Global Marketing Management Maasaki Kotabe Kristiaan Helsen 1

International Business • International trade (G to G, G to Comp, Comp to Comp) • Intra-firm trade kompleks karena: • Dapat dipakai untuk memaksimalkan keuntungan grup dengan mengakali pajak, di mana pada negara yang pajaknya tinggi, dikenakan harga ekspor yang rendah, sehinggal sales lebih rendah, dan net income before tax rendah.

GLOBAL MARKETING MANAGEMENT Main Subject : Specific Instructional Objectives : 1. Students are able to explain the characteristics of various types of global marketing. 2. Students are able to explain the factors influence a firm in deciding enter global market. 3. Students are able to explain the typology of domestic, international, multinational and global companies. 3

Global Marketing Management Week 1 Global Marketing Imperative 4

Introduction • According to the World Trade Organization (WTO), the world’s five exporting countries were Germany ($912 billion), the United States ($819 billion), China ($593 billion), Japan ($566 billion), and France ($449 billion), collectively accounting for 36 percent of global trade in 2004. • The Triad Regions (North America, Western Europe, and Japan) of the world collectively produce over 78 percent of world GDP in 2004. 5

Introduction • Big Emerging Markets (BEMs): In the next ten to twenty years, BEMs such as the Chinese Economic Area (CEA: including China, Hong Kong Region, and Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, and the Association of Southeast Asian Nations (ASEAN: including Indonesia, Brunei, Malaysia, Thailand, the Philippines, and Vietnam) will provide many opportunities in global business. 6

1. Why Global Marketing is Imperative 1. Domestic-market saturation in the industrialized parts of the world and marketing opportunities overseas are evident in global marketing. 2. Competition around the world and proliferation of the Internet have been on the rise and are now intensifying. 3. Global competition brings global cooperation. 7

1. Why Global Marketing is Imperative 4. The Internet and electronic commerce (ecommerce) are bringing major structural changes to the way companies operate worldwide. 5. The term epitomizes both the competitive pressure and expanding market opportunities. 6. Whether a company operates domestically or across national boundaries, it can no longer avoid competitive pressures from around the world. 8

Exhibit 1 -1 1 -9

2. Globalization of Markets: Convergence and Divergence • Income per capita is an important determinant of consumer buying behavior. • When a country’s per capita income is less than $10, 000, much o the income is spent on food and other necessities, and very little disposable income remains. • As a country’s per capita incomes reaches $20, 000, the disposable portion of income increases dramatically. • This increased disposable income level results in increased convergent pressures on consumer buying behavior. 10

2. Globalization of Markets: Convergence and Divergence • People with higher incomes tend to enjoy similar educational levels, desires for material positions, ways of spending leisure time, and aspirations for the future. • Globalization does not suffocate local cultures, but rather liberates them from the ideological conformity of nationalism, with consumers becoming more receptive to new things. • Consumers also have a wider, more divergent “choice set” of goods and services to choose from. • In other words, the divergence of consumer needs is taking place at the same time. 11

2. Globalization of Markets: Convergence and Divergence • International trade consists of exports and imports. • International business includes international trade and foreign production. • Extensive international penetration of companies is called global reach. • International trade and foreign production activities are managed on a global basis. • Growth of Multinational Corporations (MNCs) and intra-firm trade is a major aspect of global markets. 12

Who manages international trade? • Multinational companies are increasingly managing the international flow within themselves. This is called intra-firm trade. 1). This form of trade makes statistics more difficult to understand. 2). Most of the large industrialized countries have about 34% intrafirm 3). Service industries are going through the same evolution as manufacturing industries on a global basis. 4). In 2008, $3. 3 trillion worth of commercial services was traded globally. 13

3. Evolution of Global Marketing • What is marketing? Marketing involves the planning and execution of the conception, pricing, promotion, and distribution of ideas, products, and services (2004). • An organizational function and set of activities to create, deliver and communicate something that has value and managing relationship with customers in a way the benefit the organization and its stakeholders (2007). • Marketing involves customer satisfaction and their current and future needs. • Marketing is much more than selling and involves the entire company. • Within marketing strategies, companies are always under competitive pressure to move forward both reactively and proactively. 14

o Increasingly, firms are drawn into marketing activities outside their domestic environment. o Firms generally develop different marketing strategies depending on the degree of experience and the nature of operations in international markets. o Many researchers believe that firms evolve over time into international companies and organizations.

3. Evolution of Global Marketing a. Domestic marketing is the first stage of evolution of marketing across international boundaries. b. Companies focus on domestic sales and markets. c. This strategy is based on domestic needs and domestic competition only. 1). Marketers are ethnocentric and pay little attention to what is going on in the international market place (such as changing customer demand). 2). All strategic actions are tailored to domestic responses. d. As a result, these companies are vulnerable to sudden changes forced on them from foreign competition. 16

2. Export Marketing. a. Usually, this stage begins from unsolicited orders from markets or distributors located abroad. 1). Companies learn to benefit from this business. 2). Strategy is reactive rather than proactive. 3). Businesses have many uncertainties and unknowns in the unfamiliar international market. b. Companies advance once they satisfy the following conditions: 1). The management of the company obtains favorable expectations of the attractiveness of exporting based on experience. 2). The company has access to key resources necessary for undertaking additional export-related tasks. 3). Management is willing to commit adequate resources to export activities. c. Difficulties experienced include: 1). Import/export restrictions. 2). Cost and availability of shipping. 3). Exchange rate fluctuations. 4). Collection of money. 5). Development of distribution channels. e. If companies do not have a favorable experience at this level, it will retard advancement along the continuum. f. Many forces may make the company consider this alternative, but they still tend to take an ethnocentric view toward strategy formulation.

International Marketing a. Once export marketing becomes an integral part of the company’s marketing activity, it will begin to seek new directions for growth and expansion. b. A unique feature of the international marketing phase is its polycentric orientation with emphasis on product and promotional adaptation in foreign markets. 1). The company must begin to defend its position in foreign markets against local competition. 2). International marketers will need to adapt their products to overcome the inherent advantage of the domestic marketer. 3). The company can begin to allocate a certain portion of its manufacturing capacity to its export business. 4). Or, because of transportation costs, tariffs and other regulations, and availability of human and capital resources in the foreign markets, the company may even begin manufacturing in the foreign environment. c. The extreme of this phase is to establish an independent foreign subsidiary in each and every foreign market and have each of the subsidiaries operate independently of each other without any measurable headquarters control. This is known as multi-domestic marketing. 1). Few economies of scale result. 2). Useful when there are wide differences between markets.

Multinational Marketing a. In this phase, the company markets its products in many countries around the world. b. Because of efficiencies and economies of scale, the company consolidates on a regional basis. 1). This regiocentric approach suggests that product planning may be standardized within a region but not across regions. 2). Regional advertising might be accomplished. 3). Regional brands might be developed.

Global Marketing a. The international (country-by-country) or multinational (region-by-region) orientation, while enabling the consolidation within countries or regions, will tend to result in market fragmentation worldwide, nonetheless. b. Operational fragmentation costs are often high. c. It is argued that the multinational and global corporations are not the same thing. d. Global marketing refers to marketing activities by companies that emphasize: 1). Standardization efforts---standardizing marketing programs across different countries. 2). Coordination across markets---reducing cost inefficiencies and duplication of efforts at the national and regional levels. 3). Global integration---participating in many major world markets to gain competitive advantage. e. Most researchers do agree that some standardization is all right, however, what is really called for is a company’s proactive willingness to adopt a global perspective when developing a marketing strategy. f. While many companies are a long way from this concept, they are making progress with their subsidiaries. g. Rather than becoming more simplistic, the world economic and marketing environment is becoming more sophisticated and complex. 20

Exhibit 1 -2 21

3. Evolution of Global Marketing • Global Marketing: Global marketing refers to marketing activities that emphasize the following: 1. Standardization efforts. 2. Coordination across markets. 3. Global integration. 22

3. Evolution of Global Marketing • Global marketing does not necessarily mean that products can be developed anywhere on a global scale. • The economic geography, climate, and culture affect how companies develop certain products. • The Internet adds a new dimension to global marketing. • E-commerce retailers gain substantial savings by selling online. 23

. 1. Explain the differences between international trade and international business. How does the United States typically participate in international business? International trade consists of exports and imports. If a nation’s imports exceed their exports, then the nation would record a trade deficit. If the opposite were the case, then the country would record a trade surplus. International business is a broader concept and includes international trade and foreign production. U. S. companies typically market their products in three ways. First, they can export their products from the United States, which is recorded as a U. S. export. Second, they can invest in their foreign production on their own and manufacture those products abroad for sale there. This transaction does not show up as a U. S. export, however. And third, they can contract out manufacturing in whole or part to a company in a foreign country either by way of licensing or joint venture agreement. While it is not widely known, foreign production constitutes a much larger portion of international business than international trade.

2. Explain intra-firm trade. Give an example to illustrate your answer • International trade and foreign production are increasingly managed on a global basis. Furthermore, international trade and foreign production are also intertwined in a complex manner. • Intra-firm trade demonstrates that a company can export from their home base, manufacture their products in various foreign countries both for local sale and for further exporting to the rest of the world, and even export back to their respective home countries. In other words, multinational companies using the concept of intra-firm trade are managing international trade flow within themselves. An example would be Texas Instruments has a large semiconductor manufacturing plant in Japan, marketing its semiconductor chips not only in Japan but also exporting them from Japan to the United States and elsewhere.

4. Explain the primary differences between international • Global marketing is a more advanced phase of international marketing and global marketing. Once export marketing becomes an integral part of a marketing. company’s marketing activity, it begins to seek growth and expansion through international marketing. The emphasis is polycentric (emphasis on product and promotional adaptation in foreign markets--wherever necessary). In global marketing, fragmentation caused by international marketing is overcome. • • Global marketing refers to marketing activities by companies that emphasize: 1. Standardization efforts - leading to standardizing marketing programs across different cultures. 2. Coordination across markets - reducing cost inefficiencies and duplication of efforts. 3. Global integration – entering into many major world markets to seek competitive edge.

5. Why is international business much more complex today than it was twenty years ago? • In today’s changing business world, the commonly cited reasons for increasingly complex international business environments are: • a. Saturation of domestic markets and more sophisticated consumers. • b. Global consumer convergence. • c. More consumers and markets to analyze. • d. Increasing global competition that impacts the international as well as the domestic environment. • e. Need for global cooperation and expanding international opportunities. • f. Political and governmental barriers. • g. Ethical and moral concerns. • h. Cultural barriers. • i. Shifting multinational environments. • j. Role of the Internet and electronic commerce, especially in B 2 B, B 2 C, and C 2 C commerce.

5. What is the nature of global competition? • The new view toward global competition is that it includes domestic as well as foreign competitors. • Multinationals from developed countries and emerging markets have expanded to the extent that they can begin to think globally rather than on a country-by-country or region-by-region basis. In order to do this, new formats for strategies and subsidiaries are being developed. • Products and services are being adapted or standardized (as the market dictates) at the global and regional levels. • Proactive strategies are replacing reactive strategies.

Does international trade accurately reflect the nature of global competition? • If the marketer only thinks in terms of exports and imports, the answer is no. If the marketer does not consider the amount of business that is being done between the subsidiaries of the same multinational or global firm, then the answer is no. • If the global competitor truly is designing strategy and policy to fit the current international trade environment, the competitor uses international trade as a component of the firm’s strategy formulation process.

6. Why are consumption patterns similar across industrialized countries despite cultural differences? • As a country or a market’s disposable income increases, research has shown that more of the discretionary income is spent on non-subsistence goods and services. Once the average person passes about $20, 000 per capita income per year, that person begins to become a viable prospect for non-subsistence goods. The need for goods in general is similar. The need for specific goods may be affected by cultural differences.

7. Why do you think a company should or should not market the same product in the same way around the world? • This is about the standardization versus the adaptation alternative. Standardization has the advantages of efficiencies in production and communication as well as economies of scale. Adaptation has the advantages of customization, matching the true unique desires and wants of the customer, and the ability to compete against local competition more effectively. •

8. What is proactive standardization? • In global marketing, the trend may be to see the world as one giant market. The trick to being successful in more than one market (while still retaining the advantages of production economies of scale) may be in finding products that everyone needs (with little adaptive change). This response to true global competitors may be a very good defense against market erosion.

9. How is the Internet reshaping the nature of global marketing? • The Internet was one of the most useful inventions of the 20 th Century. In the global marketplace, the Internet and its Web-related activities have brought a multitude of benefits to companies, consumers, and producers. The Internet’s future prospects and fundamentals seem very strong especially in the area of B 2 B e-commerce. As mentioned in the text, there is still a “digital divide” between developed and developing countries regarding the availability of Internet marketing and its Web-related activities. In the coming years, many companies will be using this medium to reach far flung places on the earth. In short, the Internet will help connect buyers and suppliers in most efficient and effective ways.

Short Case • Mc. Donald’s, the world’s largest restaurant chain with over 30, 000 outlets in more than 115 countries, brings to mind many terms: golden arches, Big Macs, Mc. Nuggets, affordable meals, brand value, and American capitalism, to name just a few. How did Mc. Donald’s become one of the world’s bestknown brands? Needless to say, being in the food industry entails different menus for different parts of the world based on varying tastes and preferences. At the time, Mc. Donald’s made its foray into foreign markets it was almost impossible to have a mass marketing or global strategy in terms of Mc. Donald’s menu items. Therefore, the company adopted a strategy to appeal to those different preferences. According to the company, the secret to its successful brand is a type of multidomestic strategy, which the company used successfully by being able to offer different menus in different countries. • Previously, Mc. Donald’s even extended this strategy to marketing for its restaurants in foreign markets. Remember the yellow and red-garbed clown that attracted kids to Mc. Do- nald’s? Mc. Donald’s had maintained the same image for years and by the start of the twenty-first century, it was not working anymore.

• Additionally, the growing health consciousness among consumers the world over caused the restaurant its fiftieth anniversary, Mc. Donald’s was on its way to regaining its stardom. With time, it is necessary for companies to keep abreast of the changes that are taking place in the environment. Today, many firms are shifting from a multidomestic or multinational strategy to a more global one. It is believed that one reason for this is the growing convergence in consumer behavior, especially for food and apparel. For example, consumers all over the world are moving toward a healthy lifestyle that includes a healthy diet and exercise. For firms, a global strategy allows them to minimize overall costs, and specifically marketing costs, by repeating commercials with few alterations, justifying high advertising expenditure to release a perfect ad. Mc. Donald’s is one of several companies that have adopted a global marketing strategy. Mc. Donald’s had to revive its global business over the past five years, one of the ways to do it being to replace its previous shoddy image with a hip new one.

• In the year 2003, the company launched its first truly global marketing campaign called ‘‘I’m lovin’ it. ’’ The new promotion effort aimed at changing the company’s image in markets all over the world sends the same message to its global consumers with small changes for local tastes and preferences. Thus, even though there is still a significant divergence in Mc. Donald’s menus, the new global marketing campaign instilled a distinct global brand value in the minds of consumers. Mc. Donald’s invested heavily in the campaign, employing celebrities, such as singer Justin Timberlake and popular music group Destiny’s Child who draw a global audience, to appear in its advertise- ments. Inaddition, Mc. Donald’s introducedmorehealthy foods in its menus such as salads.

• The ‘‘I’m lovin it’’ marketing campaign was targeted at consumers in all age groups from kids and young adults to seniors. The conceptualization of the ad was also global. It was the brainchild of a Germany-based firm Heye and Partner; the company settled on this agency after consulting with several marketing agencies in many different countries. The campaign has been one of the most successful of its time. The strategy worked, and in just one year, the company’s revenues were up by more than 10 percent. As for the novel marketing drive, the company won Advertising Age magazine’s Marketer of the Year Award for 2004. As for its recent comeback, Mc. Donald’s is truly lovin’ it.

Discussion Questions 1. Why do firms such as Mc. Donald’s need to have a global marketing strategy even though its national menus are localized? 2. What alternative strategy could Mc. Donald’s have used to regain its market? 3. For the future, how should Mc. Donald’s tap into the convergence among global consumers?