Marketing Chapter 3 Global Marketing Challenges Gilbert A

Marketing Chapter 3 Global Marketing Challenges Gilbert A. Churchill, Jr. J. Paul Peter

Slide 3 -1 Figure 3. 1 A Process for Deciding Whether to Enter International Markets Start No Must we? Should we? Yes No Concentrate Domestically Yes Can we? No Improve Capability Yes Identify Specific Opportunities Select Entry Option Source: Betty Jane Punnett and David A. Ricks, International Business (Boston: PWS-Kent Publishing Co. , 1992) p. 257

Slide 3 -2 Figure 3. 2 Major Trading Partners of the U. S. Imports and Exports in Billions of Dollars Canada Exports = $114 Imports = $129 Exports = $53 Exports = $27 U. K. Imports = $25 Japan Imports = $119 Exports = $51 Imports = $49 Mexico Source: U. S. Department of Commerce, Statistical Abstract of the United States, 115 th ed. (Washington Government Printing Office, 1995) pp. 819 -822. Imports = $32 Europe

Slide 3 -3 a Table 3. 1 Environmental Analysis Issues in Global Markets Environment Economic Environment Analysis Issues • Stage of Development • Buying Power of Consumers • Type of Currency; exchange rate Political and Legal Environment • Political Stability • Laws limiting international trade • Laws of host nations • General Agreement on Tariffs and Trade (GATT)

Slide 3 -3 b Table 3. 1 Environmental Analysis Issues in Global Markets Environment Social Environment Analysis Issues • Cultural influences on buying behavior • Language differences • Population sizes and distribution • Socioeconomic status • Impact on marketing on the culture • Ethical considerations such as bribery and human rights Natural Environment • Resources available • Impact of resources on natural resources Technological Environment • Levels of technological development • Available infrastructure Competitive Environment • Degrees of government involvement in competition • Ownership of competitors-local, foreign or government

Slide 3 -4 Economic/Technological Development Type of Society Description Traditional Agricultural, Little Upward Mobility, Little Technology, Custom-bound (e. g. , Ghana) Pre-Industrial Social and Economic Change, Rising Middle -class (e. g. , Peru, Uganda) Takeoff New Industries, Healthy Social and Economic Climate (e. g. , Thailand, Malaysia) Industrializing Spread of Technology (e. g. , China, Mexico, India, Brazil) Fully Industrial Exporter, Technology as Driver of New Innovation (e. g. , original G-7)

Slide 3 -5 a Legal Considerations of Global Marketing Tariff - tax levied on imported products Quota - limit on the amount of specific product that can enter a country Boycott (embargo) - a prohibition of trade Legal Structures Either Encourage or Limit Trade Exchange Control - laws compelling foreign exchange earnings to be sold to the central bank Per Capita Income - income person in a particular country Trade Agreement - agreements to stimulate international trade

Slide 3 -6 Important Trade Agreements Description NAFTA The North American Free Trade Agreement between Canada, U. S. , and Mexico is designed to phase out trade barriers. EU An agreement between 15 Western European countries to lower trade barriers ASEAN An agreement between Southeast Asian Nations to lower trade barriers. GATT WTO The General Agreement on Tariffs and Trade is an International framework of rules to lower trade barriers among 110 member nations The World Trade Organization is designed to further negotiations and oversee resolution of disputes related to GATT

Slide 3 -5 b Political Considerations of Global Marketing Dumping - practice of pricing products sold in foreign markets at less than their fair market price in the domestic market Counter Trade - form of trade in which all or part of the payment for goods and services is in the form of other goods and services Political Structures Devaluation - decreasing the value of the domestic currency in relation to the foreign currency

Slide 3 -7 Table 3. 2 Examples of Cultural Differences that Could Lead to Marketing Problems Body Language Standing with your hands on your hips is a gesture of defiance in Indonesia. Physical Contact Patting a child on the head is a grave offense in Thailand or Singapore since the head is revered as the location of the soul. Promptness In Latin countries, your host or business associate would be surprised if you arrived at the appointed hour. Eating and Cooking It is rude to leave anything on your plate when eating in Norway, Malaysia or Singapore. Other Social Customs In Sweden, nudity and sexual permissiveness are quite all right, but drinking is really frowned on. Source: William J. Stanton, Michael J. Etzel and Bruce J. Walker, Fundamentals of Marketing, 9 th ed. . (New York: Mc. Graw-Hill, 1991), p. 536. © 1991 by the Mc. Graw-Hill Companies, Inc. , and reproduced by permission of the publisher.

Slide 3 -8 Exporting High Risk Exporting Low Control High A mode of entry involving production of a product in one country and shipping it to another country for sale.

Slide 3 -9 Licensing High Risk Licensing Exporting Low Control High An agreement in which an organization grants another organization the right to use a trademark, a patented product or a process.

Slide 3 -10 Joint Ventures High Risk Joint Ventures Licensing Exporting Low Control High A business agreement in which two or more organizations share management of an enterprise.

Slide 3 -11 Direct Ownership High Direct Ownership Risk Joint Ventures Licensing Exporting Low Control High A mode of entry involving an organization setting up new facilities or acquiring a foreign firm in the same line of business.

Slide 3 -12 Table 3. 3 Mechanisms for Serving Global Markets: Some Pros and Cons Mechanism Advantages Disadvantages May be less profitable than other mechanisms Exporting Simple; minimal financial risk Licensing Minimal capital outlay; useful for serving countries with export restrictions Difficult to control licensee; when licensing agreement ends, licensee may become a competitor; may be less profitable than other mechanisms Joint Venture Risk limited to the organization’s share in the venture; foreign partner contributes expertise the organization lacks; useful when the host country limits foreign ownership Share control with venture partner; partner may learn technology or secrets that it uses to compete with the organization Direct Ownership Maximum control over foreign operations; ability to be close to customers Expensive to set up; requires extensive knowledge of foreign markets and contacts overseas Source: Based in part on information in Philip R. Cateora, International Marketing, 9 th ed. (Burr Ridge, Ill: Irwin, 1996) chapter 10.

Slide 3 -13 The Largest Multinational Corporations Rank* Company 1 Mitsubishi 2 Mitsui 3 Itochu 4 G. M. 5 Sumitomo 6 Marubeni 7 Ford Motor 8 Toyota Motor 9 Exxon 10 Royal Dutch Shell Group Annual Revenues in Billions of U. S. $ 184 182 169 168 161 137 111 110 Country Japan U. S. Britain/ Netherlands 110 *Ranked by 1995 sales volume. Source: “The Fortune Global 500, ” Fortune, 5 August 1996, p. F 1.

Slide 3 -14 Globalization vs Customization Globalized Product Customized Product