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Chapter 5

Global Markets

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Learning Objectives

• List the factors that influence consumers’ abilities to buy and explain how these affect various national markets.

• Describe Maslow’s hierarchy-of-needs model and apply it to consumers in different cultures.

• Give examples of how consumer behavior is similar across cultures and examples of how it may differ from one culture to another.

• Describe segmentation options for consumer markets abroad.

• Explain why business-to-business markets vary in buyer needs and behavior from one country to another.

• List the special qualities of national and multinational global buyers.

• Describe the five “screens” a foreign firm must pass through to win a government contract.

• Explain the role of bribery in international contracts.

Chapter Overview

• Understanding Markets and Buyers

• Business Markets

• Government Markets

P&G in Japan

P&G ignored cultural differences!

• 1972 - P&G is the first company to introduce disposable diapers to Japan– 80% share of market within a year

• 1985 - P&G market share has plunged to 8% and the subsidiary is losing $40 million per year. WHY?

Consumer Markets

• Are consumption patterns converging– The French drink more beer– The Germans drink more wine– The Japanese eat more beef– The Swiss prefer French cheese

But major differences persist…!

Alcohol Consumption for Selected Countries (in liters per person)

Source: http://manyeyes.alphaworks.ibm.com/manyeyes/visualizations/2008-alcohol-consumption-by-country

Ireland 155 Netherlands 80

Germany 119 Finland 79

Austria 106 New Zealand

78

Denmark 98 Canada 70

Belgium 98 Switzerland 57

United Kingdom

97 Sweden 56

Australia 89 Norway 56

United States

85

Starbucks’ Mexican Dilemma

• Why don’t Mexicans drink coffee?– 5th largest coffee producer– Mexicans - 2 lbs. a year– Americans - 10 lbs. a year– Swedes - 26 lbs. a year

• What should Starbucks do?

National Differences

• Global marketers must consider national differences in:– Ability to buy– Consumer needs– Consumer behavior

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Ability to Buy

• Per capita income

• Purchasing power parity

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Per Capita Income in Selected Countries (U.S.$)

Patterns of Consumption (US$ per capita)

Source: Source: Market Sizes - Historic - US$ Per Capita - Fixed 2009 Exchange Rates - Value at Current Prices, Euromonitor

CountryConsumer

expenditure on food Meat

Milk, cheese

and eggs Vegetables

Sugar and

confectionery Alcoholic

drinksChina 418.8 85.3 41.4 42.4 4.8 16.3Japan 3106.2 288.6 158.8 388.3 293.6 581.3Brazil 1230.3 343.7 212.4 144.7 33.5 77.3Mexico 1111.8 268.1 129.1 93.7 81.5 96.2USA 1912.0 427.3 214.7 184.7 130.0 354.4France 3030.4 844.9 481.8 314.7 241.0 344.3Germany 2284.5 519.9 294.3 216.4 216.0 370.2Italy 2841.9 699.4 420.3 346.6 211.2 192.1United Kingdom 1734.8 399.9 243.2 281.0 196.8 333.1

Income Distribution

• Government tax policies

• Wealth concentration– Belgium Top 10% = 20% income– Colombia Top 10% = 46% income

The Hidden Economy

• Informal sector = Income not reported to authorities

• Peru’s informal sector =– 42% construction– 45% transportation– 16% manufacturing

Changing Views

Assumption

Economic Development

Informal SectorActivity

Reality = The bulk of new employment in recent years—particularly in developing and transition economies—has been in the informal economy

• Globalization– Loss of employment in formal sector

• Uncompetitive firms fold following liberalization• Uncompetitive firms fold during currency crises

and other global economic shocks– Cost pressures of increased competition

• Core of wage employees and periphery of informal workers

– Information and communications technology • Makes global coordination of informal firms

possible

Informal Sector Growth: Why?

• Institutions– Lack of enforcement institutions and laws against

• Corruption

• Tax evasion

• Labor and health violations

– Red tape of bureaucratic institutions• Role of human nature orientation

– Tax-related institutions• Complex, unfair tax codes

• Lack of effective tax auditing

– Lack of political will to change institutions!

Informal Sector Growth (cont.)

NPR Segment: Caracas

• NPR's Martin Kaste reports on the prevalent black market economy in Caracas, Venezuela. Confronted with a shortage of jobs and economic hardship, many residents of the metropolitan capital area have resorted to joining the so-called "informal economy" in order to make ends meet.– Listen to it at

http://www.npr.org/templates/story/story.php?storyId=1787749

Consumer Needs

• Is Maslow’s hierarchy of needs applicable cross-

culturally?

Self-actualization

Friendship, Love

Safety, Food, Shelter

Physiological Needs

Consumer Behavior

• Cultural differences revisited – Insurance in Muslim countries– Who makes the purchase decision?

• More joint husband-wife decisions in the U.S. than in Venezuela

Decision-Makers’ Purchase Categories

Buying decision

Country Vacation Food Appliances Savings Furniture Auto

What Turkey J W W J J H

Vietnam J W W J J H

U.S.A J W J J J H

When Turkey H W W J J H

Vietnam H W W J J H

U.S.A H W J J J J

Where Turkey J W W J J H

Vietnam J W W J J H

U.S.A J W J J J H

How Turkey J W J J J H

Vietnam J W J J J H

U.S.A J W J J J J

Decision-Makers’ Key-Joint=J, Wife=W, Husband=HDecision-Makers’ Key-Joint=J, Wife=W, Husband=H

Global Colors

• The world’s favorite color?– Blue

• But many colors elicit different responses– Purple = Expensive (in Japan, China, South

Korea)

– Purple = Cheap in USA

Segmentation

• A marketing technique that targets a group of customers with specific characteristics

© Diego Azubel/epa/Corbis

Four Characteristics of a Segment

1. Homogeneous characteristics

2. Profit potential

3. Ability to measure group

4. Ability to communicate to group

Three-Step Segmentation Process

• DEFINE:

– Take a look at existing customer list; look for common traits.

– Analyze competitors’ customer profiles

• PROFILE:– Full definition of who the segment is, their buyer

behavior, attitudes/values, lifestyle etc.

• RANK:

– Order of importance for business goals

– Highest profitability, least competition, most in need of product/service

Segmentation

• Segmentation is important for two reasons:1. You don’t need everyone in a country to

buy your product – you just need a large enough segment to purchase your product or service

2. How and how much you adapt your marketing mix depends on the segment that you are targeting in a market

Segmentation (cont.)

• Most segmentation is done at the local level– Should we target French housewives or

French working women?

Global Segments

• Global segment – transnational consumer segment based on age, social class, lifestyle– Convergence of some aspects of buyer

behavior– Cosmopolitans

• But for most products and segmentation schemes, national differences persist

Just-Like-Us Segment

• Just-like-us-segment – segments in international markets that resemble a firm’s domestic buyers– Easier because does not require marketing mix

adaptation

– But may result in few consumers worldwide and limits a firm’s global profit potential

– EXAMPLE – If toy manufacturer only targeted children in China they would miss out on a large segment – adults buying for themselves!

Urban/ Rural Population Distributionby Country (%)

Business Markets

• Yes– It’s cost and performance!

• No– It’s about relationships!

Are business markets less culture-specific than consumer markets?

Factors Affecting Organizational Buyer Choice

DecisionDecisionMakerMakerInitiatorInitiator UserUser

GatekeeperGatekeeperOther

Influencers

OtherInfluencers

BuyerBuyer

First Meetings

Yes – China and Japan

No! – Latin America and the Arab world

Should you present a prospective client with a gift?

Business Buyers’ Needs

• The cost-performance criterion is a key consideration for business buyers

• Business buyers in developed countries choose capital intensive technologies

• Capital is cheaper/ labor is more expensive • Business buyers in developing countries

usually choose labor intensive technologies• Labor is cheaper/ capital is more expensive

Labor compensation Per Hour for Selected countries

US dollars calculated using PPPsSource: OECD Factbook 2009: Economic, Environmental and Social Statistics

0 5 10 15 20 25 30 35

AustraliaAustriaCanada

Czech RepublicDenmarkFinlandFrance

GermanyGreece

HungaryItaly

KoreaMexico

NetherlandsNorway

Slovak RepublicSpain

SwedenUnited States

2006

2000

1995

• Cross-cultural negotiations are a particular challenge

• Russian tactics:– Emotional outburst, falling asleep,

unreasonable requests• Americans like to negotiate clear contracts

while Chinese prefer to establish personal trust relationships

Developing Business Relationships

• National global buyers– Search the world for products used in a single

market

• Multinational global buyers– Search the world for products used throughout

their global operations

• Global account management– Marketers assign special executive or teams to

address demanding global buyers

Global Buyers

Government Markets

• The buying process– Procurement processes vary by country– Some contracts go to the lowest bidder– More sophisticated projects demand more

complicated bidding processes

Marketing to Governments in Developing Countries

• Insert figure 5.2, p. 165 here

Bribery and Government Markets

• Bribery is giving something of value to an individual in a position of trust to influence judgment or behavior

• Government employees are trusted to do what’s best for the public good

• Government corruption is more prevalent in emerging markets

Transparency International

“Corruption is operationally defined as the misuse of entrusted power

for private gain.” (TI web site)

“Transparency can be defined as a principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably.”

(TI web site)

Transparency International (cont.)

1. Corruption Perceptions Index2. Bribe Payers Index Other Good Resources on the

Transparency International Web Site– Country Surveys– CORIS – Corruption Online Research &

Information System http://www.corisweb.org/

Transparency International (cont.)

Which Countries are the Least Corrupt?

Source: Transparency International

Rank Country 1 New Zealand 2 Denmark 3 Singapore 3 Sweden 5 Switzerland 8 Canada17 Japan17 United Kingdom19 USA25 Chile63 Italy

Source: Transparency International 2009

Which Countries are the Most Corrupt?

Source: Transparency International

Rank Country84 India89 Mexico111 Egypt111 Indonesia130 Nigeria139 Bangladesh146 Russia176 Iraq179 Afghanistan180 Somalia

Source: Transparency International 2009

Source: Transparency International

Which Country Pays the Least Amount of Bribes?

Rank Country1 Belgium1 Canada3 Netherlands3 Switzerland5 Germany

Source: Transparency International 2008

Source: Transparency International

Which Country Pays the Most Amount of Bribes?

Rank Country17 Brazil19 India20 Mexico21 China22 Russia

Source: Transparency International 2008

U.S. Foreign Corrupt Practices Act

• Forbids U.S. citizens to bribe foreign government employees or politicians – or to give money to agents that is subsequently used to bribe

• Citizens must report bribery in their organization

• Records must be transparent and well kept• Failure to comply can result in fines and jail

time !– Lockheed Martin Corp. in Egypt

Expediting Payments

• Small sums paid to civil servants to do their jobs– Unilever and BP Amoco do it!

• Used to avoid delays, not gain an unfair competitive advantage

• Allowed under the U.S. FCPA– But there is pressure to change this

Executives Charged in Foreign Bribery

Twenty-two executives and employees of military and law enforcement products were charged under the FCPA in a sting operation to pay a 20% commission to a sales agent of which half would go directly to the minister of defense of an African country. The maximum prison sentence for each charge under the FCPA is 5 years.

SourceSource: U.S. Newswire, Washington: Jan. 19, 2010

Diaspora Marketing

Case Review

• How and why might diasporans’ ability to buy differ from that of individuals of a similar age who their country of origin or homeland?

• Referring to Maslow’s hierarchy of needs, identify and describe the level of needs that the companies featured in this case (Tulumba, Jollibee, Thamel.com, Wizz Air African American Travel Agency, Coptic Orphans) fill for the diasporans who purchase products and services from them.

Diaspora Marketing cont.

Case Review

• Are the companies featured in this case targeting a global segment when they target their diaspora communities? Why or why not?

What Teens Want

Case Review• Would it be useful for certain global

marketers to think of teens as a global segment? Why or why not?

• Suggest ways in which teen consumer behavior is likely to differ between developed and developing countries.

• Why do you think street kids in Brazil are attracted to global brand names?

Case Review• Scenario 1 : Should Thomas give the agent

$1 million to pass on to the cabinet minister?• Scenario 2 : Should David retain the public

relations firm owned by the prime minister’s wife?

• Scenario 3 : Should Michael pay the customs officials to expedite his clients’ goods through customs.

• Scenario 4 : Should Ana allow the sales force to offer “tea money” ?

Questionable Payments