Manual for Marketing Dhruv Grewal, Michael Levy, Shirley Lichti, Ajax Persaud 9780071320382, 9780070984929
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