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Chapter Sixteen: Global Marketing 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. 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. 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? 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. 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). 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? 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. 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. 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? 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? 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. The World Trade Organization, World Bank, and International Monetary Fund all work in different ways to facilitate globalization. What role(s) does each organization play in the global marketplace? There's a brief overview of the roles each organization plays in the global marketplace: 1. World Trade Organization (WTO): • The WTO is primarily responsible for regulating international trade between nations. • It sets rules for global trade, resolves trade disputes, and negotiates trade agreements among member countries. • The WTO aims to promote free trade by reducing barriers such as tariffs and quotas, thus facilitating the smooth flow of goods and services across borders. • Additionally, it provides a platform for member countries to discuss and coordinate trade policies, ensuring a more predictable and transparent trading environment. 2. World Bank: • The World Bank focuses on providing financial assistance and technical expertise to developing countries to support their economic development and reduce poverty. • It offers loans, grants, and credits for various development projects, including infrastructure, education, healthcare, and agriculture. • The World Bank also conducts research and analysis to identify key development challenges and formulate strategies to address them. • Through its various programs and initiatives, the World Bank aims to promote sustainable development and improve living standards in developing countries. 3. International Monetary Fund (IMF): • The IMF plays a crucial role in promoting global monetary cooperation and stability. • It provides financial assistance to countries facing balance of payments problems or currency crises, helping them stabilize their economies and restore confidence in their financial systems. • The IMF also offers policy advice and technical assistance to member countries to help them strengthen their economic policies and institutions. • Additionally, it conducts economic surveillance and analysis to monitor global economic developments and identify emerging risks to the stability of the international monetary system. Overall, these organizations work together to promote economic growth, stability, and development on a global scale, albeit with different focuses and approaches. Instructor’s Notes: To deepen students’ understanding of the different parties that facilitate globalization, this question challenges them to discern the differences in the roles and responsibilities of these important organizations. • Example answers: o The World Trade Organization represents the only international organization that deals with global trade rules; its main function is to ensure that trade flows as smoothly, predictably, and freely as possible. o The World Bank is dedicated to fighting poverty and improving the living standards of people in the developing world. As a development bank, it provides loans, policy advice, technical assistance, and knowledge-sharing services to low- and middle-income countries in its attempts to reduce poverty. o The International Monetary Fund promotes international monetary cooperation and facilitates the expansion and growth of international trade; its primary focus is maintaining the international monetary system. 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? When assessing the potential of entering the U.K. and Chinese markets, Cervélo should consider several economic factors: 1. GDP and Income Levels: Cervélo should analyze the GDP per capita and income levels in both countries. Higher GDP and income levels usually indicate a greater potential for consumers to afford high-end products like Cervélo bicycles. 2. Market Size and Growth: The size and growth rate of the bicycle market in each country are crucial. While the U.K. might have a smaller population compared to China, its market might be more mature and saturated, whereas China's market could be growing rapidly. 3. Consumer Preferences and Trends: Understanding consumer preferences and trends in cycling is essential. Cervélo should research whether there's a growing interest in high-end bicycles, particularly in performance-driven markets like the U.K. and China. 4. Regulatory Environment: Cervélo needs to assess the regulatory environment in both countries, including import/export regulations, taxes, tariffs, and any other barriers to entry. 5. Infrastructure and Cycling Culture: The infrastructure for cycling and the prevailing cycling culture in each country matter. The U.K. might have well-developed cycling lanes and a strong cycling community, while China's infrastructure and cycling culture might be evolving rapidly. 6. Competitive Landscape: Analyzing the competition in each market is crucial. Cervélo needs to identify key competitors and assess their market share, pricing strategies, and distribution channels. 7. Exchange Rates and Currency Fluctuations: Currency exchange rates can significantly impact profitability, especially for a company like Cervélo that might be importing its bicycles into these markets. Fluctuations in exchange rates should be carefully considered. Given these factors, the more lucrative market for Cervélo would likely be China. Here's why: • Market Growth: China's bicycle market has been experiencing significant growth due to urbanization, increasing disposable income, and growing awareness of health and fitness. This presents a substantial growth opportunity for Cervélo to tap into. • Large Population: China has a much larger population compared to the U.K., offering a larger potential customer base. • Rising Affluence: With China's middle class expanding and becoming more affluent, there's an increasing demand for premium and high-end products, including bicycles. • Cycling Infrastructure Investments: China has been investing heavily in cycling infrastructure, including dedicated bike lanes in cities. This infrastructure development supports the growth of cycling as a mode of transportation and leisure activity. • Less Saturated Market: While there may be competition in China's bicycle market, it might be less saturated compared to the U.K., providing Cervélo with more opportunities to establish itself as a premium brand. Overall, while the U.K. might offer a stable and mature market, the growth potential, large population, rising affluence, and evolving cycling culture make China a more promising market for Cervélo's high-end bicycles. 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: o 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. o 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. 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. China and the United Kingdom differ significantly in their political, economic, and legal systems, which can influence the hospitability of a company like Cervélo in each country. Political System: China operates under a one-party communist system, where the government has a significant influence on economic activities and business operations. The government can enact policies and regulations that may favor domestic companies or those aligned with its strategic goals. The United Kingdom, on the other hand, operates under a democratic system with a market-oriented economy. While the government still regulates business activities, there is generally more transparency and a lesser degree of government intervention compared to China. Economic System: China has a mixed economy with a strong state-controlled sector alongside a growing private sector. The government often supports domestic companies through subsidies, preferential policies, and access to resources. The United Kingdom has a predominantly market-driven economy with a focus on free-market principles. While there are regulations and government interventions, there is generally more competition and less direct government support for specific companies. Legal System: China's legal system is based on civil law, with the Communist Party having significant influence over the judiciary. Enforcement of contracts and protection of intellectual property rights can sometimes be uncertain, especially for foreign companies. The United Kingdom has a common law legal system, which provides more predictability and protection for businesses, including strong enforcement of contracts and robust intellectual property rights protection. Considering these factors, one might argue that the United Kingdom is more hospitable to Cervélo than China. In the UK, the company would likely encounter a more transparent and predictable business environment, with stronger legal protections for its intellectual property and contracts. Additionally, the market-oriented economy would offer more opportunities for competition and growth without as much government intervention. However, it's essential to conduct a detailed analysis considering factors like market demand, competition, and regulatory environment before making a definitive conclusion. 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: o 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. 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? Volkswagen's market position is likely to vary across Mexico, Latin America, and Canada due to several factors including consumer preferences, economic conditions, regulatory environments, and cultural influences. Consumer Preferences: Each region may have different preferences when it comes to car features, sizes, and styles. For example, in Canada, there might be a preference for larger vehicles due to weather conditions, while in Mexico and Latin America, smaller, more fuel-efficient cars might be favored for urban commuting. Economic Conditions: Economic factors such as income levels, purchasing power, and overall economic stability can significantly impact car sales. In Canada, where the economy tends to be more stable and incomes higher on average compared to some parts of Latin America, consumers might be more inclined to purchase newer, higher-priced Volkswagen models. Regulatory Environment: Regulatory standards and policies related to emissions, safety, and import tariffs can influence Volkswagen's market position. Differences in these regulations between Canada and Latin American countries could affect the types of vehicles offered and their pricing. Cultural Influences: Cultural preferences and attitudes towards brands can also play a role. Volkswagen's brand image and reputation may resonate differently in each region based on historical factors, marketing efforts, and local perceptions. Competition: The competitive landscape varies across regions. In Canada, Volkswagen might face competition from other European automakers as well as domestic and Asian brands. In Mexico and Latin America, it might compete with a broader range of brands, including domestic manufacturers and Asian automakers. Overall, while Volkswagen may maintain a strong global presence, its market position in Mexico, Latin America, and Canada is likely to be shaped by a combination of these factors, leading to differences in sales volume, market share, and brand perception across the regions. 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: o 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. 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, Phillips, and McDonald’s achieve multi-local status? Global brands like McCain Foods, Philips, and McDonald's achieve multi-local status through a combination of strategies tailored to each market they operate in: Adaptation: They adapt their products, services, and marketing strategies to suit local preferences and cultural norms. This can include offering region-specific menu items, adjusting product features, or even customizing advertising campaigns to resonate with local audiences. Localization: They establish strong local presence by investing in local facilities, hiring local talent, and engaging with local communities. This helps build trust and loyalty among consumers who appreciate the brand's commitment to their region. Partnerships: They often collaborate with local businesses, suppliers, and distributors to ensure efficient operations and to better understand local market dynamics. These partnerships also help in navigating regulatory requirements and overcoming logistical challenges. Corporate Social Responsibility (CSR): They engage in CSR initiatives tailored to address local social and environmental issues. This demonstrates their commitment to the well-being of the communities they operate in and helps build a positive brand image at the local level. Continuous Innovation: They continuously innovate and introduce new products or services that meet the evolving needs and preferences of local consumers. This not only helps them stay relevant but also reinforces their position as a market leader in each region. By implementing these strategies, global companies like McCain Foods, Philips, and McDonald's can effectively blend global scale with local relevance, gaining the best of both worlds and fostering 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: o 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. o o 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. o 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. o In the case of Philips, it has maintained its global character by maintaining its reputation for providing high-quality, affordable electronics but has utilized localized product and promotion strategies. Like McCain and McDonalds, Philips maintained its global brand character in each of its markets while making adaptations. 6. What is cultural imperialism? Why would a recording company like Def Jam Records need to be aware of and sensitive to this issue? Cultural imperialism refers to the dominance or influence of one culture over others, often through the exportation of cultural products such as music, movies, or literature. This phenomenon can occur when a more powerful or dominant culture imposes its values, beliefs, and practices onto other societies, potentially eroding local traditions and identities. For a recording company like Def Jam Records, which operates within the global music industry, being aware of and sensitive to cultural imperialism is crucial for several reasons: Respect for Diversity: Def Jam Records operates in a diverse global market where various cultures have their own unique musical traditions and preferences. Being sensitive to cultural imperialism ensures that the company respects and acknowledges this diversity rather than imposing one dominant culture's music onto others. Avoiding Offense: Insensitivity to cultural imperialism can lead to backlash from consumers who feel their cultural identities are being disregarded or appropriated. This can damage the reputation and sales of the company's artists and products. Sustainability and Longevity: Building sustainable relationships with artists and audiences worldwide requires understanding and valuing cultural differences. By being sensitive to cultural imperialism, Def Jam can foster more authentic connections with audiences and ensure the longevity of its success in diverse markets. Legal and Ethical Considerations: In some cases, cultural imperialism can raise legal and ethical concerns, particularly regarding copyright, ownership, and representation. Def Jam needs to navigate these issues carefully to avoid legal disputes and maintain ethical business practices. Creative Innovation: Embracing cultural diversity can also lead to creative innovation within the music industry. By incorporating diverse cultural influences into their music, artists and labels like Def Jam can create unique and compelling sounds that resonate with audiences worldwide. Overall, being aware of and sensitive to cultural imperialism allows Def Jam Records to navigate the complexities of the global music industry responsibly, ethically, and successfully. 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: o 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. 7. Provide an example of a potentially ethically troubling practice by a foreign firm doing business in Canada. One example of a potentially ethically troubling practice by a foreign firm doing business in Canada could be exploiting legal loopholes to avoid environmental regulations. For instance, a foreign manufacturing company might set up operations in Canada but engage in practices that harm the environment, such as excessive pollution or improper waste disposal, knowing that the legal consequences or enforcement might be less stringent than in their home country. This could lead to environmental degradation and harm to local communities, raising ethical concerns about the foreign firm's commitment to responsible business practices and its impact on the environment and public health 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: o 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. 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? The decision by Canadian and U.S. firms to relocate production facilities and services overseas, commonly known as outsourcing or offshoring, is primarily driven by several factors: Cost Reduction: One of the main reasons for outsourcing is to lower production costs. Labor costs tend to be significantly lower in many overseas locations, particularly in developing countries, due to lower wages and less stringent labor regulations. Additionally, operational costs such as taxes, utilities, and real estate can be cheaper in certain regions. Access to Skilled Labor: Offshoring allows firms to tap into pools of skilled labor that may not be readily available domestically. This is particularly relevant for industries requiring specialized skills or expertise that are in short supply domestically. Market Expansion: Establishing production facilities overseas can provide easier access to foreign markets, allowing firms to better serve international customers and potentially expand their customer base. This can be crucial for companies looking to grow their global footprint and increase market share. Time Zone Differences: Offshoring to countries with significant time zone differences can enable companies to operate on a 24/7 basis, leading to increased productivity and faster turnaround times. While outsourcing and offshoring can offer various benefits to firms, including cost savings and access to new markets, there are also potential downsides, particularly concerning the loss of Canadian and U.S. jobs: Job Displacement: When firms move production overseas, it often results in the displacement of domestic workers, leading to job losses and economic hardship for affected individuals and communities. Wage Stagnation: The outsourcing of jobs to countries with lower labor costs can contribute to wage stagnation in the domestic market, as workers face increased competition from cheaper overseas labor. Economic Dislocation: The loss of manufacturing and service jobs can have broader economic implications, including reduced consumer spending power and increased reliance on government support programs. Social Impacts: Job losses due to outsourcing can have significant social consequences, including increased poverty, inequality, and social unrest. Assessing whether the benefits of outsourcing outweigh the potential losses of Canadian and U.S. jobs is a complex issue that depends on various factors, including the specific circumstances of each case and broader economic considerations. While outsourcing can lead to cost savings and increased competitiveness for firms, policymakers and stakeholders must carefully weigh these benefits against the social and economic costs associated with job displacement and economic dislocation. Additionally, efforts to mitigate the negative impacts of outsourcing, such as investing in education and workforce development, promoting domestic innovation and entrepreneurship, and implementing policies to support affected workers and communities, are essential for ensuring a more equitable and sustainable outcome. Ultimately, finding the right balance between globalization and protecting domestic jobs remains a significant challenge for policymakers and business leaders alike. 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: o 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. 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? As an employee of the financial services firm, it's important to uphold transparency and honesty with clients regarding the practices of the company. While the firm may emphasize the personal touch and expertise of local professionals managing clients' accounts, it's also crucial to acknowledge the role of offshoring in certain aspects of the operation, such as tax preparation and record keeping. Here's how you could address the situation with clients: "Thank you for your feedback and for entrusting us with your financial needs. We appreciate your loyalty to our firm. We understand that transparency is key to maintaining trust, so we want to address some questions that have arisen regarding our practices. While it's true that our local office provides personalized management of your accounts, we also utilize resources from a trusted partner company in India for tasks such as tax preparation, bookkeeping, and record keeping. This partnership allows us to leverage specialized expertise and efficiency in these areas. We want to assure you that your accounts are still managed with the same level of care and attention by dedicated professionals here in Canada. Our local team reviews and oversees all transactions and documentation to ensure accuracy and compliance with regulations. We understand that some clients may have concerns about offshoring sensitive tasks, and we are committed to addressing any questions or apprehensions you may have. Your satisfaction and peace of mind are our top priorities, and we are always here to provide clarity and support." By acknowledging the offshoring practice and reassuring clients of the continued quality and oversight of their accounts, the firm can maintain transparency and trust with its clientele. This approach demonstrates integrity and openness in communication, which are essential for fostering long-term client relationships. 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: o 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. o 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. o It is also important to tell my supervisor what I am doing because to do otherwise could also be considered to be unethical. 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? Lululemon, known for its high-quality athletic apparel, might consider using joint ventures as a global market entry strategy in certain situations: Local Expertise: When entering a new market where local knowledge is crucial, partnering with a company that understands the local culture, consumer preferences, and business regulations can be advantageous. A joint venture allows Lululemon to leverage the partner's expertise while mitigating risks associated with unfamiliar territory. Resource Sharing: Joint ventures enable Lululemon to share resources, including capital, technology, and human resources, with its partners. This can reduce financial burden and enhance operational efficiency in markets where establishing a standalone presence might be costly or challenging. Regulatory Compliance: Some countries have stringent regulations or restrictions on foreign businesses. Partnering with a local company through a joint venture can help navigate these regulatory hurdles more smoothly, as the local partner likely has a better understanding of the legal landscape. Market Penetration: Joint ventures allow for quicker market penetration by leveraging the existing distribution networks, brand recognition, and customer base of the local partner. This can accelerate Lululemon's growth trajectory in new markets and help establish a strong foothold before competitors gain momentum. Risk Sharing: By sharing ownership and decision-making responsibilities with a local partner, Lululemon can spread the risks associated with market entry. This shared risk approach can provide a cushion against potential losses and uncertainties in unfamiliar markets. Cultural Adaptation: Successful expansion requires understanding and adapting to local customs, languages, and consumer behaviors. Joint ventures facilitate cultural adaptation by partnering with companies that have an established presence and understanding of the local culture, thereby increasing the likelihood of acceptance and success in the new market. Access to Networks: Partnering with local companies can provide access to valuable networks of suppliers, distributors, and other business contacts. These networks can facilitate faster market entry, supply chain management, and overall business development efforts. By considering joint ventures as a market entry strategy in these situations, Lululemon can enhance its global expansion efforts while mitigating risks and leveraging local expertise and resources for sustainable growth. 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: o 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. o 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. However, I can provide general guidance on what you might find on a government website like ExportSource Canada and how to evaluate its usefulness for small businesses looking to expand into foreign markets. When evaluating the usefulness of information provided by government departments like Industry Canada's ExportSource, consider the following criteria: Relevance: Is the information relevant to your specific industry or target market? Look for resources tailored to your business needs and the countries you're interested in entering. Comprehensiveness: Does the website offer a wide range of resources and services? This might include market research reports, guides on export regulations, information on trade missions and events, and assistance with finding local partners or distributors. Accessibility: Is the information easy to find and navigate? A well-organized website with clear navigation and search functionality can save you time and frustration. Currency: Is the information up to date? International markets and regulations can change rapidly, so it's crucial to ensure that the information you're relying on is current. Credibility: Can you trust the information provided? Government websites are generally considered reliable sources, but it's still a good idea to verify information from multiple sources, especially when it comes to complex issues like international trade regulations. Support: Does the website offer additional support services, such as consulting or referrals to other government agencies or organizations that can help with specific export challenges? By considering these factors, you can evaluate the usefulness of the information provided by Industry Canada's ExportSource or similar government resources and determine how they can support your efforts to enter foreign markets as a small business owner. Instructor’s Notes: The exercise allows students to explore the assistance available to businesses looking to enter a foreign market. • Example answers: o 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. o 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? However, I can provide a general idea of how McCain might adapt its products and promotions for different countries based on typical localization strategies. For example, in Canada, McCain might offer products like classic frozen french fries, hash browns, and potato wedges, catering to Canadian tastes and preferences. Promotional elements might include promotions for Canadian holidays or events, bilingual content (English and French), and partnerships with Canadian brands or organizations. In South America, McCain might adjust its product offerings to include items more popular in the region, such as yuca fries or plantain chips. Promotional elements might focus on local cultural events or celebrations, featuring regional flavors and ingredients. In the United States, McCain might emphasize products like curly fries, sweet potato fries, or tater tots, which are popular in American cuisine. Promotional elements could include tie-ins with major American sports events, holiday-themed promotions like Fourth of July or Thanksgiving, and partnerships with well-known American restaurants or food chains. For France, McCain might highlight products like pommes frites, croquettes, or potato gratin, catering to French culinary preferences. Promotional elements might involve collaborations with renowned French chefs or culinary influencers, promotions tied to French national holidays or food festivals, and an emphasis on quality and tradition in marketing materials. These are just general examples, and actual differences between the websites would depend on market research, consumer preferences, and cultural factors specific to each country. Instructor’s Notes: Students can learn how a popular Canadian company chooses to position itself and its products in other countries. • Example answers: o 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. o End-of-Chapter Case Study Lululemon: Revolutionizing the Global Athletics and Sports Apparel Industry Questions: 1. What factors do you think are responsible for the phenomenal success of Lululemon? Are the reasons for its success sustainable over the next decade? Lululemon's phenomenal success can be attributed to several key factors: Quality and Innovation: Lululemon has consistently focused on producing high-quality, innovative athletic wear that combines performance, style, and comfort. Their dedication to using cutting-edge fabrics and technologies has set them apart in the industry. Brand Image and Community Building: Lululemon has cultivated a strong brand image centered around health, wellness, and community. Their stores often host yoga classes and other events, fostering a sense of belonging among their customers. This community-driven approach has helped build brand loyalty and word-of-mouth marketing. Targeted Marketing: Lululemon has effectively targeted their marketing efforts towards active, health-conscious individuals, particularly women. By understanding their target demographic and crafting messaging that resonates with them, Lululemon has been able to create a strong connection with their customer base. Retail Strategy: Lululemon's strategic retail expansion, both online and offline, has played a significant role in their success. They have carefully chosen locations for their stores and invested in creating inviting, experiential retail environments that enhance the overall shopping experience. Product Diversification: While initially known for yoga apparel, Lululemon has expanded its product offerings to include a wide range of athletic wear, including running gear, gym clothes, and even casual wear. This diversification has allowed them to appeal to a broader audience and capture market share in various segments of the sports apparel industry. Supply Chain Management: Lululemon has established a robust supply chain management system that ensures timely delivery of products while maintaining quality standards. Their focus on transparency and sustainability in sourcing materials has also resonated well with environmentally conscious consumers. As for the sustainability of its success over the next decade, Lululemon faces several challenges and opportunities. Maintaining innovation and quality standards will be crucial, especially as competition in the athleisure market continues to intensify. Additionally, as consumer preferences evolve, Lululemon will need to adapt its product offerings and marketing strategies accordingly. Furthermore, maintaining the sense of community and brand loyalty that Lululemon has cultivated will be essential in the long term. Investing in customer engagement initiatives and continuing to provide exceptional customer experiences will help sustain their success. Overall, while there are challenges ahead, Lululemon's strong brand identity, commitment to quality, and customer-centric approach position it well for continued success in the global athletics and sports apparel industry. Instructor’s Notes: Students’ answers may vary but may tend to gravitate towards the strong brand image, unique style and comfort, and quality of clothing. In addition to these, the following should be offered. • Example answers: o The primary reason for its success is the fact that it was the first time that an apparel manufacturer designed high-quality functional and fashionable clothing for a neglected segment - women. o The product was sufficiently differentiated from its main rivals whose athletic apparel were always functional and rarely fashionable o It tapped into a growing trend towards healthy living and meditation – Yoga o It developed close relationships with the user community and seek their input o 2. Given the nature of Lululemon’s sourcing, manufacturing and marketing strategies, discuss how the PEST factors could influence the company’s success and performance in the future. PEST analysis is a strategic tool used to assess the external macro-environmental factors that could impact a business. When applied to Lululemon, a prominent athletic apparel company, it reveals insights into potential influences on its future success and performance. Political Factors: Trade Policies: Changes in trade agreements or tariffs could affect Lululemon's supply chain costs, especially if it sources materials or manufactures products in countries subject to political instability or trade disputes. Regulatory Environment: Shifts in labor laws, environmental regulations, or product safety standards could impact manufacturing processes and compliance costs. Economic Factors: Economic Growth: Lululemon's performance is tied to consumer discretionary spending. Economic downturns may lead to reduced consumer spending on non-essential items like premium activewear. Exchange Rates: As a global company, fluctuations in currency exchange rates can impact Lululemon's profitability, especially if a significant portion of its revenue comes from international markets. Social Factors: Health and Wellness Trends: Lululemon benefits from growing societal interest in health and wellness, as its products cater to active lifestyles. Continued emphasis on fitness and wellness could drive demand for its products. Fashion Trends: Shifts in consumer preferences towards athleisure wear and sustainable fashion influence Lululemon's product design and marketing strategies. Technological Factors: E-commerce: Technological advancements in e-commerce platforms and digital marketing offer opportunities for Lululemon to expand its online presence and reach new customers. Manufacturing Innovation: Adopting new technologies in manufacturing processes can improve efficiency and product quality, potentially reducing costs and enhancing competitiveness. Overall, while Lululemon has built a strong brand and loyal customer base, its success in the future will depend on its ability to navigate and adapt to the dynamic external environment shaped by political, economic, social, and technological factors. By proactively addressing these influences, Lululemon can mitigate risks and capitalize on opportunities for growth and innovation. Instructor’s Notes: This question asks student to examine the risks associated with Lululemon’s sourcing, manufacturing, and marketing strategies. • Example answers: o It does not own manufacturing facilities and so it is at the discretion of its manufacturers. This could reduce the level of control it has over its manufacturers. The same concern goes for the way it sources raw materials. o Concentration of production in China (or one location) is risky. Changes in trade rules could adversely affect its production capability. o Having a limited number of pre-approved suppliers and vendors could minimize risks of supply disruptions but it increases the risks of disruption in conflict situations. 3. Discuss how socio-cultural considerations influence the success of Lululemon Socio-cultural factors play a significant role in the success of Lululemon, a prominent athletic apparel brand known for its high-quality yoga and activewear. Here are some key ways in which socio-cultural considerations influence Lululemon's success: Health and Wellness Trends: Lululemon capitalizes on the growing emphasis on health and wellness in contemporary society. As people become more health-conscious and prioritize fitness and self-care, Lululemon's products, which are designed to support an active lifestyle, are in high demand. The brand's alignment with these socio-cultural trends enhances its appeal and contributes to its success. Yoga and Mindfulness Culture: Lululemon has deep roots in yoga culture and promotes mindfulness and holistic well-being. This resonates with a segment of consumers who value not only the physical benefits of exercise but also its mental and spiritual aspects. By embracing and promoting yoga and mindfulness practices, Lululemon creates a sense of community and belonging among its customers, fostering loyalty and brand advocacy. Celebrity Endorsements and Influencers: Socio-cultural factors, including celebrity endorsements and influencer partnerships, play a crucial role in shaping consumer perceptions and preferences. Lululemon strategically collaborates with fitness influencers, yoga instructors, and celebrities who embody its brand values, thereby enhancing its credibility and reach within relevant communities. These partnerships help Lululemon stay culturally relevant and maintain its status as a leading activewear brand. Fashion and Lifestyle Trends: Lululemon's success is also influenced by broader fashion and lifestyle trends. The brand's ability to stay ahead of fashion trends while maintaining functionality and performance in its products appeals to consumers who seek both style and substance in their activewear. By continuously innovating and adapting to evolving tastes and preferences, Lululemon maintains its relevance in the competitive athleisure market. Community Engagement and Brand Culture: Lululemon fosters a strong sense of community and belonging through initiatives such as local events, yoga classes, and ambassador programs. These efforts not only deepen customer engagement but also contribute to the brand's image as a lifestyle destination rather than just a clothing retailer. By nurturing a supportive and inclusive community, Lululemon creates an emotional connection with its customers, driving loyalty and word-of-mouth marketing. In conclusion, socio-cultural considerations significantly influence the success of Lululemon by shaping consumer preferences, trends, and brand perceptions. By aligning with health and wellness movements, yoga culture, fashion trends, and community values, Lululemon has established itself as a dominant player in the activewear market and continues to thrive in an increasingly competitive landscape. Instructor’s Notes: This question asks students to assess the impact of socio-cultural factors on the company’s success. Specifically, how Lululemon built a brand based on the trend towards healthy living and nature and its unique positioning in this regard. • Example answers: o Lululemon’s brand is built around healthy living, especially among women, where the demand for athletic apparel is strong. Continuation of this trend may continue to have a positive impact on sales. o Women are increasingly purchasing Lululemon’s apparel for the fit, design, and comfort, even those who do not workout at the gym. They wear it casually. o Fashion-conscious women make-up a big part of Lululemon’s market and this trend are not likely to change easily. 4. Why do you think that the fallout from The New York Times story regarding Lululemon’s misleading claims was short-lived? The fallout from The New York Times story regarding Lululemon's misleading claims may have been short-lived for a few reasons: Brand Loyalty: Lululemon has a dedicated customer base that values the brand for reasons beyond just its product claims. Some consumers may have been willing to overlook the controversy or give the company the benefit of the doubt based on their positive past experiences with the brand. Effective Damage Control: Lululemon likely implemented swift damage control measures in response to the story, such as issuing apologies, clarifications, or corrective actions. Effective crisis management can mitigate the long-term impact of negative publicity. Limited Repercussions: While the story may have stirred initial outrage or concern, the actual impact on consumers' lives or well-being might have been minimal. If the misleading claims were related to relatively minor aspects of Lululemon's products, consumers might have been more forgiving. Competitive Landscape: In a competitive market, consumers have many alternatives to choose from. If they perceive that other brands have similar issues or if they still prefer Lululemon's products despite the controversy, they may be less inclined to abandon the brand altogether. Short Attention Span: In today's fast-paced media environment, news cycles are often short-lived, with attention quickly shifting to the next headline-grabbing story. As a result, the impact of any single news story, even one as significant as The New York Times expose, may dissipate relatively quickly in the public consciousness. Overall, a combination of these factors likely contributed to the relatively short-lived fallout from The New York Times story regarding Lululemon's misleading claims. Instructor’s Notes: Students may offer a wide variety of responses to this question but it is designed to get students to think about the strength of the brand and what customer loyalty really means in a practical sense. . • Example answers: o The unique nature of Lululemon’s brand – the strong brand promise o Consumers prior experience with the brand o The company’s quick and frank response and subsequent testing o The apparel design, fit and comfort are the main reasons why consumers bought the brand rather than the nature of the fabrics o Its close relationship with the communities which it serves o A loyal group of customers who love the brand and are willing to trust the company than the critics 5. Lululemon recognizes revenues in Canada in Canadian dollars but reports its worldwide revenues in U.S. dollars. Assuming that in 2013 its Canadian revenues were $500 million, what impact would a 10-percent depreciation of the Canadian dollar relative to the U.S. dollar have on the earnings it reports in U.S. dollars? To calculate the impact of a 10-percent depreciation of the Canadian dollar on Lululemon's reported earnings in U.S. dollars, we need to consider the effect on its Canadian revenues when converted to U.S. dollars. Given that Lululemon reports its worldwide revenues in U.S. dollars, a depreciation of the Canadian dollar would result in the Canadian revenues translating into fewer U.S. dollars. Here's how to calculate the impact: 1. Initial Canadian Revenues: $500 million 2. Depreciation of Canadian Dollar: 10% 3. Converted Canadian Revenues After Depreciation: $500 million (1 - 0.10) = $450 million 4. Impact on Reported Earnings in U.S. Dollars: Initial Canadian Revenues - Converted Canadian Revenues = $500 million - $450 million = $50 million So, a 10-percent depreciation of the Canadian dollar relative to the U.S. dollar would result in a $50 million decrease in reported earnings for Lululemon in U.S. dollars. Instructor’s Notes: This question is designed to get students to consider the impact of exchange rate on revenues when a company’s sales are derived from more than one country. • Example answers: o Assuming parity, that is, Cad$1 = US$1, 500M of revenues from Canada will equal to US$500M. A 10 percent drop in the exchange rate will now make $1Cad = US.90 cents. Therefore, its earnings in US$ will now be .90x $500M = US$450M. o 6. As stated at the end of the case, management is faced with two major decisions regarding the future of Lululemon. One decision pertains to the mode of entry into new global markets i.e., establish company-owned stores, franchises, or joint ventures). The second decision concerns where to focus its efforts for revenue growth (i.e., first at existing stores, then at e-commerce, and then at new stores). Discuss the advantages and disadvantages of the various options. What course of action would you recommend? Let's break down the advantages and disadvantages of each option for Lululemon: Mode of Entry into New Global Markets: a. Company-Owned Stores: Advantages: Provides complete control over brand image, customer experience, and operations. Allows for standardized processes and consistency across locations. Disadvantages: Requires significant investment in capital and resources. Can be slower to expand compared to other modes. b. Franchises: Advantages: Requires less capital investment from Lululemon. Can accelerate global expansion by leveraging local expertise of franchisees. Disadvantages: Limited control over brand image and customer experience. Risk of inconsistency in operations and quality across franchise locations. c. Joint Ventures: Advantages: Allows Lululemon to enter new markets with shared risks and resources. Access to local knowledge and networks of the joint venture partner. Disadvantages: Requires careful management of the partnership relationship. Potential for conflicts of interest and diverging priorities. Focus for Revenue Growth: a. Existing Stores: Advantages: Builds on established customer base and brand loyalty. Can optimize operations and increase efficiency. Disadvantages: Market saturation may limit growth potential. Diminished returns on further investments in existing stores. b. E-commerce: Advantages: Provides access to a global customer base. Lower overhead costs compared to physical stores. Disadvantages: Intense competition in the online marketplace. Requires continuous investment in technology and logistics. c. New Stores: Advantages: Expands Lululemon's physical footprint and brand presence. Can capture new markets and demographics. Disadvantages: Requires substantial capital investment. Risk of cannibalization of sales from existing stores. Recommendation: Considering the options presented, my recommendation for Lululemon would be to focus on establishing company-owned stores as the mode of entry into new global markets. This approach aligns with Lululemon's commitment to maintaining control over its brand image and customer experience. While it requires significant investment upfront, it offers long-term benefits in terms of brand consistency and operational efficiency. In terms of revenue growth, I would suggest prioritizing e-commerce as the primary focus. Given the increasing shift towards online shopping and the global reach of e-commerce platforms, investing in this channel presents significant opportunities for growth without the constraints of physical store expansion. However, Lululemon should continue to optimize its existing stores and strategically open new ones in key markets to complement its online presence and further strengthen its brand presence. Instructor’s Notes: Students must show that they understand the pros and cons of each type of entry strategy as well as the pros and cons of growing revenues through different means. • Example answers: Students recommendations may likely be establishing an e-commerce website or open a new store but they should be pressed to provide justification for their answers and see the extent to which they understand Lululemon’s business strategy. Entry Strategy Pros Cons Company-owned stores (FDI) Company maintains 100% ownership; far greater control of foreign operations, higher potential returns Requires high levels of investments and risks Franchises Lower risks, less capital investments than direct investment Reduced control of operations in foreign markets, profit has to be split with franchisee, and franchisee can break away and start their own competing business Joint Ventures Quick market access; greater understanding of the market; shared financial burden; Ownership, control, and profits are shared; conflicts can arise between partners, especially when the partnership is unequal (between a small and a large partner), differences in culture, management styles, etc. Store Formats Existing Stores Could increase sales by offering promotions and intensifying advertising; incremental cost is low and does not require additional resources The particular geographic region served by existing store may be saturated; promotion may run against the brand promise or cheapen the brand E-commerce May provide access to a larger market at reduced costs and possibly higher margin due to low “real estate” cost. Lululemon is not currently setup to sell its products in any major way online and so this would require substantial investments, a change in strategy, and increased risks to the brand New Stores Could bring in new customers and additional revenues relative to existing stores. Expensive to establish new stores; takes time and requires substantial market research and assessments Video Activities Video: Kraft: Marketing Globally Learning Objective: LO 4 Page Number in Text: 553 Description: This video describes how Kraft has taken a simple and universal product like Oreo Cookies and has successfully introduced it around the world as a global product based on a solid understanding of the cultural differences of each of its markets. Understanding the unique characteristics of each market enabled Kraft to modify its product, packaging and promotion strategy to suit the local conditions. Key Words: culture; product globalization; packaging. Activity: Students could be asked to research and identify one product which is marketed in virtually the same way in different countries around the world and another product that is marketed differently in different countries, that is, the product and/or marketing communications are modified to suit local market conditions. Students should identify the specific modifications they observe. They could also discuss what factors may have influence some of the modifications they observe. Product Marketed Similarly Globally: Product: Coca-Cola Description: Coca-Cola is marketed virtually the same way in different countries around the world. The product itself remains consistent in terms of flavor and packaging, and the marketing communications often focus on themes like happiness, sharing moments, and refreshing experiences. Coca-Cola's branding, such as the red and white logo and iconic bottle shape, remains consistent globally. The advertising campaigns may feature local faces or cultural elements, but the core message and branding are uniform across markets. Product Marketed Differently in Different Countries: Product: McDonald's Description: McDonald's adapts its product offerings and marketing strategies to suit local market conditions in different countries. While the core menu items like Big Macs and French fries remain consistent, McDonald's adjusts its menu to cater to local tastes and cultural preferences. For example, in India, McDonald's offers vegetarian options like the McAloo Tikki burger to appeal to a predominantly vegetarian population. In Japan, McDonald's serves Teriyaki burgers and offers items like the Matcha McFlurry to align with local flavor preferences. Additionally, McDonald's adapts its restaurant designs and ambiance to reflect local culture and customs. In some countries, McDonald's restaurants may offer delivery services or extended hours to accommodate cultural norms around dining times. These modifications are influenced by factors such as taste preferences, dietary habits, cultural values, and regulatory requirements in each market. Solution Manual for Marketing Dhruv Grewal, Michael Levy, Shirley Lichti, Ajax Persaud 9780071320382, 9780070984929
