Chapter Seventeen: Global Marketing TOOLS FOR INSTRUCTORS • Learning Objectives • Annotated Chapter Outline with Instructor’s Notes/Teaching Tips • Answers to End of Chapter Learning Aids Concept Review Marketing Application Questions Net Savvy • Chapter Case Study • Video Activities Learning Objectives 1. Explain the components of a country market assessment 2. Understand the marketing opportunities in BRIC countries 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 Chapter 17 will focus on Global Marketing. These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides. Opening Vignette: Colgate around the world Colgate-Palmolive is a $17 billion company that provides oral, personal and home care and pet nutrition products to consumers in over 200 countries. To do so, Colgate must understand local tastes and habits. For example, it created a tapered bristle toothbrush for Asian customers who preferred soft, flexible bristles. Ask Students: How many of them use Colgate products today? While travelling, have they seen different products from the company than are available in Canada? Ask them to discuss those differences. LO1: Assessing Global Markets - PEST The assessment of different markets relies on four criteria. 1. Political-legal environment: Focus on political and legal restrictions that would either impede or facilitate global commerce. 2. Economic environment: Focuses on factors such as demand and supply conditions 3. Social-cultural environment: Looks at cultural factors affect or create business opportunities 4. 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? 1. 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). • Trade sanctions are penalties or restrictions imposed on a country. • 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. • 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? • 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. • 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. • Trade agreements are designed to manage and promote trade activities among countries within a specific region. 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? • The European Union is an economic and monetary union that currently contains 25 countries. • The EU represents a significant restructuring of the global marketplace. • All countries in the EU use a single currency, the Euro. • The North American Free Trade Agreement (NAFTA) covers trade-related issues among the United States, Canada, and Mexico. • The Central American Free Trade Agreement (CAFTA) exists among the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. • Mercosur, which means Southern Common Market, covers most of South America. • 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. • 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? Answer: C; see page 536 2. Economic analysis The greater the wealth of a country, the better the firm’s opportunities in that particular country, in general. Three major factors determine wealth. • Overall economic environment • Population size and growth rate • Real income A three-part economic analysis indicates whether the country market offers the firm an attractive target. 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 non-residents 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. 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. 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. 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 reached over 35 million people in 2014. 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. 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? 3. Analyzing socio-cultural factors • Culture includes the values, guiding beliefs, understandings, and way of doing things that members of a society share. • 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. • 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? 4. Analyzing technology and infrastructure capabilities • Infrastructure includes the basic facilities, services, and installations needed for a community or society to function. • 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; see page 545 LO2: The Appeal of BRIC Countries Brazil, Russia, India and China make up the four BRIC countries. • Brazil is the world’s seventh largest economy and is predicted to be moving toward fifth spot. • Russia has had its share of political turmoil however its consumer markets are promising. • India has more than 1.1 billion people, or 15 percent of the world’s population most of whom are very young. It is one of the world’s fastest growing markets. • China has experienced a large increase in GDP and is the second largest economy in the world. Changes in technology, especially communications, have been a driving force for growth in global markets for decades. The greatest change has been the growth & expansion of four countries that together have come to be known as the BRIC countries: Brazil, Russia, India & China. LO3: Choosing a Global Entry Strategy 1. Exporting: Produce goods in one country and sell them in another. Although it entails the least financial risk, it allows for only limited returns. 2. Franchising: A contractual agreement between a franchisor and franchisees. The franchisee uses the business name and format developed by the franchisor. 3. Strategic Alliance: Collaborative relationship between independent firms in which the firms do not invest in each other. 4. 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. 5. 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? Answer B; see page 548 Entrepreneurial Marketing 17.1 Get Ready to ParTEA Steeped Tea started out with Tonia Jashan sharing her love of tea with friends via home parties. The concept was so popular, she attracted 500 consultants who did home parties in only six years. Steeped Tea was ranked #37 on the PROFIT 500 of Canada’s fastest growing companies. When Tonia and her husband Hatem, wanted to expand to the US, they pitched their concept on CBC’s Dragons’ Den and successfully attracted investment from David Chilton. Ask students to watch CBC’s Dragons’ Den video. Ask them why Steeped Tea chose to enter the US market through independent sales representatives rather than franchising, direct investment or joint venture. LO4: Choosing a Global Marketing Strategy 1. Target Market: Segmentation, Targeting and Positioning Firms may need to alter the positioning of their products in global markets. • A single positioning strategy maintains one message. • 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. 2. Define the Global Marketing Mix Global product and service strategies can: • Sell the same product or service in both the home and the host country market. • Sell a similar product or service but include minor adaptations for the host market. • Sell totally new products or services. • 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? Managing the Global Marketing Mix How do firms manage the global marketing mix? Case-in-point series follows. Case-in-Point Series: Walmart The largest U.S. retailer has had difficulty positioning itself in other countries. Walmart recently exited Germany due to a host of problems. Even Walmart’s everyday low price strategy caused problems in the highly protectionist German marketplace. Walmart is also struggling in Japan where its low price strategy is associated with low quality. 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. 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; see page 556 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? LO5: Ethical Issues in Global Marketing Environmental Concerns Increase with Greater Industrialization. • 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. • 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? Global Labour Issues Cannot be ignored in Developing Countries. • Working conditions. • Wages. • 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? Globalization Has a Significant Impact on the Host Country Culture. • Cultural imperialism refers to the belief that one’s own culture is superior to that of other nations. • 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. Concept Review Generally, the concept questions are designed to achieve a single purpose – to encourage students to test their knowledge and understanding of the theoretical content of the chapter. These questions encourage recall and reflection, which will better prepare students to answer the marketing applications questions based on their understanding of the theory. 1. What is globalisation? What are the factors that facilitate globalisation? Explain how globalisation has influenced marketing in Canada. Answer: Globalisation refers to the processes by which goods, services and resources flow across national borders. Global markets are the result of reductions and eliminations of trade barriers by country governments, the decreasing concerns of distance and time with regard to moving products and ideas across countries, the standardisation of laws across borders, and globally integrated production processes. Marketing in Canada has changed with globalisation by encouraging Canadian companies to expand into other countries, like Roots Canada. Canadian companies have to start thinking of competition as being global - suppliers, manufacturers, and service providers from anywhere in the world can compete for their businesses and threaten their existing markets – they have to be efficient and responsive. Thus, it is not surprising that globalisation has led to offshoring of production and manufacturing activities in low cost countries such as India, Brazil, and China by Canadian companies. Also, as borders begin to blur, it is more and more important to make sure that marketing communication messaging is consistent – since different markets may experience communications not necessary intended for them. 2. List and describe the four components of market assessments firms must conduct in order to evaluate the viability of different global markets. Answer: Each of the components with key attributes are: (1) Political and legal factors, including the governments, non-governmental political groups, the legal system, and policies, quotas, tariffs and laws. (2) Economic factors, like the wealth of a country as measured by GDP as well market size and growth rate, resource availability, supporting, and sophistication of consumers. (3) Sociocultural factors, like cultural dimensions of power distance, uncertainty avoidance, individualism, masculinity and time orientation. (4) Technological factors, like existing infrastructure and planning, adoption rates of technology, transportation, distribution channels, communications and commerce. 3. Which of the four components of market assessment do you think are often most difficult to assess? Why? Answer: The sociocultural factors would be difficult to measure because of the existence of subgroups and cultural groups. Even if a capital city displayed certain characteristics there is no guarantee that is the case for the whole country. Also, it is extremely difficult for foreign companies to get a deep understanding of the religion, values, norms, attitudes, language and symbols of a foreign country. Even large multinationals with decades of experience globally make mistakes at times, e.g., McDonald’s, Nike, etc. 4. List the five types of strategies companies could use to enter global markets. Compare these strategies in terms of level of risk, expected return, and control. Answer: Description Level of Risk Expected return Control Exporting Producing goods in home country and selling them in another Lowest Low - Moderate, much opportunity to learn about the new market Low Franchising Using the business name and format in a new location Low-Moderate Low - Moderate Limited, depending on contractual obligations Strategic alliance Collaborative relationship between independent firms in new market Moderate –High, because it is shared Moderate, because it is shared Moderate Joint venture Firm enters new market and shares resources with established firm in new market Moderate-High, since conflicts are likely Moderate, because it is shared Depends on agreement struck, moderate Direct investment Firm maintains 100% ownership of venture in new market Highest Highest High 5. Discuss the advantages and disadvantages of using a global product strategy (offering the same product both at home and in overseas markets). Answer: When using a global product strategy, advantages can include efficiencies of manufacturing and shared learning, ability to leverage and share marketing communications and reduced research and development costs. The main disadvantage is reduced ability to meet the needs of the specific markets since the products are not tailored. Other challenges could include inability to source materials or pricing conflicts. 6. What are the primary considerations marketers should use in deciding whether to customise its 4Ps to specific markets? Answer: The primary consideration should always be the extent to which the target consumers in the foreign country are different from those of the home country of the marketer in terms of culture - values, norms, attitudes, customs, and language. Cost considerations may play a role in determining the extent of product or promotion adaptation that will be undertaken. Areas to consider include communications, pricing and distribution. Specific considerations are that advertising and promotion regulations may also require customising promotion strategy. Also, technology and safety considerations may require some product modification to be undertaken in order that the products may be used safely, e.g., in the UK electrical appliances operate on 240 volts compared to North America where it is 120 volts. 7. What is political risk? Why is it important to assess political risks? How is political risk assessed? List two or three organisations in Canada that provide marketers with political risk assessments. Answer: An analysis of political risk aims to determine the level of political, socioeconomic and security risks of doing business with a country. This type of analysis helps reduce the risk of a company losing its investment in a new venture, and helps reduce the risk of harm to employees. Some organisations that assist with this are Export Development Canada and DFAIT. 8. Protectionist policies restrict trade and global marketing while trade agreements facilitate global marketing. Explain the reasons why a country may want to impose protectionist policies in some industries and liberalise other industries. Answer: Different countries have different trade policies with different goals in mind. Protectionist policies and trade agreements often coexist, and this may be to stimulate certain industries while protecting others. For example, Canada needs to protect its softwood lumber and fresh water, but is happy to encourage trade in the textiles sector. Other situations may demand both types of policies in order to try to stimulate economic growth – encouraging manufacturers to start business in the country rather than export to that country, to help include employment rates, GDP and other economic measures. Protectionist measures are generally used to protect infant and emerging industries or culturally important industries. Liberalisation encourages competition and is usually employed in mature industries in order to promote increased efficiency and productivity. 9. Explain how measures such as GDP, PPP (Big Mac Index), and HDI help marketers decide whether to enter a global market. What are the weaknesses of these measures? Answer: For marketers, these three measures paint a picture of the economic and lifestyle elements of consumers in different countries that ultimately drive consumption. Consumption drives sales, which is part of meeting any business objective. A growing economy not only signals that consumers are able to buy but also they will have the confidence to do so and will want to buy. Thus, they compare countries across time and identify those that are experiencing economic growth and increased globalisation – potential market opportunities. One significant weakness of these measures is that they are static: they only measure one single snapshot in time. If the data being used to calculate these measure isn’t timely then the information won’t be either. As well, these measures should not be used in isolation. Other economic factors, like market size, population growth rate, individual income and household size should must be used together in order to develop a more complete economic picture. 10. Explain how useful Hofstede’s five dimensions of culture are to our understanding of different cultures around the world. Where and how can marketers learn about the culture of a country to which they are interested in marketing? Answer: The five dimensions of culture are very useful for understanding what motivates certain cultural behaviours. They are commonly used and widely accepted as key indicators of culture. For example, several Latin American countries cluster high on power distance but low on individualism; Canada, the United States, Australia, and the United Kingdom, in contrast, cluster high on individualism but low on power distance. Using this information, firms should expect that if they design a marketing communications campaign that stresses equality and individualism, it will be well accepted in the English-speaking countries, all other factors being equal. The same campaign, however, might not be as well received in Latin American countries. Heavy research should take place before any globalisation strategy is pursued and some sources for these cultural dimensions include the Internet, Export Development Canada, universities and other published research papers, consultants. Of course, the best kind of learning is to visit the country after sensitivity training and experience the culture first hand but this may not always be the most practical approach. Marketing Applications: 1. Of the four BRIC markets, explain why you think one country might be more welcoming to lululemon than others. Instructor’s Notes: By taking the perspective of a global marketing professional considering expansion, students should recognize the need for analyses of the Russian, Brazilian, Chinese, and Indian markets and thus recall the key concepts of a PEST analysis. Example answers: Students should examine the political and legal, economic, socio-cultural climates of each of these countries as well as the infrastructure and consider which ones might be most welcoming to export products. Students may not be familiar with the Russian or Brazilian markets. Based on current world news, students will probably say that Russia would not be an attractive market or very welcoming for lululemon. Brazilians are very fashion conscious and like nothing better than to spend a day at the mall shopping. However that does not mean lululemon clothing would be accepted as fashion forward. Although India has a large population, many of the people have very low incomes, plus the culture would probably not accept women (or men) wearing lululemon as street clothing as in North America. China would probably be the most attractive market based on population, economic conditions and willingness to embrace Western ways. Among the BRIC markets (Brazil, Russia, India, China), India might be more welcoming to Lululemon. India's growing middle class and increasing focus on health and fitness align well with Lululemon’s brand, which emphasizes high-quality, fashionable athletic wear. Additionally, India’s relatively lower level of competition in the premium athletic wear sector compared to China’s crowded market could offer Lululemon a better opportunity to establish its presence and gain market share. 2. Cervélo is a high-end Canadian bicycle manufacturer. Assume the company is considering entering the U.K. and Chinese markets. When performing its market assessment, what economic factors should Cervélo consider? Which market do you expect will be more lucrative for Cervélo? Why? Instructor’s Notes: By taking the perspective of a global marketing professional considering expansion, students should recognize the need for analyses of the U.K. and Chinese markets and thus recall the key concepts of an economic analysis. However, a full market assessment also requires the other three market assessment components. Example answers: • The three key economic factors that Cervélo should consider are the general economic environment, the population size and growth rate, and real income. In analyzing the general economic environment, the company might use such indicators as the relative level of imports/exports, the GDP, PPP, and the HDI to understand to what degree each country has a healthy economy that offers a good opportunity for global bicycle marketing. In analyzing the population size and growth rate, the company can get a sense of the potential market opportunity both now and in the near future. Finally, by analyzing real income, Cervélo can determine whether its product might be priced out of the reach of the market segment it wants to target. • The more lucrative market for Cervélo in the long term likely will be China, because of its improving economic environment and large population. However, Cervélo must price its product carefully to avoid moving it out of the reach of the majority of the population who are still fairly poor and rural. Economic Factors to Consider: 1. Market Size and Growth Rate: Assess the size and growth potential of the cycling market in each country. 2. Consumer Purchasing Power: Evaluate the income levels and spending power of potential customers. 3. Exchange Rates: Consider how currency fluctuations might impact pricing and profitability. 4. Economic Stability: Look into the overall economic stability and potential risks in each market. More Lucrative Market: China is likely to be more lucrative due to its rapidly growing middle class and increasing interest in high-end, lifestyle-oriented products. While the U.K. has a well-established cycling culture, China's larger market size and expanding affluent segment present greater growth opportunities for premium brands like Cervélo. 3. Now consider the political, economic, and legal systems of China versus the United Kingdom. Explain why you think one country might be more hospitable to Cervélo than the other. Instructor’s Notes: As a follow-up, this question prompts students to examine the United Kingdom and China using another component: political and legal risk. In this way, students gain a more comprehensive picture of the potential issues and opportunities that exist in either the U.K. or Chinese market. Example answers: In terms of political, economic, and legal systems, China is fairly conservative politically, in that it is still controlled by a strict Communist regime; the market economy is developing in a strong but controlled way; and contract law and intellectual property rights remain in development stages. In contrast, the United Kingdom has a democratic political system similar to that of the United States, an economically free and open market, and strong provisions for contract law and intellectual property rights in its legal system. The strong similarities between the United Kingdom and the United States appear to make the U.K. market more hospitable for Cervélo. United Kingdom might be more hospitable to Cervélo due to the following reasons: • Political Stability: The U.K. offers a stable political environment with clear regulations that are conducive to foreign businesses. • Economic Environment: The U.K. has a mature market with established consumer preferences and predictable economic conditions. • Legal System: The U.K.'s legal framework is well-defined and transparent, offering better protection for intellectual property and business operations. In contrast, China, while presenting significant market opportunities, has a more complex regulatory environment and potential challenges related to intellectual property and business practices. 4. Volkswagen sells cars in many countries throughout the world, including Mexico and Latin America. How would you expect its market position to differ in those countries compared with that of Canada? Instructor’s Notes: At its core, this question forces students to think about the nature of Mexican, Canadian, and Latin American markets relative to the product attributes of a Volkswagen vehicle. Cultures engender significant differences in consumer perspectives, wants, and needs, so students should recognize that Volkswagen probably must craft different market positions for these three regions. An analysis of their sociocultural factors should provide students with good possibilities for the different market positions. Example answers: Although Volkswagen positions itself as a sporty, fun vehicle for everyone in Canada, such positioning may not be as successful in Mexico and Latin America because of, among other things, sociocultural factors. For example, in terms of individualism, Latin American and Mexican cultures do not prioritize a sense of individualism, and people tend to sense greater obligations to and dependence on groups such as family, friends, and business associates. In addition, the degree of masculinity is much higher in Latin America and Mexico, where men dominate in positions of power, in both political and familial relations. Therefore, Volkswagen might choose to position its vehicle as a family vehicle that has enough power to satisfy the demands of male drivers. In Mexico and Latin America, Volkswagen's market position is likely to be stronger due to its established presence, affordability, and alignment with local consumer preferences for practical and cost-effective vehicles. In contrast, in Canada, Volkswagen might face stronger competition from premium brands and higher consumer expectations for advanced features and higher-end models, potentially affecting its market position. 5. Global brands that gain status on a local level have the best of both worlds: local loyalty with all the advantages of the global connections. How do huge global companies like McCain Foods, and McDonald’s achieve multi-local status? Instructor’s Notes: This question focuses students’ attention on how the marketing mix might be considered from a globally standardized or locally differentiated perspective. Global strategies generally rely on one of three strategies: (a) use a standardized strategy i.e. use the same product and promotion strategy in both the home country market and the host country, (b) use a multi- local strategy i.e. develop products and promotions that recognize the unique nature of each foreign market, (c) use a product and promotion adaptation strategy where the product and promotion strategy are similar to that sold in the home country but include minor local/regional adaptations. In examining these three strategies, students must consider how companies can create multilocal brands while still maintaining their global character. [source article: http://www.brandchannel.com/features_effect.asp?pf_id=261] Example answers: • The experiences of these three companies show that they have all decentralized their product and promotion decisions to the managers of the local market, so that they can decide on what specific product and promotion strategies are appropriate for their market. At the same time, these companies maintained their global character by retaining key aspects of their brand experience – brand names, logos, trademarks, service quality and standards, etc. Specifically, McDonald's is known worldwide for its ability to provide standardized products at low prices to time-poor consumers looking for to save time. Same argument applies to McCain's frozen potato products targeted to time-poor consumers who are looking for convenience and want to save time. • Additionally, McDonalds the global appeal comes from its French fries which are recognized and loved by people all over the world regardless of country, culture, or religion. At the same time, McDonalds have adapted its menu items to suit local tastes, e.g. 100% kosher beef burgers are sold in Israel, lamb burgers (McMarajah) instead of beef burgers are sold in India, vegetarian burgers in the Netherlands, teriyaki burgers in Japan, salmon sandwiches in Norway, frankfurters in Germany, and poached egg burgers in Uruguay. • In the case of McCain, the company localizes its product by calling it chips in the UK and fries in Canada and the United States. It has also developed local advertising for markets and managers by region. Huge global companies like McCain Foods and McDonald’s achieve multi-local status by: 1. Local Adaptation: Tailoring products and services to fit local tastes and preferences while maintaining global standards. 2. Decentralized Management: Allowing regional managers to make decisions based on local market conditions. 3. Local Partnerships: Collaborating with local suppliers and businesses to strengthen market presence and loyalty. 4. Cultural Sensitivity: Incorporating local cultural elements into branding and marketing strategies to resonate with local consumers. 6. What is cultural imperialism? Why would a recording company like Def Jam Records need to be aware of and sensitive to this issue? Instructor’s Notes: Because entertainment, the main offering of a company like Def Jam, involves significant cultural aspects, Def Jam will need to be sensitive to how American cultural aspects embodied in song lyrics and artists appear to other countries whose cultures differ vastly from that of the United States. Example answers: Def Jam Records must be aware of and sensitive to this issue because many consumers in other countries might consider the placement of its products as a form of cultural imperialism, that is, an attempt to replace local customs with those of the company’s home country. To avoid this conflict, Def Jam should carefully position recordings by U.S.-based artists in each country and consider the possibility of incorporating cultural themes and local artists into its product offerings. Cultural imperialism is the dominance of one culture over others through media, entertainment, and other forms of cultural exchange, often leading to the erosion of local cultures. A recording company like Def Jam Records needs to be aware of this issue to: 1. Respect Local Cultures: Avoid imposing foreign cultural values that could alienate local audiences. 2. Build Authentic Relationships: Ensure their music and marketing resonate genuinely with local tastes and traditions. 3. Foster Global Acceptance: Promote cultural diversity and inclusivity, which can enhance their global reputation and market success. 7. Provide an example of a potentially ethically troubling practice by a foreign firm doing business in Canada. Instructor’s Notes: The exercise forces students to consider global business from a non-Canadian perspective and thus examine different standards of acceptability. In the course of this consideration, students should recognize the importance of sensitivity to ethical standards in different countries. Example answers: A non-Canadian firm might run into trouble if it failed to respect Canadian value of equality between genders or races. For example, if the firm only hired Latin men to work in its Canadian subsidiary, Canadian consumers might be offended. A potentially ethically troubling practice by a foreign firm in Canada could be exploiting lax environmental regulations in their home country to avoid stricter Canadian standards, potentially leading to environmental harm and undermining local regulations. 8. Many Canadian and U.S. firms are relocating their production facilities and services overseas (outsourcing or offshoring). Why do you believe they are doing so? Do the benefits outweigh the potential losses of Canadian and U.S. jobs? Why or why not? Instructor’s Notes: To answer this question, students must consider the reasons for outsourcing or offshoring, their own feelings about the practice, and possibly public discussions about these issues in the media and politics. Example answers: Many Canadian and U.S. firms outsource primarily for cost reasons; lower labour costs in other countries provide a means to decrease production costs and thus create higher profit margins. The primary benefit is more affordable products, assuming that the savings get passed on to consumers. However, because companies can keep those cost savings or share them only with shareholders, the benefits do not outweigh the cost of the loss of Canadian and U.S. jobs. Firms relocate production and services overseas primarily to reduce costs (e.g., labor and operational expenses) and access new markets. The benefits, such as increased profitability and competitive pricing, can outweigh potential job losses by boosting company growth and creating new opportunities. However, this shift often leads to job displacement in Canada and the U.S., impacting local economies and workers. Balancing cost savings with social responsibility and workforce impact remains a challenge. 9. Assume you work for a Canadian-based financial services firm that claims to offer experts who personally manage clients’ accounts. The clients are unaware that most of the tax preparation work, the bookkeeping, and other record keeping are performed by a company in India. The local office simply reviews the file and signs the cover letters. Yet as your manager points out, one person manages each account. After recent news stories about the practice of offshoring sensitive transactions such as tax preparation, clients have been commenting about how grateful they are to have a local firm. What, if anything, should you tell your clients about the firm’s practice of offshoring? Instructor’s Notes: This ethical scenario forces students to question to what degree being dishonest—or at least, less than forthcoming—might violate their own ethical standards. Using the ethical decision-making framework from Chapter Three, students can evaluate the practice of keeping offshoring a secret from the clients. Example answers: In applying the ethical decision-making framework: • “Have you thought broadly of any ethical issues associated with the decision to be made?” I have thought broadly about the ethical issues. In this case, I have concerns about keeping the clients in the dark about the company’s offshoring practice and what they might think if they find out. I also have considered my ethical obligation to those doing the work in India and my responsibility to safeguard their work and their employment. • “Have you involved as many possible people who might have a right to offer input into or have actual involvement in making this decision and action plan?” At this point, the clients themselves have not been involved at all, and they are likely the most important stakeholder to keep in mind, because without them, neither I nor the Indian employees would have work. • “Does this decision respect the rights and dignity of the stakeholders?” Clients believe that the firm is being honest and aboveboard about where the work is performed and managed, and that is simply not the case. • “Does this decision produce the most good and the least harm to the relevant stakeholders?” Clients are not getting the type of service that they think they are. If an incident, such as identify theft, occurred because of this offshoring practice, considerable harm could ensue to both the customers and the company. • “Does this decision uphold relevant conventional moral rules?” It violates the community’s standard for what is appropriate regarding business disclosures and transparency. If a local firm portrays itself as doing everything locally, and it does not, the community will likely feel moral outrage. • “Can you live with this decision alternative?” If the decision is to be completely honest with clients about the nature of the work and how much of it is done offshore in India, then yes, I can live with that. Based on my answers to the framework, I should tell clients that some work is performed offshore in India. I can explain exactly what type of work is done, what kind of cost savings the client is able to realize because of this practice, and the nature of the security and confidentiality of the arrangement to avert their concerns about identity theft or other malfeasance. It is also important to tell my supervisor what I am doing because to do otherwise could also be considered to be unethical. You should be transparent with clients about the firm's offshoring practices. Inform them that while tax preparation, bookkeeping, and record-keeping tasks are handled by a team in India, their accounts are still managed by a local expert who oversees and reviews all work. This honesty helps maintain trust and aligns with ethical standards of disclosure. 10. Lululemon has expanded its global retail operations through company-owned stores. In what instances might it consider using joint ventures as its global market entry strategy into new markets? Instructor’s Notes: This question requires students to consider the five global market entry strategies to determine when and where joint venturing would be an appropriate choice. Example answers: Some countries, for example China, require joint ventures from companies who wish to enter the country. In other countries where the language and culture are very different from Canada, Lululemon may benefit from a joint venture with a local company who can provide immediate market access, an in-depth understanding of the market, and access to distribution channels as well as a sharing the financial burden of doing business in the new country. A joint venture is a good way for a company to limit its risks of entering a foreign market. However, by using a joint venture strategy, the company gives up a certain amount of control over its operations in hopes of becoming more successful. The opening vignette of Lululemon’s global success demonstrates how joint ventures may benefit the company’s expansion. Note that the decision to use joint ventures must be based on an analysis of each country’s unique situation e.g., risk profile, cultural differences, and laws and regulations. Lululemon might consider using joint ventures when: 1. Local Market Knowledge: Partnering with a local firm can provide valuable insights and connections. 2. Regulatory Barriers: Joint ventures can help navigate complex local regulations and business practices. 3. Shared Risks and Costs: Collaborating with a local partner helps share financial and operational risks. 4. Faster Market Entry: Leveraging the partner's existing infrastructure and networks can accelerate entry and expansion. Net Savvy 1. For many small businesses, the idea of entering a foreign market is frightening. The Government of Canada, as well as most provincial and territorial governments, now offers assistance designed specifically for small business owners. Two such government departments are DFAIT and Industry Canada. Visit Industry Canada’s “exportsource” website at http://www.exportsource.ca/ and examine the types of services it provides for Canadian businesses wishing to do business in a foreign country. Evaluate the usefulness of the information provided. Instructor’s Notes: The exercise allows students to explore the assistance available to businesses looking to enter a foreign market. Example answers: Exportsource.ca provides all types of information that are general in nature rather than industry or sector specific. Students might find the general information helpful but may comment it is not as helpful to those in certain specific businesses (industry, sectors or product categories). Ask students to evaluate also whether the recommended sources for additional information listed on the website are helpful. Industry Canada's "exportsource" website provides valuable services for Canadian businesses, including: 1. Market Research: Access to tools and reports to understand foreign markets. 2. Regulatory Information: Guidance on compliance with international trade regulations. 3. Funding Opportunities: Information on financial support and incentives for exporting. 4. Trade Events: Details on trade missions, fairs, and networking opportunities. Overall, the information is highly useful for small businesses seeking to expand internationally, as it offers comprehensive support for market entry and trade compliance. 2. McCain is now a global brand, yet in each country, it alters its products and promotions to accommodate local tastes. Go to www.mccain.ca and visit the Canadian site. Now click through to the South American site, the U.S. site, and the site for France. How are these three websites different from the Canadian site? What products are different? What promotional elements are different? Instructor’s Notes: Students can learn how a popular Canadian company chooses to position itself and its products in other countries. Example answers: McCain highlights different things about itself and its products in each country. Each site uses the host country’ language, shows people that are similar to the members of the target markets in each country, and features menu items that differ according to local tastes. The three non-Canadian websites differ from the Canadian site primarily in terms of the language they use, their technical sophistication, and the media images. The products are pretty much the same, with the exception of some products that require changes because of, for example, cultural differences. 1. Product Differences: • South American Site: May feature products tailored to local tastes, such as spiced or seasoned fries. • U.S. Site: Likely offers a wider range of frozen potato products, including varieties popular in the U.S., like loaded fries. • French Site: Might include gourmet options, such as fries with unique seasonings or shapes. 2. Promotional Elements: • South American Site: Promotions may focus on local festivals or traditional dishes. • U.S. Site: Likely includes advertisements targeting convenience and family meals. • French Site: May highlight quality and gourmet aspects, aligning with French culinary preferences. Each site adapts to local preferences and market conditions to effectively engage with its target audience. End-of-Chapter Case Study Racing to Capture China’s Luxury Car Market Questions: 1. Assess China as a potential market for luxury cars. If you worked for a ¬luxury car manufacturer, such as Volvo, would you enter or attempt to ¬increase your presence in China? What entry strategy would you use? Why? Instructor’s Notes: The exercise allows students to explore the assistance available to businesses looking to enter a foreign market. Example answers: China has tremendous potential as a market for luxury cars, because it is expected to become the world’s largest market for luxury cars within the next 5-7 years. However, it is challenging because of the large geography of China and the increasing social and economic gaps. Volvo does not currently have a strong presence in China. As the population grows though, demand for Volvo may increase. To test the market, Volvo might consider an export strategy to China before investing directly in Volvo production in China. Ask students what entry strategy that might use to reach Chinese customers and have them justify their decisions. China is a promising market for luxury cars due to its growing affluent class and increasing demand for high-end vehicles. Entry Strategy: 1. Joint Ventures: Partner with a local company to navigate regulatory challenges and leverage local market expertise. 2. Direct Investment: Establish a local manufacturing facility to reduce costs and cater to local preferences. Reasoning: • Growing Market: China’s expanding middle and upper classes provide a large customer base for luxury vehicles. • Regulatory Navigation: Joint ventures help overcome complex regulations and provide local insights. • Cost Efficiency: Local manufacturing can lower costs and improve market responsiveness. 2. Drivers in China approach the luxury car market with a set of strong associations that influence their perceptions of the foreign brands currently available in the marketplace. Multiple factors affect those consumer attitudes, including history, class, and social status. Why are these attitudes so ¬entrenched in China, and why do they play such a critical role in shaping car customer preferences? Instructor’s Notes: The exercise allows students to explore the difference in attitudes in other cultures and their impact on global marketing. Example answers: Culture, class, and consumer attitudes are critical in Chinese consumer consumption. Many of the younger, affluent population are concerned with status and perceptions. Consumers in China form strong associations with brands, especially luxury automobiles, and believe that these brand associations are reflections of their lifestyle choices and personal values. Attitudes towards luxury cars in China are deeply entrenched due to: 1. Historical Context: Luxury cars symbolize status and success, rooted in China’s recent economic growth and societal shifts. 2. Class and Social Status: Owning luxury vehicles is a visible marker of wealth and social status, aligning with traditional values of prestige and hierarchy. 3. Cultural Significance: Luxury brands are associated with high quality and exclusivity, which are highly valued in Chinese consumer culture. These attitudes critically shape preferences as consumers seek to reflect their status and success through their vehicle choices. 3. Both Audi and BMW have allied with other companies to target particular market segments. Assess the relative strength of these two very different ¬positioning strategies. Instructor’s Notes: The exercise allows students to examine two brands they are familiar with and consider the approaches used in a new market. Example answers: Audi formed a joint venture with the Chinese carmaker Yiqi in 1988. By the early 2000’s Audi was on the list of approved automobiles for the Chinese central government. BMW, more recently, launched a strategic alliance with Toyota in order to focus on sustainable technologies, like fuel-efficient engines and lithium batteries. Audi’s entry into China has given them a 61% increase in Chinese sales, whereas BMW sales in China are expected to rise by over 85%. Both companies seem to have optimized global strategies that yielded high success rates in China. Audi's Positioning Strategy: Audi often focuses on technological innovation and premium features through alliances with tech firms. This strategy highlights advanced technology and luxury, appealing to tech-savvy consumers seeking cutting-edge features. BMW's Positioning Strategy: BMW frequently partners with companies to emphasize driving performance and sportiness, such as their collaboration with motorsports organizations. This approach targets enthusiasts who prioritize driving dynamics and performance. Relative Strength: • Audi: Strong in appealing to tech-oriented consumers and those valuing high-tech luxury. • BMW: Effective in attracting performance-focused customers and driving enthusiasts. Both strategies are strong but cater to different consumer preferences within the luxury car market. 4. BMW has successfully targeted China’s affluent, young car drivers, but the brand’s success in that market has also provoked public backlash. What drives such public hostility to the brand, and how serious a problem is it? What ¬marketing approach, if any, should the company undertake in response? Instructor’s Notes: The exercise allows students to explore the challenges to businesses that enter foreign markets. Example answers: Negative public relations can damage a brand’s reputation significantly. Critics of BMW suggest that BMW caters to the careless, nouveau riche drivers. Government officials who drive BMW’s are more likely to be accused of corruption than officials who drive Audi’s. Because public opinion and attitudes are so important in the Chinese consumer’s decision making process, this negative public opinion could potentially hurt BMW. Ask students to consider various marketing approaches that BMW can take to mitigate these negative consequences. Should BMW begin targeting a different customer? Should BMW embrace this rebellious image? Drivers of Public Hostility: 1. Perceived Elitism: BMW's association with wealth and luxury may exacerbate social inequalities, leading to negative perceptions among less affluent groups. 2. Environmental Concerns: Criticism over luxury vehicles’ environmental impact can also provoke backlash. Seriousness: • The issue can damage brand reputation and affect consumer loyalty, especially if it influences broader public opinion. Marketing Approach: • Community Engagement: Invest in local community projects and environmental initiatives to improve brand image. • Transparency: Emphasize efforts in sustainability and corporate social responsibility to address environmental and social concerns. Video Activities Video: Steeped Tea (CBC’s Dragons’ Den) Learning Objective: LO3 Description: This video provides a real world pitch by a woman who fell in love with loose leaf tea and started a company, Steeped Tea, based on a unique concept. Tonia Jashan pitched her idea on CBC’s Dragons’ Den and attracted investment from David Chilton, allowing her to enter the US market. Key Words: franchise; direct sales; political-legal; product globalization; packaging Activity: Students could be asked to think about how many companies currently sell tea in retail stores (e.g. DAVIDS tea, Teaopia, Teavana, Second Cup, and many more) and then assess Tonia Jashan’s concept of direct sales rather than through retail stores. Tea is a product that is often marketed in virtually the same way in different countries around the world. Have students discuss how Steeped Tea should modify its product and/or marketing communications to suit the US market. Solution Manual for Marketing Dhruv Grewal, Michael Levy, Shirley Lichti, Ajax Persaud 9781259030659, 9781259104312
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