Introduction to Global Marketing Chapter 1 1 Introduction

Introduction to Global Marketing Chapter 1 1

Introduction • Global vs. “Regular” Marketing – Scope of activities are outside the homecountry market 1 -2 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• The matrix shows that Market Development is defined as taking existing products into new markets. Wal-Mart’s expansion into Guatemala and other Central American countries is an example of this strategy. • Diversification strategy is used by LG to enter the American appliance market or Japan’s Kirin holdings which bought Australia’s leading milk producer. 1 -3 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Diversification is developing new products for new markets. South Korea’s LG Electronics has created new products for other American home appliance market. Innovations like a $3, 000 refrigerator with a built-in flat panel LCD TV have been instrumental in Home Depot’s decision to carry the appliance product line. 1 -4 © 2011 Pearson Education, Inc. publishing as Prentice Hall

What is global marketing? How does it differ from “regular” marketing? • Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. • One difference between "regular" marketing and "global" marketing is the scope of activities. 1 -5 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Marketing activities center on an organization’s efforts to satisfy customer wants and needs with products and services that offer competitive value. The marketing mix (product, price, place, and promotion) comprises a contemporary marketer’s primary tools. • An organization that engages in global marketing focuses it resources and competencies on global market opportunities and threats. A fundamental difference between “regular” marketing and “global” marketing is the scope of activities. 1 -6 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Global marketing may also take the form of a diversification strategy in which a company creates new products or services and introduces them into new geographical markets. 1 -7 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Global Marketing PRINCIPLES OF MARKETING : A REVIEW • Create value for customers by improving benefits or reducing price – Improve the product – Find new distribution channels – Create better communications – Cut monetary and non-monetary costs and prices Value=Benefits/Price 1 -8 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Marketing is one of the functional areas of business – distinct from finance and operations. • The core of marketing is to surpass the competition in creating perceived value for customers. The value equation is the guide to this: • Value = Benefits / Price (money, time, effort, etc. • The marketing mix is central to this equation because benefits are a combination of the product, promotion, and distribution components of the mix. 1 -9 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Value to the customer can be increased in two ways – 1. an improved bundle of benefits or 2. a lower price (or both). • Marketers may improve the product, design new channels of distribution, communicate better – or a combination of all three. • Marketers may seek ways to cut costs or lower the price. Nonmonetary costs may be lowered by decreasing the time and effort customers must expend to learn about or acquire a product. 1 -10 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage • When a company succeeds in creating more value for customers than its competitors, that company is said to enjoy competitive advantage in an industry. • Competitive advantage is measured relative to rivals with whom you compete in the industry – whether that is on a local, national, or global level. 1 -11 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• If a company is able to offer a combination of superior product, distribution or promotion benefits and lower price than competitors, it should enjoy a competitive advantage. • Japanese auto makers made significant gains in the American market in the 1980 s by creating a superior value proposition. They offered cars with higher quality and lower prices than those made by American car companies. 1 -12 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Globalization “Globalization is the inexorable integration of markets, nation-states and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations and nationstates to reach around the world farther, faster, deeper and cheaper than every before, and in a way that is enabling the world to reach into individuals, corporations and nation-states farther, faster, deeper and cheaper than ever before. ” Thomas Friedman 1 -13 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Global marketing is essential if a company competes in a global industry or one that is globalizing. • What is “globalization”? • The process of globalization is the transformation of formerly local or national industries into global ones. 1 -14 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Global Industries • A global industry is one in which competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale. • Achieving competitive advantage in a global industry requires executive to maintain focus. Focus is the concentration of attention on the core business or competence (e. g. Nestle). 1 -15 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Value, competitive advantage, and focus are universal in their relevance and they should guide marketing efforts in any part of the world. • Fundamental Premise: Companies that understand engage in global marketing can offer more overall value to customers than companies that do not. 1 -16 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Competitive Advantage, Globalization, and Global Industries • Focus – Concentration and attention on core business and competence “Nestle is focused: We are food and beverages. We are not running bicycle shops. Even in food we are not in all fields. There are certain areas we do not touch…We have no soft drinks because I have said we will either buy Coca-Cola or we leave it alone. This is focus. ” Helmut Maucher, former chairman of Nestlé SA 1 -17 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Global Marketing: What It Is and What It Isn’t Single Country Marketing Strategy • Target Market Strategy • Marketing Mix – – Product Price Promotion Place Global Marketing Strategy • Global Market Participation • Marketing Mix Development – 4 P’s: Adapt or Standardize? • Concentration of Marketing Activities • Coordination of Marketing Activities • Integration of Competitive Moves 1 -18 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Since countries and people are different, marketing practices that work in one country will not necessarily work in another. • Customer preferences, competitors, channels of distribution, and communication may differ. • Global marketers must realize the extent to which plans and programs may be extended or need adaptation. • The way a company addresses this task is a reflection of its global marketing strategy (GMS). 1 -19 © 2011 Pearson Education, Inc. publishing as Prentice Hall

What are the two core issues of a firm’s GMS? • Just as in single-country marketing, choosing a target market and developing a marketing mix are the two core issues of a firm’s GMS. • Global market participation – the extent to which a company has operations in major world markets. • Standardization versus adaptation – the extent to which each marketing mix element can be standardized (used the same way) or must be adapted (used in different ways) in different country markets. 1 -20 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Concentration of marketing activities – the extent to which activities related to the marketing mix (such as pricing decisions) are performed in one or only a few country locations. • Coordination of marketing activities – the extent to which marketing activities related to the mix are planned and executed interdependently around the globe. • Integration of competitive moves – the extent to which a firm’s competitive marketing tactics in different parts of the world are interdependent. 1 -21 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Standardization versus Adaptation • Globalization (Standardization) – Developing standardized products marketed worldwide with a standardized marketing mix – Essence of mass marketing • Global localization (Adaptation) – Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction – Essence of segmentation – Think globally, act locally 1 -22 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Global marketing made Coke a worldwide success. However, that success was not based on a total standardization of marketing mix elements. • Coca-Cola succeeded through the application of global localization. What does the term “global localization” mean? • Global localization: Think globally, act locally. 1 -23 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Standarization versus Adaptation Arabic Read right to left Chinese “delicious/happiness” 1 -24 © 2011 Pearson Education, Inc. publishing as Prentice Hall The Faces of Coca-Cola Around the World

• Global marketing requires marketers to think and act in a way that is both global and local by responding to similarities and differences in world markets. • For example, Mc. Donald’s global marketing strategy is based on a combination of global and local marketing mix elements 1 -25 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Mc. Donald’s Global Marketing Mix Element Standardization Product Big Mac Localized Mc. Aloo Tikka potato burger (India) Promotion Brand name Slang Macca’s (Australia) Mak. Do (Philippines) Place Advertising Slogan “I’m Loving It” Mc. Joy magazine, “Hawaii Surfing Hula” promotion (Japan) Free-standing Home delivery (India) Swiss rail system dining cars Price Big Mac is $3. 10 in U. S. and Turkey $5. 21 (Switzerland) $1. 31(China) 1 -26 © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Importance of Going Global • For U. S. companies, 75% of total world market for goods and services is outside the country – Coca-Cola earns 75% of operating income and 2/3 of profit outside of North America • For Japanese companies, 85% of world market is outside the country • 94% of market potential is outside of Germany for its companies 1 -27 © 2011 Pearson Education, Inc. publishing as Prentice Hall

The Fortune Global 500 1 -28 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Consumer/Industrial Markets Product/Service Market Size (Billions) Cigarettes Luxury Goods Cosmetics Personal Computers Bottled Water Container Shipping Construction Equip. Crop Seeds 30 CRM Services © 2011 Pearson Education, Inc. publishing as Prentice Hall $295 230 200 175 100 150 90 6 1 -29

Management Orientations • The form and substance of a company’s response to global market opportunities will depend greatly on management’s assumptions and beliefs – both conscious and unconscious - about the nature of the world. • What are the four “global” management orientations? • The world view of a company’s personnel can be described as ethnocentric, polycentric, regiocentric, and geocentric. 1 -30 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Management Orientations • Ethnocentric Orientation – Home country is superior to others (Foreign operations are typically viewed as being secondary or subordinate to the country in which the company is headquartered) – Sees only similarities in other countries – Assumes products and practices that succeed at home will be successful everywhere – Leads to a standardized or extension approach- the belief that products can be sold everywhere without adaptation. – Ethnocentric companies that conduct business outside their home country are known as international companies – they believe products that succeed in the home country are 1 -31 superior. © 2011 Pearson Education, Inc. publishing as Prentice Hall

Management Orientations • Polycentric Orientation – The opposite view of ethnocentrism. – Each country is unique – Each subsidiary develops its own unique business and marketing strategies – Often referred to as multinational – Leads to a localized or adaptation approach that assumes products must be adapted to local market conditions 1 -32 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Management Orientations • Regiocentric Orientation – A region is the relevant geographic unit • Ex: The NAFTA or European Union market – Some companies serve markets throughout the world but on a regional basis • Ex: General Motors had four regions for decades – May be viewed as a variant of the multinational view (polycentric). © 2011 Pearson Education, Inc. publishing as Prentice Hall European Union 1 -33

Management Orientations • Geocentric Orientation – – Entire world is a potential market Strives for integrated global strategies Also known as a global or transnational company Retains an association with the headquarters country – Pursues serving world markets from a single country or sources globally to focus on select country markets – Leads to a combination of extension and adaptation elements 1 -34 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• A key factor that distinguishes global and transnational companies from international or multinational companies is mind-set: At global and transnational companies, decisions regarding extension and adaptation are not based on assumptions but rather on made on the basis of ongoing research into market needs and wants. 1 -35 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• What is the key global challenge facing organizational leaders today? • The key challenge facing organizational leaders today is managing a company’s evolution beyond an ethnocentric, polycentric, or regiocentric orientation to a geocentric one. 1 -36 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Forces Affecting Global Integration and Global Marketing • The remarkable growth of the global economy over the past 65 years has been shaped by the dynamic interplay of various driving and restraining forces. • Regional economic agreements, converging market needs and wants, technology advances, and pressures to cut costs, pressures to improve quality, improvements in communications and transportation technology, global economic growth, and opportunities for leverage all represent important driving forces. 1 -37 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Driving Forces Affecting Global Integration and Global Marketing • Multilateral trade agreements • Converging market needs and wants and the information revolution • Transportation and communication improvements • Product development costs © 2011 Pearson Education, Inc. publishing as Prentice Hall 1 -38

Multilateral Trade Agreements • NAFTA (North American Free Trade Agreement) has expanded trade among the US, Mexico, and Canada. • GATT (General Agreement on Tariffs and Trade) has created the WTO (World Trade Organization) to promote and protect free trade. • EU (European Union) is lowering boundaries to trade within the region. 1 -39 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Converging Market Needs and Wants and the Information Revolution • A person studying markets around the world will discover cultural universals as well as differences. Most global markets to not exist in nature – marketing efforts must create them. (For example, no one needs soft drinks. ) • Evidence is mounting that consumer needs and wants around the world are converging today as never before. This creates an opportunity for global marketing. 1 -40 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• The information revolution is one reason for the trend toward convergence. Thanks to satellite dishes and globe-spanning TV networks (CNN and MTV), it seems as though almost everyone has the opportunity to compare their lives against everyone else’s. • The Internet is an even stronger driving force. When a company establishes a presence on the Internet, it is automatically a global company. 1 -41 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Transportation and Communication Improvements • Time and cost barriers associated with distance have fallen tremendously over the past 100 years. • The jet airplane revolutionized communication by making it possible for people to travel around the world in less than 48 hours. • The newest communication technologies, such as e-mail, video teleconferencing, and Wi-Fi, means that managers, executives, and customers can link up electronically from virtually any part of the globe without traveling at all. 1 -42 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Product Development Costs • The pressure for globalization is intense when new products require major investment and long period of development time. The pharmaceutical industry provides a good example of this driving force. • Today, the process of developing a new drug and bringing it to market can span 14 years and exceed $400 million. Such cost must be recovered globally because no single national market is likely to be large enough to support investments of this size. 1 -43 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Quality – R&D as a percent of sales • Global and domestic companies may each spend 5% of sales on R&D but the global company has much more revenue from its markets. • Global companies “raise the bar” for all industry competitors. Nissan, Matsushita, and Caterpillar have achieved worldclass quality. 1 -44 © 2011 Pearson Education, Inc. publishing as Prentice Hall

World economic trends – 2008 global crisis – Growing middle class in China, India, Brazil, etc. – Rapid growth in China pre-2008 – Movement to free markets worldwide 1 -45 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Economic growth has been a driving force in the expansion of the international economy and the growth of global marketing for three reasons • Economic growth in key developing countries has created market opportunities that provide a major incentive for companies to expand globally. 1 -46 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies. (When a country such as China experiences rapid economic growth, policy makers are more likely to look favorably on outsiders. ) • The worldwide movement toward free markets, deregulation, and privatization is the third driving force. (Telephone company privatization is an example. ) 1 -47 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Leverage • Leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. • Leverage allows a company to conserve resources when pursuing opportunities in new geographical markets. 1 -48 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Restraining Factors • Despite the impact of the driving forces previously discussed, several restraining forces may slow a company’s efforts to engage in global marketing. • Luckily, in today’s world the driving forces predominate over the restraining forces. That is why the importance of global marketing is steadily growing. 1 -49 © 2011 Pearson Education, Inc. publishing as Prentice Hall

Restraining Forces Affecting Global Integration and Global Marketing • • Management myopia Organizational culture National controls Opposition to globalization 1 -50 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Management Myopia and Organizational Culture – Management may simply ignore opportunities to pursue global marketing. A company that is ethnocentric (or “nearsighted”) will not expand geographically. 1 -51 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• National Controls –Every country tries to protect its home industries and services through tariff and non-tariff controls. • Thanks to organizations like GATT, WTO, NAFTA, EU, and other economic agreements, tariffs have been largely removed in high-income countries. • Non-tariff barriers to trade include “Buy Local” campaigns, food safety rules and other bureaucratic obstacles. 1 -52 © 2011 Pearson Education, Inc. publishing as Prentice Hall

• Opposition to Globalization – To many people, globalization represents a threat. Globaphobia is used to describe an attitude of hostility toward trade agreements or global brands. 1 -53 © 2011 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall © 2011 Pearson Education, Inc. publishing as Prentice Hall