TOPIC 1 DECISION TO INTERNATIONALISE Global Marketing

TOPIC 1: DECISION TO INTERNATIONALISE

Global Marketing is defined as: “the firm’s commitment to coordinate its marketing activities across national boundaries in order to find and satisfy global customer needs better than the competition” (Hollensen 2008) It implies that the firm is able to: Develop a global marketing strategy based on similarities and differences between markets Exploit the knowledge of the home organisation through worldwide diffusion of learning and adaptations Transfer than knowledge and best practices

INTERNATIONAL MARKETING DEFINED The performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods & services to consumers or users in more than one nation for a profit (Cateroa & Graham, 2005). Marketing concepts, processes and principles are universally applicable.

REASONS FOR RAPID GROWTH OF INTERNATIONAL BUSINESS Technology Software Support Functions for Business Developments in Logistics and Supply Chain Mgmt Increasing Rates of Entrepreneurialism Changes in location of major economic activity Lowering Trade barriers Increases in Strategic Alliances Excess Capacity

STRATEGIC IMPORTANCE International trade Merchandise $7 trillion Services $1. 5 trillion Difficult to sustain growth solely through domestic marketing Global power of top organisations

WORLD TRADE Over 250 nations Population of 6 billion GDP $33 trillion East Asia, North America & the EU - 80% world trade and 85% world direct investment Europe and U. S. account for 56% of world GDP Only 11% world population

GLOBALISATION Globalisation is a buzzword; often identified as one of the most important issues for our society Chairman of Goldman Sachs Refers to the gospel of globalisation, refers to benefits of economic growth, global welfare, democracy and world pace (Paulson 2000, quoted in Crane and Matten) Contrast with rise of worldwide culture of anti-globalisation campaigners at the meetings of the WTO, IMF, World Bank, G 8 or EU leaders Riots in Seattle, Davos, Prague and Genoa Against, ‘global world order’, ‘global capitalism’ and ‘dictates of multinationals’

GLOBALISATION, IN THE CONTEMPORARY CONTEXT - A DEFINITION The term deterritorialisation has been coined; ‘Globalisation is the progressive eroding of the relevance of territorial bases for social, economic and political activities, processes and relations. ’ (Scholte 2000, quoted in Crane and Matten)

GLOBALISATION, IN THE CONTEMPORARY CONTEXT, DRIVERS 1. Technology removes geographical barriers 2. Modern communication technology, internet Air travel Political Erosion of national borders, EU, Iron Curtain

MC DONALD’S 30, 000 restaurants in over 100 countries They have determined that despite the cost savings of standardization, success is often based on ability to adapt to the local environment. Japan: 1971 – noodles or soup constituted fast food. By 1997 1000 outlets & 500 million burgers. Product Offerings - Chicken Tatsuta, Teriyaki Chicken & Teriyaki Burger all garnished with a fried egg. The import 70% of raw materials With such high volumes they have increase bargaining power & can source at low costs India: 40 % Vegetarian market

Westheat (2002) – motives for export: Contacted by foreign firm One-off order (no continued exports) Availability of foreign market info Companies growth objective Motivated by key founder/owner etc

REASONS FOR FAILURE Perlmutter (1995) Inability to locate correct niches Unwillingness to adapt products/service to local needs Products not perceived as unique or having addedvalue in foreign market Undecided commitment Hiring the wrong people Picking the wrong international partners Inability to manage local stakeholders (unions, govt)

REASONS FOR SUCCESS Perceiving Change in the Global Environment & responding Knowledge based organisations – skills & retention of skills – industrial espionage!!! Effective knowledge is paramount because of IT – large volumes of data – data is useless unless analysed, managed & effectively applied

CHARACTERISTICS OF BEST PRACTICE IN INTERNATIONAL MARKETING Clear International Competitive Focus An effective relationship[ Strategy Management of the Knowledge-based organisation

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REASONS COUNTRIES TRADE Ricardo’s theory of comparative advantage – simply – trade between two countries happens because one country is able to produce a product at a lower price – explains why Japanese manuf’s (Sony, Hitachi) came to dominate EU television market – better design, lower production, better technology & economies of scale. US auto market!

International PLC has 4 stages (Vernon & Wells 1968) Manuf for home market & begin exports Produce for export markets Foreign competition Foreign market competition begin to export to domestic market What is wrong with this explanation? – think about it for tutorials

Protectionism: is the economic policy of protecting a nation's manufacturing base from the effects of foreign competition through the application of tariffs (higher) on imported goods and restrictions on quotas. Free Trade - products are exempted from tariffs, allowing access to foreign markets without tax.

Modern protectionism - tariffs at high level to force the consumer to buy domestic products intervention in the trade system through tariffs, quotas, regulations, labor or environmental standards, the imposition of restrictive certification procedures on imports no tariff revenue is generated for the government consumer - high prices on domestic product and no tax relief. In the modern trade arena many other initiatives besides tariffs have been called protectionist.

Traditional protectionism relies on revenue tariffs for government funding to reduce or eliminate taxation on domestic industries and labour - reducing taxation on domestic labour and savings at a cost of higher tariffs on foreign products. Free Trade – focuses on exempting foreign products from taxation - lost revenue acquired domestically.

BARRIERS TO WORLD TRADE Market Entry Barriers – difficulties because of protectionism – Onkvisit & Shaw (1998) identify 850 covert barriers to imports with two main tariff components: Tariff Non-tariff

Tariff Barriers: Tariff Rates – Specific (product, weight, volume), Ad Valorem (straight % of price), discriminatory Country (import/export tariffs) Purpose (protective (modern) V revenue (traditional)) Time Import restraints – special duties Production, distribution 1. Bahamas average import tariff of 30% Average global tariff is now 5% from 45% in 1945

2. Non-Tariff Barriers Government participation in Trade (state trade) Customs & entry procedures – product classification, product validation, licences, inspections) Product requirements – standards, packaging, labelling, testing Quotas – i. e. limits on goods entering a country unfeasible Financial Control – credit restrictions, exchange control – exporter making money has to sell it to the national bank who can control the foreign exchange rate.

Barriers hindering export initiation: Insufficient finances Insufficient knowledge Lack of foreign market connections Lack of production capacity Lack of foreign distribution channels Management emphasis on developing domestic market Cost escalation due to high export, manuf, distribution costs

Barriers hindering process of internationalisation General market risk – market distance, foreign competition, language & culture Commercial risks – exchange rates, delays in export shipping Political risks – i. e. protectionism

POSSIBLE SOLUTIONS Avoid exporting to high risk markets Diversify overseas markets – don’t have all your eggs in one basket. Structure exports so that buyer bears most of the risk – payment before delivery.

TRIGGERS OF EXPORT INITIATION – CHANGE AGENTS

For internationalisation to occur someone (inside or outside the firm) must start the process and follow through on the decision – this is the change agent In most cases its a combination of factors

INTERNAL TRIGGERS Perceptive Management – have early awareness of opportunities in foreign markets. 1. • • Knowledge is paramount Often manager will have international experience (worked/lived abroad)

3. Specific Internal Event New experienced member of staff Overproduction Diminished domestic market Foreign enquiries Company interest in Internationalisation

3. Inward/Outward Internationalisation Inward internationalisation = importing goods & gaining experience at an international level to gain possible entry to foreign markets. Outward is the traditional view of internationalisation Inward & Outward are linked where inward can affect the success of outward Inward should precede outward particularly in early internationalisation process

EXTERNAL TRIGGERS Market Demand Competing Firms consider internationalisation Trade Associations Networking (conferences) External Experts 1. 2. 3. 4. 5. • • Export agents Governments – Bertie in China Chambers of Commerce Banks

WWW. ELVIS. COM - 2005 GROSS $45 MILLION

SUCCESS STORIES Embraer and canada’s Bombardier Tesco Wells and Fargo Netherlands ING Costco

THE FRAGILITY OF GLOBALISATION: CULTURAL THREATS Denmark – Arla Foods

More demonstrations have been held in protest at cartoons of the Prophet Mohammed published in a Danish newspaper. Gaza has been a focal point of Muslim rage across the Middle East, and the chanting of slogans against Denmark and burnings of its flag continue. The Danish embassy in Syria evacuated its premises after receiving an anonymous phone call claiming there was a bomb in the building. It was sealed off but a police search came up with nothing. A day before hundreds of Syrians staged a protest in front of the embassy. Several Danish companies have been hit by an unofficial boycott in Muslim countries. The Scandinavian dairy giant Arla Foods has fared especially badly because of its dominant position in the Middle East. Saudi Arabia was a major market. Managing Director Finn Hansen said: "Obviously it's a big blow to our business, which has pretty much diminished to a standstill today, and this happened over a period of five days due to 12 drawings in a Danish newspaper. " Invoking freedom of speech, several newspapers around Europe have reproduced the pictures. That, analysts say, will do nothing to soothe anger at images which Muslims deem blasphemous. Euronews 2 nd Feb 2006

Annual Sales in region = Euro 480 million Arla Foods says sales in the Middle East have plummeted to zero. Its had to lay off 100 staff “We have taken 40 years to build up a very big business in the Middle East, and we've seen it come to a complete stop in five days” Astrid Gade Niels Arla spokeswoman

"Our sales in the Middle East have come to a complete stop - in all countries in the region, " Astrid Gade Niels to the BBC. a complete shock to the company. "We have found ourselves in the middle of a game that we have no part in”. Burning the Danish Flag in Palestine

Saudi Arabia: Main news story in Saudi. Key reference to a Danish survey showing that 79% of the Danes believe no apology is necessary. Arla’s Saudi importers cancelled all orders - sales have come to a complete standstill. Kuwait: Wide coverage in the newspapers. Arla’s sales have ceased completely and products have been removed from shelves in around 35% of stores. Qatar: Danish products have been removed from the shelves in almost all supermarkets. Sales at a standstill. Bahrain: Supermarkets have removed Danish products from their shelves. Sales at a standstill. The Emirates: survey (79% of Danes believe that no apology). Danish products have been removed from the shelves.