CH-8 Reaching Global Markets – Foundations of Marketing : Book Guide

Chapter 8 Reaching Global Markets TEACHING RESOURCES QUICK REFERENCE GUIDE Resource Location Purpose and Perspective IRM, p. 178 Lecture Outline IRM, p. 179 Discussion Starters IRM, p. 191 Class Exercises IRM, p. 192 Chapter Quiz IRM, p. 195 Answers to Issues for Discussion and Review IRM, p. 196 Answers to Marketing Applications IRM, p. 199 Answers to Internet Exercise IRM, p. 201 Answers to Developing Your Marketing Plan IRM, p. 202 Comments on Video Case 8 IRM, p. 203 PowerPoint Slides Instructor’s website Note: Additional resources may be found on the accompanying student and instructor websites at www.cengagebrain.com. PURPOSE AND PERSPECTIVE This chapter examines the nature and increasing importance of global marketing strategy. The chapter then discusses the environmental forces that affect international marketing strategy, such as how target market selection in foreign countries is structured by the environment. Several important regional and global trade agreements, alliances, and markets are considered. The modes of entry and organizational structures U.S. firms use to engage in international marketing are examined. Finally, the chapter looks at how organizations may alter their marketing mixes when engaging in international marketing efforts. LECTURE OUTLINE I. The Nature of Global Marketing Strategy A. International marketing involves developing and performing marketing activities across national boundaries. B. Firms are finding that international markets provide tremendous opportunities for growth. 1. To encourage international growth, many countries offer significant practical assistance and valuable benchmarking research to help their domestic firms become more globally competitive. C. Beginning in the 1990s, some firms were founded with the knowledge and resources to expedite their commitment and investment in the global marketplace. 2. The “born globals”—typically small technology-based firms earning as much as 70 percent of their sales outside the domestic home market—export their products almost immediately after being established in market niches in which they compete with larger, more established firms. II. Environmental Forces in Global Markets A. Firms that enter international markets often find that they must make significant adjustments in their marketing strategies. 1. A successful international marketing strategy requires a careful environmental analysis. a. Conducting research to understand the needs and desires of international customers is crucial to global marketing success. b. Differences in sociocultural; economic; political, legal, and regulatory; social and ethical; competitive; and technological forces in other countries can profoundly affect marketing strategies. B. Sociocultural Forces 1. Cultural and social differences among nations can have significant effects on marketing activities. a. By identifying major sociocultural deviations among countries, marketers lay groundwork for an effective adaptation of marketing strategy. 2. Local preferences, tastes, and idioms can all prove complicated for international marketers. 3. It can be difficult to transfer marketing symbols, trademarks, logos, and even products to international markets, especially if these are associated with objects that have profound religious or cultural significance in a particular culture. 4. Cultural differences may also affect marketing negotiations and decision-making behavior. 5. Buyers’ perceptions of other countries can influence product adoption and use. a. When people are unfamiliar with products from another country, their perceptions of the country as a whole may affect their attitude toward the product and influence whether they will buy it. 6. When products are introduced from one nation into another, acceptance is far more likely if similarities exist between the two cultures. 7. For international marketers, cultural differences have implications for product development, advertising, packaging, and pricing. B. Economic Forces 1. Global marketers need to understand the international trade system, particularly the economic stability of individual nations as well as trade barriers which may stifle marketing efforts. 2. Economic differences among nations—differences in standards of living, credit, buying power, income distribution, national resources, exchange rates, and the like—dictate many of the adjustments firms must make in marketing internationally. 3. Instability is one of the guaranteed constants in the global business environment. 4. The constantly fluctuating conditions in different economies require global marketers to carefully monitor the global environment and make changes quickly. 5. An important economic factor in the global business environment is currency valuation. a. Many countries have adopted floating exchange rates, which allow the currencies of those countries to fluctuate, or float, according to the foreign exchange market. b. China is constantly being criticized for undervaluing its currency, or valuing its currency below the market value. (1) This gives it an advantage in selling exports, since the Chinese yuan has a lower value than other nations’ currencies. c. The value of the U.S. dollar is also important to the global economy. (1) Because many countries float their exchange rates around the dollar, too much or too little U.S. currency in the economy could create inflationary effects or harm exports. 3. Gross domestic product (GDP) is an overall measure of a nation’s economic standing; it is the market value of a nation’s total output of goods and services for a given period. a. However, it does not take into account the concept of GDP in relation to population (GDP per capita). b. Table 8.1 provides a comparative economic analysis of 15 countries, including the United States. c. Knowledge about per capita income, credit, and the distribution of income provides general insights into market potential. 4. Opportunities for international trade are not limited to countries with the highest incomes. a. The countries of Brazil, Russia, India, China, and South Africa (BRICS) have attracted attention as their economies appear to be rapidly advancing. C. Political, Legal, and Regulatory Forces 1. The political, legal and regulatory forces of the environment are closely intertwined in the United States; to a large degree, the same is true in many countries internationally. 2. A country’s legal and regulatory infrastructure is a direct reflection of the political climate in the country. a. In some countries, this political climate is determined by the people via elections, whereas in other countries leaders are appointed or have assumed leadership based on certain powers. 3. Although laws and regulations have direct effects on a firm’s operations in a country, political forces are indirect and often not clearly known in all countries. 4. State-backed firms accounted for one-third of the emerging world’s foreign direct investment in the last decade. a. However, state-backed companies do not have as many competitors as private ones because the government is supporting them. 5. A nation’s political system, laws, regulatory bodies, special-interest groups, and courts all have a great impact on international marketing. a. Some countries have established import barriers, such as tariffs. (1) An import tariff is any duty levied by a nation on goods purchased outside its borders and brought into the country. b. Nontariff trade restrictions include quotas and embargoes. (1) A quota is a limit on the amount of goods an importing will accept for certain product categories in a specific period of time. (2) An embargo is a government’s suspension of trade in a particular product or with a given country. (a) An embargo may be used to suspend the purchase of a commodity like oil from a country that is involved in questionable conduct, such as human rights violations or terrorism. (3) Exchange controls, government restrictions on the amount of a particular currency that can be bought or sold, may also limit international trade. (a) They can force businesspeople to buy and sell foreign products through a central agency, such as a central bank. (4) Countries may limit imports to maintain a favorable balance of trade. (a) The balance of trade is the difference in value between a nation’s exports and its imports. c. Many nontariff barriers, such as quotas and minimum price levels set on imports, port-of-entry taxes, and stringent health and safety requirements, still make it difficult for U.S. companies to export their products. d. A government’s attitude toward importers has a direct impact on the economic feasibility of exporting to that country. B. Ethical and Social Responsibility Forces 1. Differences in national standards are illustrated by what the Mexicans call la mordida—“the bite.” a. The use of payoffs and bribes is deeply entrenched in many governments. (1) The ultimate decision about whether to give small tips or gifts where they are customary must be based on a company’s code of ethics. (2) However, under the Foreign Corrupt Practices Act of 1977, it is illegal for U.S. firms to attempt to make large payments or bribes to influence policy decisions of foreign governments. (3) The U.K. Bribery Act does not permit facilitating payments in many circumstances. (a) It has also redefined what many companies consider to be bribery versus gift-giving, causing multinational firms to update their codes of ethics. b. Differences in ethical standards can affect marketing efforts. (1) In China and Vietnam, for example, standards regarding intellectual property differ dramatically from those in the United States, creating potential conflicts for marketers of computer software, music, and books. c. When marketers do business abroad, they often perceive that other business cultures have different modes of operation. (1) This uneasiness is especially pronounced for marketers who have not traveled extensively or interacted much with foreigners in business or social settings. (2) In business, the idea that “we” differ from “them” is called the self-reference criterion (SRC). (a) The SRC is the unconscious reference to one’s own cultural values, experiences, and knowledge. (b) Our reactions are based on meanings, values, and symbols that relate to our culture but may not have the same relevance to people of other cultures. d. Many businesspeople adopt the principle of “When in Rome, do as the Romans do.” (1) These businesspeople adapt to the cultural practices of the country they are in and use the host country’s cultural practices as the rationalization for sometimes straying from their own ethical values when doing business internationally. (a) For instance, by defending the payment of bribes or “greasing the wheels of business” and other questionable practices, some businesspeople are resorting to cultural relativism—the concept that morality varies from one culture to another and that business practices are therefore differentially defined as right or wrong by particular cultures. (b) Because of differences in cultural and ethical standards, many companies work both individually and collectively to establish ethics programs and standards for international business conduct. C. Competitive Forces 1. Competition is often viewed as a staple of the global marketplace. a. Customers thrive on the choices offered by competition, and firms constantly seek opportunities to outmaneuver their competition to gain customers’ loyalty. 2. Beyond the types of competition (i.e., brand, product, generic, and total budget competition) and types of competitive structures (i.e., monopoly, oligopoly, monopolistic competition, and pure competition), firms that operate internationally must do the following: a. Be aware of competitive forces in the countries they target. b. Identify the interdependence of countries and the global competitors in those markets. c. Be mindful of a new breed of customer—the global customer. 3. Each country has unique competitive aspects—often founded in the other environmental forces (i.e., sociocultural, technological, political, legal, regulatory, and economic forces)—that are often independent of the competitors in that market. a. Although competitors drive competition, nations establish the infrastructure and the rules for the types of competition that can take place. 4. A new breed of customer—the global customer—has changed the landscape of international competition drastically. b. Not only do global customers who travel the globe expect to be able to buy the same product in most of the world’s more than 200 countries, but they also expect that the product they buy in their local store will have the same features as similar products sold in an international market. c. If either the quality of the product or the product’s features are more advanced in an international market, global customers will soon demand that their local markets offer the same product at the same or lower prices. B. Technological Forces 1. Advances in technology have made international marketing much easier. 2. Interactive Web systems, instant messaging, and podcast downloads (along with the traditional vehicles of voice mail, e-mail, and cell phones) make international marketing activities more affordable and convenient. 3. In many developing countries which lack technological infrastructure found in the United States and Japan, marketers are beginning to capitalize on opportunities to leapfrog existing technology. III. Regional Trade Alliances, Markets, and Agreements A. Although more firms are beginning to view the world as one huge marketplace, various regional trade alliances and specific markets affect companies engaging in international marketing; some create opportunities, others impose constraints. 1. Today, there are nearly 200 trade agreements around the world compared with only a select handful in the early 1960s. B. The North American Free Trade Agreement (NAFTA) 1. The North American Free Trade Agreement (NAFTA), implemented in 1994, effectively merged Canada, Mexico, and the United States into one market of nearly 460 million consumers. 2. NAFTA virtually eliminated all tariffs on goods produced and traded among Canada, Mexico, and the United States to create a free trade area. a. The estimated annual output for this trade alliance is more than $17 trillion. 3. NAFTA makes it easier for U.S. businesses to invest in Mexico and Canada; provides protection for intellectual property (of special interest to high-technology and entertainment industries); expands trade by requiring equal treatment of U.S. firms in both countries; and simplifies country-of-origin rules, hindering China and Japan’s use of Mexico as a staging ground for further penetration into U.S. markets. 4. Canada’s more than 34 million consumers are relatively affluent, with a per capita GDP of $40,500. a. Canada is the single largest trading partner of the United States, which in turn supports millions of U.S. jobs. b. NAFTA has also enabled additional trade between Canada and Mexico. 5. With a per capita GDP of $14,700, Mexico’s more than 114 million consumers are less affluent than Canadian consumers. a. The United States is Mexico’s largest trading partner, and Mexico is the third largest trading partner of the United States. b. Many U.S. companies, including Hewlett-Packard, IBM, and General Motors, have taken advantage of Mexico’s low labor costs and close proximity to the United States to set up production facilities, sometimes called maquiladoras. c. Mexico has the potential to become a major player in global business. d. Mexico is growing faster than Brazil and is estimated to soon become one of the top ten biggest global economies. 6. Efforts to create a free trade agreement among the 34 nations of North and South America are under way. a. A related trade agreement—the Dominican Republic–Central American Free Trade agreement (CAFTA-DR)—among Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States has also been ratified in all those countries except Costa Rica. C. The European Union (EU) 1. The European Union (EU), sometimes also referred to as the European Community or Common Market, was established in 1958 to promote trade among its members, which initially included Belgium, France, Italy, West Germany, Luxembourg, and the Netherlands. a. In 1991, East and West Germany united, and by 2013, the EU included the United Kingdom, Spain, Denmark, Greece, Portugal, Ireland, Austria, Finland, Sweden, Cyprus, Poland, Hungary, the Czech Republic, Slovenia, Estonia, Latvia, Lithuania, Slovakia, Malta, Romania, Bulgaria, and Croatia. b. The Former Yugoslav Republic of Macedonia and Turkey are candidate countries that hope to join the European Union in the near future. 2. To facilitate free trade among members, the EU is working toward standardizing business regulations and requirements, import duties, and value-added taxes; eliminating customs checks; and creating a standardized currency for use by all members. a. Many European nations (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Greece, and Spain) are linked to a common currency, the euro, but several EU members have rejected the euro in their countries (e.g., Denmark, Sweden, and the United Kingdom). b. The long-term goals are to eliminate all trade barriers within the EU, improve the economic efficiency of the EU nations, and stimulate economic growth, thus making the union’s economy competitive globally, particularly against Japan and other Pacific Rim nations and North America. 3. As the EU nations attempt to function as one large market, consumers in the EU may become more homogeneous in their needs and wants. a. However, marketers should be aware that cultural differences among the nations may require modifications in the marketing mix for customers in each nation. 4. While the United States and the EU do not always agree, partnerships between the two have been profitable and the two entities generally have a strong positive relationship. a. Much of this success can be attributed to the shared values of the United States and the EU. 5. The latest worldwide recession has slowed Europe’s economic growth and created a debt crisis. a. Ireland, Greece, and Portugal required significant bailouts from the European Union, followed by bailout requests from Spain and Cyprus. 6. Due to the massive industry collaboration between the United States and the EU, there have been discussions about the possibility of a trade agreement between the two entities. a. In many respects, the United States, the EU, and Asia have become largely interdependent in trade and investment. D. The Southern Common Market (MERCOSUR) 1. The Southern Common Market (MERCOSUR) was established in 1991 under the Treaty of Asunción to unite Argentina, Brazil, Paraguay, and Uruguay as a free trade alliance. a. Venezuela joined in 2006; currently Bolivia, Chile, Colombia, Ecuador, and Peru are associate members. b. Like NAFTA, MERCOSUR promotes “the free circulation of goods, services, and production factors among the countries” and establishes a common external tariff and commercial policy. 2. South America and Latin America are catching the attention of many international businesses. a. The region is advancing economically with an estimated growth rate of four to five percent. b. Another trend is that several of the countries, including some of the MERCOSUR alliance, are starting to experience more stable democracies. E. The Asia-Pacific Economic Cooperation (APEC) 1. The Asia-Pacific Economic Cooperation (APEC), established in 1989, promotes open trade and economic and technical cooperation among member nations, which initially included Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and the United States. a. Since then, the alliance has grown to include China, Hong Kong, Taiwan, Mexico, Papua New Guinea, Chile, Peru, Russia, and Vietnam. b. The 21-member alliance represents approximately 41 percent of the world’s population, 54 percent of world GDP, and nearly 44 percent of global trade. c. APEC differs from other international trade alliances in its commitment to facilitating business and its practice of allowing the business/private sector to participate in a wide range of APEC activities. 2. Companies of the APEC have become increasingly competitive and sophisticated in global business in the last few decades. a. The markets of the APEC offer tremendous opportunities to marketers who understand them. 3. The most important emerging economic power is China, which has become one of the most productive manufacturing nations. a. China, which is now the United States’ second largest trading partner of the United States, has initiated economic reforms to stimulate its economy by privatizing many industries, restructuring its banking system, and increasing public spending on infrastructure. 4. Pacific Rim regions, such as South Korea, Thailand, Singapore, Taiwan, and Hong Kong are also major manufacturing and financial centers. a. Vietnam is one of Asia’s fastest-growing markets for U.S. businesses, but Taiwan, given its stability and high educational attainment, has the most promising future of all the Pacific Rim nations as a strong local economy and low import barriers draw increasing imports. F. Association of Southeast Asian Nations (ASEAN) 1. The Association of Southeast Asian Nations (ASEAN), established in 1967, promotes trade and economic integration among member nations in Southeast Asia. a. The trade pact includes Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar, Indonesia, and Cambodia. 2. The economies of ASEAN countries are expanding at an average of 5.5 percent, with Singapore listed among the top richest nations in the world. a. Yet, despite these positive growth rates, ASEAN is facing many obstacles in becoming a unified trade bloc. 3. The advertisement for the Asia Foundation points out that while a major transformation is taking place, many economic, social, and political challenges exist. a. However, it also indicates that strong institutions and government policies are the key to growth and stability. 4. While many choose to compare ASEAN with the European Union, ASEAN members are careful to point out their differences. a. Although members hope to increase economic integration by 2015, they expressed that there will be no common currency or fully free labor flows between members. G. The World Trade Organization (WTO) 1. The World Trade Organization (WTO) is a global trade association that promotes free trade among 153 member nations. a. The WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which was originally signed by 23 nations in 1947 to provide a forum for tariff negotiations and a place where international trade problems could be discussed and resolved. b. Rounds of GATT negotiations reduced trade barriers for most products and established rules to guide international commerce, such as rules to prevent dumping, the selling of products at unfairly low prices. 1. The WTO came into being in 1995 as a result of the Uruguay Round (1988–1994) of GATT negotiations. a. Broadly, WTO is the main worldwide organization that deals with the rules of trade between nations; its main function is to ensure that trade flows as smoothly, predictably, and freely as possible between nations. 2. Fulfilling the purpose of the WTO requires eliminating trade barriers; educating individuals, companies, and governments about trade rules; and reassuring global markets that no sudden changes of policy will occur. a. At the heart of the WTO are agreements that provide legal ground rules for international commerce and trade policy. IV. Modes of Entry into International Markets A. Marketers enter international markets and continue to engage in international marketing activities at several levels of involvement. 1. Traditionally, firms have adopted one of four modes of entering an international market; with each successive “stage” representing different degrees of international involvement: a. Domestic marketing: All marketing activities focus on the country of origin b. Limited exporting: International distributors or foreign firms purchase some products c. Multinational marketing: Customization for country markets based on differences between markets d. Regional marketing: Marketing strategies developed for each major region with focus on similarities across the region’s country markets e. Globalized marketing: Marketing strategies developed for the entire world with focus on similarities among regions and country markets 2. Companies’ international involvement covers a wide spectrum, from purely domestic marketing to global marketing (Figure 8.1). B. Importing and Exporting 1. Importing and exporting require the least amount of effort and commitment of resources. a. Importing is the purchase of products from a foreign source. b. Exporting, the sale of products to foreign markets, enables firms of all sizes to participate in global business. (1) A firm may find an exporting intermediary to take over most marketing functions associated with marketing to other countries; this approach entails minimal effort and cost. (2) Export agents bring together buyers and sellers from different countries and collect a commission for arranging sales. (a) Export houses and export merchants purchase products from different companies and then sell them abroad. (3) Buyers from foreign companies and governments provide a direct method of exporting and eliminate the need for an intermediary. (a) Domestic firms that want to export with minimal effort and investment should seek out export intermediaries. 2. Marketers sometimes employ a trading company, which links buyers and sellers in different countries but is not involved in manufacturing and does not own assets related to manufacturing. a. An important function of trading companies is taking title to products and performing all the activities necessary to move the products to the targeted foreign country. b. Trading companies reduce risks for firms interested in getting involved in international marketing. C. Licensing and Franchising 1. When potential markets are found across national boundaries, and when production, technical assistance, or marketing know-how is required, licensing is an alternative to direct investment. a. The licensee (the owner of the foreign operation) pays commissions or royalties on sales or supplies used in manufacturing. (1) The licensee may also pay an initial down payment or fee when the licensing agreement is signed. b. Exchanges of management techniques or technical assistance are primary reasons for licensing arrangements. c. Licensing is an attractive alternative when resources are unavailable for direct investment or when the core competencies of the firm or organization are not related to the product being sold. d. Licensing can also be a viable alternative when the political stability of a foreign country is in doubt. 2. Franchising is a form of licensing in which a company (the franchiser) grants a franchisee the right to market its product, using its name, logo, methods of operation, advertising, products, and other elements associated with the franchiser’s business, in return for a financial commitment and an agreement to conduct business in accordance with the franchiser’s standard of operations. a. This arrangement allows franchisers to minimize the risks of international involvement in four ways: (1) The franchiser does not have to put up a large capital investment. (2) The franchiser’s revenue stream is fairly consistent because franchisees pay a fixed fee and royalties. (3) The franchiser retains control of its name and increases global penetration of its product. (4) The franchise agreements ensure a certain standard of behavior from franchisees, which protects the franchise name. D. Contract Manufacturing 1. Contract manufacturing occurs when a company hires a foreign firm to produce a designated volume of the firm’s product (or a component of a product) to specifications and the final product carries the domestic firm’s name. a. Marketing may be handled by the contract manufacturer or by the contracting company. 2. Three specific forms of contract manufacturing have become popular in the last decade—outsourcing, offshoring, and offshore outsourcing. a. Outsourcing is defined as the contracting of noncore operations or jobs from internal production within a business to an external entity which specializes in that operation. b. Offshoring is defined as moving a business process that was done domestically at the local factory to a foreign country, regardless of whether the production accomplished in the foreign country is performed by the local company (e.g., in a wholly-owned subsidiary) or a third party (e.g., subcontractor). c. Offshore outsourcing is the practice of contracting with an organization to perform some or all business functions in a country other than the country in which the product will be sold. E. Joint Ventures 1. In international marketing, a joint venture is a partnership between a domestic firm and a foreign firm or government. a. Control of the joint venture may be split equally, or one party may control decision making. b. Joint ventures are often a political necessity because of nationalism and government restrictions on foreign ownership. c. Joint ventures also provide legitimacy in the eyes of the host country’s citizens. d. Joint ventures are assuming greater global importance because of cost advantages and the number of inexperienced firms entering foreign markets. 2. Strategic alliances are partnerships formed to create competitive advantage on a worldwide basis. a. In an international strategic alliance, the firms in the alliance may have been traditional rivals competing for the same market. F. Direct Ownership 1. Once a company makes a long-term commitment to marketing in a foreign country that has a promising market as well as a suitable political and economic environment, direct ownership of a foreign subsidiary or division is a possibility. a. Most foreign investment covers only manufacturing equipment or personnel because the expenses of developing a separate foreign distribution system can be tremendous. 2. The term multinational enterprise, sometimes called multinational corporation, refers to a firm that has operations or subsidiaries in many countries. a. Often, the parent company is based in one country and carries on production, management, and marketing activities in other countries. 3. A wholly owned foreign subsidiary may be allowed to operate independently of the parent company to give its management more freedom to adjust to the local environment. a. Cooperative arrangements are developed to assist in marketing efforts, production, and management. V. Customization versus Globalization of International Marketing Mixes A. Traditionally, international marketing strategies have customized marketing mixes according to cultural, regional, and national differences. 1. Realizing that both similarities and differences exist across countries is a critical first step to developing the appropriate marketing strategy effort targeted to particular international markets. B. For many firms, globalization of marketing is a goal; it involves developing marketing strategies as though the entire world (or its major regions) were a single entity—a globalized firm markets standardized products in the same way everywhere. C. For many years, organizations have attempted to globalize their marketing mixes as much as possible by employing standardized products, promotional campaigns, prices, and distribution channels for all markets. 1. Brand name, product characteristics, packaging, and labeling are among the easiest marketing mix variables to standardize; media allocation, retail outlets, and price may be more difficult. 2. In the end, the degree of similarity among the various environmental and market conditions determines the feasibility and degree of globalization. D. International marketing demands some strategic planning if a firm is to incorporate sales into its overall marketing strategy. 1. Regardless of the extent to which a firm chooses to globalize its marketing strategy, extensive environmental analysis and marketing research are necessary to understand the needs and desires of the target market(s) and successfully implement the chosen marketing strategy. E. A global presence does not automatically result in a global competitive advantage; however, a global presence generates five opportunities for creating value: 1. To adapt to local market differences 2. To exploit economies of global scale 3. To exploit economies of global scope 4. To mine optimal locations for activities and resources 5. To maximize the transfer of knowledge across locations DISCUSSION STARTERS Discussion Starter 1: Global Service in a Global Economy The video clip below portrays AT&T and its global services. As a discussion starter, students can be asked to name other well-known global companies and what their particular expertise is. http://www.youtube.com/watch?v=F24ckDW0izI Discussion Starter 2: FedEx and Customer Satisfaction FedEx frequently appears on lists of the most admired companies in the world. FedEx is globally known for its creative advertising and its operational excellence in moving packages from their origins to their destinations quickly. Below are several video clips that highlight Federal Express’ creative advertising. http://www.youtube.com/watch?v=31yxkSIIn9A http://www.youtube.com/watch?v=6hKWM5Z1zds&feature=related After viewing these clips, instructors can ask how many students have used Federal Express or other companies to send packages. If so, instructors should ask students why they spend the extra money (rather than shipping packages using the US Postal Service), and ask the students if anyone has had a package get lost or arrive late. Discussion Starter 3: Global Shipping ASK: What is more than ¼ mile long and can carry more than a 44-mile-long train? The answer is the world’s largest container ship the Emma Maersk. The growth of global trade has led to a phenomenal growth in the demand for container ships. The Emma Maersk is longer than a U.S. aircraft carrier. She can carry between 11,000 and 15,000 20-foot containers, and she has room for 1,000 20-foot refrigerated containers. In total, the Emma Maersk holds more cargo than a 44-mile-long train and operates with a crew of 13. The following clip discusses the cargo ship in detail: http://www.youtube.com/watch?v=x1lm1gUWD30 With the ability to tap into economies of scale, shipping the container from the warehouse or plant to the docks by truck is often more expensive than the ocean voyage which brings the container to its final destination. This low-cost global transportation has spurred the growth of the global market. CLASS EXERCISES Class Exercise 1: Environmental Forces and Marketing Strategy The objective of this class exercise is to point out how various environmental forces may influence a company’s marketing strategy. The information contained in the examples came from an actual in-class discussion among students, many of whom were from European countries. The text offers numerous other examples that students can use if they have not been to Europe. Prompt for Students: There are many differences between European countries and the United States. The following are just some of the examples: • CULTURAL—advertising in many European countries often contains nudity. Some Europeans are not as concerned with body odor and cleanliness as are people in the United States. • SOCIAL—people in the United States are often more serious and aggressive about religion than people in some European countries. Sports fans (particularly those of soccer) in Europe are much more fanatic and violent; in some cases, large fences are needed to separate the fans of different teams. • ECONOMIC—European countries in general place a greater emphasis on public transportation (train and bus) than does the United States. Many European countries face much higher inflation rates than does the United States. • POLITICAL/LEGAL—in some European countries, bribes and payoffs are common business practices. Other countries allow the sale of narcotic drugs without prosecution. Prostitution is legal in some countries. • TECHNOLOGICAL—most countries outside the United States use the metric system. Television and radio are often not as widespread as they are in the United States. Based on your understanding of differences between European countries and the United States, how might a U.S. company’s marketing strategy be affected in each of the following situations? a. The Walt Disney Company opens Euro Disney in Paris, France. b. McDonald’s opens a fast-food restaurant in Berlin, Germany. c. The National Football League forms a team in Barcelona, Spain. d. Federal Express begins overnight package delivery to Hungary. e. Procter & Gamble begins to sell Safeguard soap in France. Answers: a. In the Euro Disney situation, students may point out that Disney’s advertising would definitely be affected. Not only would the language in an ad have to be changed, but the availability of media would also affect Disney’s strategy. In addition, the increased use of public transportation in Europe might change how Disney builds the facility (i.e., parking lots, buses, train stations). b. In the McDonald’s situation, some students may question whether a fast-food restaurant makes sense in Europe. Fast food is popular in America because we greatly value our time. Likewise, the conversion to a metric system would require changes in all of McDonald’s portion sizes (i.e., a 20-ounce soft drink equals .59 liters). c. When the NFL expands into Spain, it must convert measurements to the metric system. In addition, the new team should anticipate the actions of excited sports fans. d. Federal Express would be concerned about the availability of transportation and communication networks in Hungary. Additional concerns might include changes in weights and measurements, pricing, and advertising. e. If Procter & Gamble begins to sell Safeguard soap in France, the company has a unique challenge—How do you convince people who are less concerned about body odor to buy deodorant soap? This problem will force many changes in the company’s advertising. In addition to these specific changes, students should recognize other changes. Will bribes or payoffs be required to establish businesses in these foreign countries? How will inflation rates affect the prices these companies must charge for their products and services? Can the people of these countries even afford to buy the products and services? McDonald’s is having this problem in Moscow, where a Big Mac costs as much or more than many Muscovites make in an entire month. Class Exercise 2: International Environmental Forces The following environmental forces affect international markets: sociocultural, economic, political/legal, social responsibility/ethics, competitive, and technological. With which force is each of the following most closely associated? Characteristic Environmental Force 1. Handshaking Sociocultural 2. Religion Sociocultural 3. Transportation networks Economic, political/legal 4. Computer literacy Social/technological 5. Sporting events Sociocultural 6. Color preferences Sociocultural 7. Standard of living Economic 8. Role of children in the family Sociocultural 9. Communications equipment Technological 10. Touching Sociocultural 11. Import restrictions Political/legal 12. Government stability Political/legal 13. Climate Economic 14. Language Sociocultural 15. Payoffs and bribes Sociocultural/legal/ethics This exercise asks students to match each factor with its corresponding environmental force, but it should not end there. Ask your students to explain their own customs, such as handshaking, the use of color, or behavior at sporting events. Chances are they take these things for granted in their lives and will have some difficulty explaining them to the class. Then correlate this difficulty to the challenge of understanding the environmental forces affecting international marketing activities. Most likely answers are included next to each characteristic. Class Exercise 3: Global Interests Ask students to write down their top three choices of countries they would like to visit and why. Once completed, these results can be compiled and shared with the class as an example of how diverse and eclectic people are in their global awareness and interest. The larger the class the better this exercise works. Also, it is likely that the top countries listed will be Australia and western European countries. This provides food for thoughts on how Euro/Anglo-centric America can be. CHAPTER QUIZ 1. By 2009, NAFTA created a totally free trade area between the United States, a. Canada and Mexico. b. Japan and China. c. Brazil and Mexico. d. Cuba and Panama. e. Panama and Canada. 2. A duty levied by a nation on goods bought outside its borders and brought inside is called a(n) a. import duty. b. embargo. c. quota. d. export tariff. e. import tariff. 3. __________ bring together buyers and sellers from different countries and collect a commission for arranging sales. a. Export agents b. Licensors c. Trading companies d. Import specialists e. Trade brokers 4. Globalization of marketing involves a. developing a set of marketing strategies for the entire world or major regions of the world. b. performing marketing activities across national boundaries. c. exporting goods and services to foreign countries. d. creating value and exchanging value between countries. e. locating operations or subsidiaries in many countries. Answers to Chapter Quiz: 1. a; 2. e; 3. a; 4. a. ANSWERS TO ISSUES FOR DISCUSSION AND REVIEW 1. How does international marketing differ from domestic marketing? International marketing differs from domestic marketing in that exchanges occur across national boundaries. When marketing occurs across national boundaries, decisions should take into account differences in the marketing environment and the unique needs of customers in other countries. 2. What factors must marketers consider as they decide whether to engage in international marketing? International marketing involvement relates to the firm’s goals and the perceived opportunity from serving foreign markets. To develop desired profits and growth, marketers sometimes consider it necessary to cross national boundaries. Firms that enter international markets often find that they must make significant adjustments in their marketing strategies. A successful international marketing strategy requires a careful environmental analysis. Factors that marketers need to consider as they decide whether to engage in international marketing are the sociocultural; economic; political, legal, and regulatory; social and ethical; competitive; and technological forces in other countries. 3. Why are the largest industrial corporations in the United States so committed to international marketing? The largest industrial corporations in the United States are committed to international marketing because their resources and market opportunities can be optimized in serving foreign markets. For example, some firms—such as eBay, Google, and Logitech—were founded with the knowledge and resources to expedite their commitment and investment in the global marketplace. 4. Why do you think this chapter focuses on an analysis of the international marketing environment? The environment is a major consideration in analyzing international marketing. If a marketing strategy is to be effective across national boundaries, the complexities of all environments must be understood. The cultural, social, ethical, economic, political/ legal, and technological environments of many foreign countries differ considerably from those in the United States. 5. If you were asked to provide a small tip (or bribe) to have a document approved in a foreign nation where this practice is customary, what would you do? This question relates to the values and ethical standards of the individual involved. There is no right or wrong answer in this situation, but such tips should be avoided if possible. In the United States, this type of payment is considered a bribe and therefore is unethical and probably illegal. 6. How will NAFTA affect marketing opportunities for U.S. products in North America (the United States, Mexico, and Canada)? NAFTA makes it easier for U.S. businesses to invest in Mexico and Canada, provides protection for intellectual property, expands trade by requiring equal treatment of U.S. firms in both countries, and simplifies country-of-origin rules, hindering China and Japan’s use of Mexico as a staging ground for further penetration into U.S. markets. It gives U.S. firms greater access to desirable Mexican and Canadian markets. Relaxation of licensing requirements gives smaller firms that previously could not afford to invest in Mexico and Canada the opportunity to do business there without actually having to locate there. NAFTA also should lead to more efficient markets, due to increased competition, and the long-term prospects of including most Western Hemisphere countries in the alliance. 7. What should marketers consider as they decide whether to license or enter into a joint venture in a foreign nation? A decision to license or to enter into a joint venture in a foreign country depends on the nature of the product and the political and economic stability of the nation being served. Licensing is not as risky as a joint venture because the licensee pays commissions or royalties on the sales of supplies used in manufacturing in a foreign country. This technique is an alternative to direct investment. The joint venture is a partnership between a domestic and a foreign firm and/or government. In a joint venture, there is always the possibility the domestic and foreign firms will disagree, and the foreign firm can be at a disadvantage. There is always the possibility of expropriation—the foreign country may take over all control of a joint venture. On the other hand, a joint venture often guarantees a firm will gain a foreign market and may help develop local support for the firm’s products. 8. Discuss the impact of strategic alliances on international marketing strategies. Strategic alliances are partnerships formed to create competitive advantage on a worldwide basis. In some areas, they are becoming the predominant means of competing. The impact of strategic alliances on international marketing strategies is that companies can offer high-quality products at the lowest competitive price available and focus on unique approaches to promotion and distribution. 9. Contrast globalization with customization of marketing strategies. Is one practice better than the other? Marketers have traditionally customized marketing strategies according to cultural, regional, and national differences. Increasingly, more firms are attempting to globalize marketing strategies by treating the entire world (or significant major regions) as a single entity; they market standardized products in the same way everywhere. Although there are economic and competitive advantages to globalizing strategies, some aspects of the marketing mix (media allocation, retail outlets, and price) are difficult to globalize. Even global advertising campaigns may have to be translated into different languages to succeed, and some products may require significant modifications for different countries. Thus, it is difficult to say that one strategy is “better” than the other. 10. What are some of the product issues that you need to consider when marketing luxury automobiles in Australia, Brazil, Singapore, South Africa, and Sweden? Students’ responses to this question may vary depending on their own knowledge and understanding of the material. The question is designed to help them recognize that different countries present different challenges to international marketers. For example, although Australia is quite similar to the United States, cars drive on the left side of the road and have steering wheels on the right side of the vehicles. ANSWERS TO MARKETING APPLICATIONS 1. To successfully implement marketing strategies in the international marketplace, a marketer must understand the complexities of the global marketing environment. Which environmental forces (sociocultural, economic, political/legal/regulatory, ethical, competitive, or technological) might a marketer need to consider when marketing the following products in the international marketplace, and why? a. Barbie dolls b. Beer c. Financial services d. Television sets Students’ answers will vary, but they should include nearly every environmental force for each question. Environmental forces influence nearly every industry in some way, so students should be able to identify which forces are most important for a particular product as well as anticipate the forces that may have less influence than others. 2. Many firms, including Procter & Gamble, FedEx, and Occidental Petroleum, wish to do business in eastern Europe and in the countries that were once part of the former Soviet Union. What events could occur that would make marketing in these countries more difficult? What events might make it easier? This question asks students to consider the political and environmental forces that could influence international marketing. Students will likely come up with a variety of answers and may cover topics such as joining the EU, creating an alliance with Russia, economic crises, etc. 3. This chapter discusses various organizational approaches to international marketing. Which would be the best arrangements for international marketing of the following products, and why? a. Construction equipment b. Cosmetics c. Automobiles Students’ answers will vary, but students should be able to support their answers. For example, they might state that automobiles might have a geographic area structure because of regional and international differences in income and other customer needs. 4. Procter & Gamble has made a substantial commitment to foreign markets, especially in Latin America. Its actions may be described as a “globalization of marketing.” Describe how a shoe manufacturer (e.g., Wolverine World Wide) would go from domestic marketing to limited exporting, to international marketing, and finally to a globalization of marketing. Give examples of some activities that might be involved in this process. This question relates to the modes of entry into international markets. This process includes: • Domestic marketing: All marketing activities focus on the country of origin • Limited exporting: International distributors or foreign firms purchase some products • Multinational marketing: Customization for country markets based on differences between markets • Regional marketing: Marketing strategies developed for each major region with focus on similarities across the region’s country markets • Globalized marketing: Marketing strategies developed for the entire world with focus on similarities among regions and country markets 5. Use the information on windshield-wiping fluid heaters and the Russian market included in the text. Based on approximately 275 motor vehicles per 1,000 people in the Russian population, what percentage of the market do you think that companies selling this product can capture (industry sales)? Which mode of entry seems best for one of these manufacturers? They are usually mid-sized companies with limited capital, international experience, and knowledge. How much customization would a product like this require for Russia? Responses to the first question (percentage of the market) will vary for each student, but the estimates for industry sales should be realistic. Suggestions for mode of entry will also vary, but students should justify the level of risk (i.e., trading companies are low-risk while offshoring is high risk). For the final question, most students will answer that a windshield-wiper fluid heater would need little customization because weather conditions remain the same across borders. However, it is possible that the heater would need to be customized to meet international manufacturing needs or the income level of Russian consumers. 6. Develop your analytical and communication skills using the Role-Play Exercises Online at www.cengagebrain.com. Students can visit the website and develop their analytical and communication skills. ANSWERS TO INTERNET EXERCISE FTD Founded in 1910 as Florists’ Telegraph Delivery, FTD was the first company to offer a “flowers-by-wire” service. FTD does not deliver flowers itself, but it depends on local florists to do it. In 1994, FTD expanded its toll-free telephone-ordering service by establishing a website. Visit the site at www.ftd.com, and answer the following: 1. Click on “International” near the bottom of the web page. Select a country to which you would like to send flowers. Summarize the delivery and pricing information that would apply to that country. International delivery information is located at the bottom of the home page and is divided by region. Students’ answers will vary based on the choice of country. 2. Determine the cost of sending fresh-cut seasonal flowers to Germany. Depending on the arrangement, prices vary from $79.99 to $240.99 (as of press time). 3. What are the benefits of this global distribution system for sending flowers worldwide? What other consumer products could be distributed globally through the Internet? Students will be able to list several benefits of global distribution, including the ability to send gifts to friends and family who are spread out across the world. Today, almost any consumer products can be distributed globally through the Internet, so you may want to ask students what types of products cannot be distributed online. ANSWERS TO DEVELOPING YOUR MARKETING PLAN The information obtained from these questions should assist you in developing various aspects of your marketing plan. Develop your marketing plan online using the Interactive Marketing Plan at www.cengagebrain.com. 1. Review the environmental analysis that was completed in Chapter 3. Extend the analysis for each of the seven factors to include global markets. Students’ answers will vary. Students should begin to think about the international challenges associated with each of the environmental factors and how they could affect their products. 2. Using Figure 8.1 as a guide, determine the degree of international involvement that is appropriate for your product and your company. Students’ answers will vary. The product and company of most students will have some degree of international involvement. Once a business starts to grow, it will want to plan for international involvement of some level. 3. Discuss the concepts of customization and globalization for your product when moving to international markets. Refer to Table 8.5 for guidance in your discussion. Students’ answers will vary. Table 8.5 provides a variety of international issues for students to consider. Not every issue applies to every product, but students should be able to adjust some element of each part of the marketing mix. COMMENTS ON VIDEO CASE 8: EVO: THE CHALLENGE OF GOING GLOBAL Summary Evo is an active sports retailer that has unexpectedly become a global distributor. Founded as an online store in 2001, the company opened its Seattle-based retail store four years later; this combination of e-commerce and physical stores allows evo to carry a greater selection and extend its global reach while providing customers with a way to interact with its products. Approximately 5 percent of evo’s business comes from outside the United States, but the company has been constrained by its relationships with international vendors. Evo hopes to work with its vendors to make global selling more feasible. In the meantime, the company continues to ship directly to consumers and engage with its fans through the Internet. Questions for Discussion 1. What are both the positive and negative outcomes from using exclusive dealer agreements that restrict global distribution? Vendors create exclusive dealer arrangements with evo to avoid saturating markets overseas and to maintain control over their products. By limiting distribution, manufacturers are able to exert some control over other elements of the marketing mix, such as price. Because retailers often do not own many of the brands they sell, manufacturers can maintain the right to determine where their products are sold and how much to distribute to the company. If consumers from foreign countries try to order these brands, they will receive notification that their order has been canceled. 2. What are the unique product features that could make evo a global brand? Evo creates global brand exposure through the Internet. The company launched evoTrip as a service for adventurous sports enthusiasts who want to travel. EvoTrip arranges the trips with the goal to connect people to local cultures, communities, and sports. In addition to increasing its customer base, evoTrip allows the organization to form relationships with consumers overseas. Evo’s fans also find ways to ship the company’s products internationally. 3. What should evo's marketing strategy be to go global? Students’ answers will vary. Evo should continue to build strong relationships with global consumers and with its vendors to make global selling more feasible. The company might also choose to continue to open more physical stores and create its own brand of products that it could distribute internationally. Solution Manual for Foundations of Marketing William M. Pride, O. C. Ferrell 9781305361867, 9781305405769, 9780357033760