Chapter 01

International Marketing15th edition

Philip R. Cateora, Mary C. Gilly, and John L. Graham

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Introduction (1 of 2) Major events at the turn of the century:The technological bubble bust of 2001Terrorism on 9/11The Afghanistan and Iraq warsThe 2003 SARS outbreak in AsiaThe Indian ocean Tsunami in December 2004Price of oil at $100 a barrelNASA budget cuts threaten the demise of the space shuttle programRoy Philip *

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Introduction (2 of 2) Consumer spending rose despite the layoffs at United Airlines and Boeing and the tough job marketThe housing bubble burst during the end of 2008 and the American consumer stopped buying causing a 12 percent drop, the deepest decline in world trade in 50 years!International trade tensions are rising from competitors in China, Brazil and IndiaThe U.S. trade deficit keeps rising ($14 trillion)

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Overview of Chapter 1What is International Marketing?Benefits of International MarketingGlobalization of U.S. corporationsInternational marketing task Imperativeness of Environmental Adaptation Self-reference criterion and EthnocentrismDeveloping a global mindsetStages of international marketing involvementThe orientation of international marketing

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Global PerspectiveGlobal Commerce Causes PeaceThe role of world trade and international marketing in producing peaceInternational marketing promotes peace and prosperity through the marketing of products and services that meet the needs and wants of customers in other landsTwo examplesLarge Multinational BoeingSmall Multinational - PeaceWorks

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Events and Trends Affecting Global BusinessThe rapid growth of the World Trade Organization (WTO) and NAFTA and EUThe trend toward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern EuropeThe burgeoning impact of the Internet, mobile phones, and other global media on the dissolution of national bordersThe mandate to properly manage the resources and global environment for the generations to come

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Internationalization of U.S. Business (1 of 2)The world is one market increasing globalization of marketsSony, Norelco, Samsung, Honda, Toyota, NescafeMany U.S. companies are foreign controlled 7-Eleven and Firestone JapanCarnation SwitzerlandWall Street Journal AustraliaSmith & Wesson BritainZenith South Korea (LG Electronics)

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Foreign Acquisitions of U.S. CompaniesRoy Philip *Exhibit 1.1

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Internationalization of U.S. Business (2 of 2)Foreign companies are here to stay in the U.S. and compete with U. S. companiesThe great worldwide acquisitions both by U. S. and foreign companiesGlobal markets are a necessityForeign earnings a higher percentage of profitsMultinationals outperform domestic firmsGlobal value increased through global diversificationIntensifying domestic competition

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Selected U.S. Companies and Their International SalesRoy Philip *Exhibit 1.2

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International MarketingInternational marketing is defined as the performance of business activities designed to plan, price, promote, and direct the flow of a companys goods and services to consumers or users in more than one nations for a profit.The difference is the environmentCompetition, legal restraints, government controls, weather, fickle consumers, economic conditions, technological constraints, infrastructure concerns, culture, and political situations. Roy Philip *

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The International Marketing TaskExhibit 1.3*Roy Philip

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The International Marketing TaskRoy Philip *Marketing DecisionDomestic EnvironmentForeign Environment

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Environmental AdaptationThe most challenging and important adaptation international marketers must make is cultural adjustments.Must establish a frame of referenceTime-conscious Americans vs. Time-is-not-an-asset thinking Latin AmericansHand gestures vary between countriesCultural Conditioning be aware of home cultural references before making decisionsRoy Philip *

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Obstacles to AdaptationAdaptation is a conscious effort on the part of the international marketer to anticipate the influences of both the foreign and domestic uncontrollable factors on a marketing mix and then to adjust the marketing mix to minimize the effects. Two primary obstacles are:Self-Reference Criterion (SRC)EthnocentrismRoy Philip *

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Self-Reference Criterion (SRC)Self-Reference Criterion (SRC) is an unconscious reference to ones own cultural values, experiences, and knowledge as a basis for decision. Risk of SRC:Prevent you from becoming aware of cultural differencesInfluence the evaluation of the appropriateness of a domestically designed marketing mix for a foreign market

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EthnocentrismThe notion that people in ones own company, culture, or country know best how to do things. Risk of Ethnocentrism:Impedes the ability to assess a foreign market in its true light

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Beyond Obstacles to AdaptationThe most effective way to control the influence of SRC and Ethnocentrism is:To recognize the effects on our behaviorTo recognize that there may be more similarities than differences between countriesTo conduct cross-cultural analysisRoy Philip *

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Cross-Cultural AnalysisDefine business problem or goal in home-country cultural traits, habits, or normsDefine business problem or goal in foreign-country cultural traits, habits, or norms through consultation with natives of target countryIsolate the SRC influence and examine it carefully to see how it complicates the problemRedefine the problem without SRC influence and solve for the optimum business goal situationRoy Philip *

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Developing Global AwarenessTolerance of cultural differencesYou do not have to accept as your own the cultural ways of another, but you must allow others to be different and equalKnowledge of cultures, history, world market potential, and global economic, social, and political trends

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Approaches to Global AwarenessSelect individual managers that express a global awareness orientationDevelop personal relationships in foreign countriesMust have the support of a culturally diverse senior executive staff or board of directors

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International Marketing Involvement - StagesNo Direct Foreign MarketingInfrequent ForeignMarketingRegular ForeignMarketingInternational MarketingGlobal Marketing*Roy Philip

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No Direct Foreign Marketing Reactive Products indirectly reach foreign marketsTrading companiesForeign customers who contact firmDomestic wholesalers/distributorsWeb ordersForeign orders stimulate a companys interest to seek additional international sales

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Infrequent Foreign Marketing Reactive Caused by temporary surpluses Sales to foreign markets are made as goods become available Firm has little or no intention of maintaining continuous market representationForeign sales activity declines and is withdrawn when domestic demand increases

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Regular Foreign Marketing Proactive Dedicated production capacity for foreign marketsStrategy:Firm employs domestic or foreign intermediariesUses its own sales force or sales subsidiariesProducts are adapted for foreign markets as domestic demand growsFirms depend on profits from foreign markets

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International Marketing Proactive Fully committed and involved in foreign markets and international activitiesProduction takes place on foreign soil earning firms the MNC (Multinational Corporation) titleFedders being proactive:Looked to Asia for future growth after stymied U.S. salesDesigned new types of air conditioner unit for the Chinese market Plan to introduce new product in the U.S!

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Global Marketing Proactive The firm sees the world as one market!Market segmentation is now defined by income levels, usage patterns, or other factors that span the globeMore than half of its revenues come from abroadThe firm has a global perspective

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Global Market OrientationThis orientation entails operating as if all the country markets in a companys scope of operations (including the domestic market) were approachable as a single global market and standardizing the marketing mix where culturally feasible and cost effective. Depending on the product and market, firms may pursue a global market strategy for one product (global market orientation P&G diapers) but a multidomestic strategy for another product (international market orientation = P&G detergents).

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Textbooks OrientationAn environmental/cultural approach to international strategic marketingAim is to demonstrate the unique problems of international marketingAttempts to relate the foreign environment to the marketing process and to illustrate the many ways in which culture can influence the marketing task

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Foreign Policys Global Top 20Exhibit 1.4*Roy Philip

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Summary (1 of 2)It is imperative for firms to pay attention to the global environment in the wake of intense globalization of markets and competition. The difference between domestic marketing and international marketing is the environment that consist of laws, customs, and cultural differences.Key obstacles to successful international marketing are self-reference criterion (SRC) and Ethnocentrism

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Summary (2 of 2)Global awareness and sensitivity are solutions to the obstacles of SRC and ethnocentrismFive different international marketing involvement strategies were discussed: No direct foreign marketing, infrequent foreign marketing, regular foreign marketing, international marketing, and global marketingFirms must have global orientation the world is seen as one market

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*At the turn of the century, some major events that helped shape our world and influence international marketing include the technological bubble bust of 2001 (where dot-com companies and their effervescent models did not live up to the standards of customers and cost a lot of money for venture capitalists), the terrorism on 9/11 (which almost destroyed the airline industry; the disaster was ameliorated by the injection of funds from the government), the resulting Afghanistan and Iraq wars (which cost taxpayers a lot of money and pretty much divided the country politically, although President Bush won a second term despite the decision to go to war), the 2003 SARS outbreak in Asia (which affected tourism in Asia and send the stock market plummeting), the Indian ocean Tsunami in December 2004 (that affected the economies of India, Indonesia, and Sumatra), price of oil at $100 a barrel (that sent gas prices skyrocketing in the U. S.), and the NASA budget cuts that threatened the demise of the space shuttle program (which also threatens discovery into the frontiers of space).

Opening Side*Even with all the events at the turn of the century, the consumer continued to spend despite the layoffs at United Airlines and Boeing and the tough job market. This was only the beginning of the slowdown in the economy which began in the housing market, where loans were given out to people who could not afford homes and were mortgaging homes on an Adjustable Rate Mortgage (ARM). The Federal Reserve raised the interest rates, causing mortgage interest rates to go up, which raised mortgage payments, thereby ending in nationwide foreclosures. Banks stopped giving credit. The housing bubble finally burst during September and October of 2008 and the American consumer stopped buying causing a 12 percent drop, the deepest decline in world trade in 50 years! Also, international trade tensions continue to rise from new comers in the market: China, Brazil and India. All three of these countries has seen a rise in the income level and population of their middle class. Finally, the U.S. trade deficit keeps rising and it stands at $700 billion (at this writing). Now let us look at some of the trends affecting global business.

Opening Side*This is what you will be learning in this first chapter: Define International Marketing, learn the benefits of international marketing, the globalization of U.S. corporations, the international marketing task, the imperativeness of Environmental Adaptation, the problem of Self-reference criterion and Ethnocentrism, developing a global Mindset, the stages of international marketing involvement, and the orientation of international marketing.Opening Side*Global commerce causes peace. Let us look at two companies that use their business to promote peace, at least indirectly. Boeing Company, with more than 11,000 commercial jets in service around the world and carrying about one billion travelers per year, engages in global marketing and peace when it sells its aircraft to airlines around the world. And, all the activity associated with the development, production, and marketing of commercial aircraft and space vehicles requires millions of people from around the world to work together. Building both business and personal relationships is the foundation of global peace and prosperity. Another company also making a difference, perhaps a subtler one than large multinational companies, but one just as important in the aggregate, is PeaceWorks. The company, that fosters a joint venture between Arabs and Israelis, creates gourmet food and has over 5000 stores in the U. S. Whether or not a U.S. company wants to participate directly in international business, there is one undeniable fact: international markets are ultimately unpredictable. In order to survive, organizations have to be flexible.

Opening Side*Of all the events and trends affecting global business today, four stand out as the most dynamic, that will influencethe shape of international business beyond todays bumpy roads and far into the future. They are: the rapid growth of the World Trade Organization (WTO) and NAFTA and EU (regional free trade areas), the trendtoward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe (traditionally these countries were either socialistic or communist), the burgeoning impact of the Internet, mobile phones, and other global media on the dissolution of national borders (the internet has made it possible for small, medium-sized, and large business to access new markets), and the mandate to properly manage the resources and global environment for the generations to come (this is the green marketing era, or the era where consumers are wanting products that meet their needs but also benefits the environment).

Opening Side*There is an increasing globalization of markets. With the increasing globalization of markets, companies find they are unavoidably enmeshed with foreign customers, competitors, and suppliers, even within their own borders. Examples of such companies are Sony, Norelco, Samsung, Honda, Toyota, and Nescafe. Many U.S. companies are foreign controlled such as, 7-Eleven and Firestone Japan, Carnation Switzerland, Wall Street Journal Australia,Smith & Wesson Britain, and Zenith South Korea (LG Electronics). The next slide shows the foreign acquisition U.S. companies.

Opening Side*Foreign companies are here to stay in the U.S. and compete with U.S. companies. The market is full of great worldwide acquisitions both by U.S. and foreign companies. Why are global markets a necessity? Here are the reasons: foreign earnings will contribute to a higher percentage of profits, multinationals outperform domestic firms (A four-year Conference Board study of 1,250 U.S. manufacturing companies found that multinationals of all sizes and in all industries outperformed their strictly domestic U.S. counterparts. They grew twice as fast in sales and earned significantly higher returns on equity and assets), global value increased through global diversification, and intensifying domestic competition (looking beyond borders)

Opening Side*International marketing is defined as the performance of business activities designed to plan, price, promote, and direct the flow of a companys goods and services to consumers or users in more than one nation for a profit. The only difference between the definitions of domestic marketing and international marketing is the environment. That is, in international marketing, activities take place in more than one country. This difference in environment accounts for the complexity and diversity found in international marketing operations. The complexities include competition, legal restraints, government controls, weather, fickle consumers, economic conditions, technological constraints, infrastructure concerns, culture, and political situations.

Opening Side**Exhibit 1.3 illustrates the task of the international marketer: the international marketing environment. The inner circle depicts the controllable elements that constitute a marketers decision area, the second circle encompasses those environmental elements at home that have some effect on foreign-operation decisions, and the outer circles represent the elements of the foreign environment for each foreign market within which the marketer operates. As the outer circles illustrate, each foreign market in which the company does business can (and usually does) present separate problems involving some or all of the uncontrollable elements. The three circles, controllable, domestic uncontrollable, and foreign uncontrollable, will be explained in detail in the next slide. To be successful in the international marketplace, marketers must be able to effectively interpret the influence and impact of each of the uncontrollable environmental elements on the marketing plan for each foreign market in which they hope to do business. The most challenging and important adaptation international marketers must make is cultural adjustments. Because judgments are derived from experience that is the result of acculturation in the home country, marketers must have two strategies: must establish frames of reference and culture conditioning. Once a frame of reference is established, it becomes an important factor in determining or modifying a marketers reaction to situationssocial and even nonsocial. For example, time is not valued the same way in many countries. Also hand gestures vary between countries. Cultural conditioning is like an icebergwe are not aware of nine-tenths of it. In any study of the market systems of different peoples, their political and economic structures, religions, and other elements of culture, foreign marketers must constantly guard against measuring and assessing the markets against the fixed values and assumptions of their own cultures.

Opening Side*The key to successful international marketing is adaptation to the environmental differences from one market to another. Adaptation is a conscious effort on the part of the international marketer to anticipate the influences of both the foreign and domestic uncontrollable factors on a marketing mix and then to adjust the marketing mix to minimize the effects. Two primary obstacles to success in international marketing are Self-Reference Criterion (SRC) and Ethnocentrism. They are explained in detail in the next few slides.Opening Side*Self-Reference Criterion (SRC) is an unconscious reference to ones own cultural values, experiences, and knowledge as a basis for decisions. The risks of SRC are great. SRC can prevent marketing managers from being aware of cultural differences or from recognizing the importance of those differences. This will result in firms failing to recognize the need to take action, discounting the cultural differences that exist among countries, and reacting to a situation in a way offensive to your hosts. A common mistake made by Americans is to refuse food or drink when offered. In the United States, a polite refusal is certainly acceptable, but in Asia or the Middle East, a host is offended if you refuse hospitality. Although you do not have to eat or drink much, you do have to accept the offering of hospitality. Also, SRC influences the evaluation of the appropriateness of a domestically designed marketing mix for a foreign market. Opening Side*Closely connected to SRC is ethnocentrism the notion that people in ones own company, culture, or country know best how to do things. Ethnocentrism is generally a problem when managers from affluent countries work with managers and markets in less affluent countries. The risk of ethnocentrism is that it impedes the ability to assess a foreign market in its true light.

Opening Side*The most effective way to control the influence of SRC and ethnocentrism is to recognize their effects on our behavior. In order to avoid many of the mistakes possible in international marketing, it is important to have an awareness of the need to be sensitive to differences and to ask questions when doing business in another culture. For example, asking the appropriate question helped the Vicks Company avoid making a mistake in Germany. It discovered that in German Vicks sounds like the crudest slang equivalent of intercourse, so they changed the name to Wicks before introducing the product. Another way to control the influence of SRC and ethnocentrism is to recognize that there may be more similarities than differences between countries. For example, McVities chocolate biscuits are sold in the same package in the U.S. as in the United Kingdom. Finally, the international marketing must conduct cross-cultural analysis.

Opening Side*To avoid errors in business decisions, the international marketer will conduct a cross-cultural analysis that isolates the SRC influences and will maintain a vigilance regarding ethnocentrism. The following is a suggested framework for cross-cultural analysis: Define the business problem or goal in home-country cultural traits, habits, or norms; Define the business problem or goal in foreign-country cultural traits, habits, or norms through consultation with natives of the target country; Isolate the SRC influence in the problem and examine it carefully to see how it complicates the problem; and, Redefine the problem without the SRC influence and solve for the optimum business goal situation.

Opening Side*Opportunities in global business abound for those who are prepared to confront myriad obstacles with optimism and a willingness to continue learning new ways. The successful businessperson in the 21st century will have global awareness and a frame of reference that goes beyond a region or even a country and encompasses the world. To be globally aware is to have tolerance of cultural differences (You do not have to accept as your own the cultural ways of another, but you must allow others to be different and equal) and knowledge of cultures, history, world market potential, and global economic, social, and political trends (the former republics of the Soviet Union, along with Russia, Eastern Europe, China, India, Africa, and Latin America are undergoing economic, political, and social changes that have already influenced their status in world business).

Opening Side*Global awareness can and should be built in organizations using several approaches. The first and obvious strategy is to select individual managers that express a global awareness orientation. Global awareness can also be obtained through personal relationships in other countries. Indeed, market entry is very often facilitated through previously established social ties. Foreign agents and partners can also help directly in this regard. A final, and perhaps the most effective approach, is to have a culturally diverse senior executive staff or board of directors. Unfortunately, American managers seem to see relatively less value in this last approach than managers in most other countries.

Opening Side*Once a company has decided to go international, it has to decide the degree of marketing involvement and commitment it is willing to make. In general, one of five (sometimes overlapping) stages can describe the international marketing involvement and commitment of a company. These include: No direct foreign marketing,Infrequent foreign marketing, Regular foreign marketing, International marketing, and Global marketing. The first two stages are reactive in nature and the remaining three are proactive. Rather than progressing from one stage to another; a firm may begin its international involvement at any one stage or be in more than one stage simultaneously. For example, because of a short product life cycle and a thin but widespread market for many technology products, many high-tech companies large and small see the entire world, including their home market, as a single market and strive to reach all possible customers as rapidly as possible.

Opening Side*A company in the no direct foreign marketing stage does not actively (thereby being reactive) cultivate customers outside national boundaries; however, this companys products may reach foreign markets. Its products reach foreign markets through sales made to trading companies, to foreign customers who directly contact the firm, to domestic wholesalers or distributors who sell abroad without explicit encouragement or even knowledge of the producer, and through web sites. Often an unsolicited order from a foreign buyer is what piques the interest of a company to seek additional international sales. This is why this stage is more of a reactive stage as the firm does not actively seek foreign markets, but does so when a foreign order comes its way.

Opening Side*The infrequent foreign marketing stage is also a reactive stage as foreign production is caused by temporary surpluses caused by variations in production levels or demand may result in infrequent marketing overseas. Hence, sales to foreign markets are made as goods are available, with little or no intention of maintaining continuous market representation. As domestic demand increases and absorbs surpluses, foreign sales activity is reduced or even withdrawn. In this stage, little or no change is seen in company organization or product lines. However, few companies today fit this model because customers around the world increasingly seek long-term commercial relationships. Further, evidence exists that financial returns from initial international expansions are limited. Again, this stage has companies not actively seeking foreign markets and thereby being reactive in its approach to global business.

Opening Side*When a firm has permanent production capacity devoted to foreign markets, it has reached the regular foreign marketing stage. At this point, the firm may employ domestic or foreign intermediaries, or it may have its own sales force or sales subsidiaries in strategic foreign markets. While the primary focus of operations and production is to service domestic market needs, as overseas demand grows, production is allocated for foreign markets, and products may be adapted to meet their needs. Profit expectations from foreign markets move from being seen as a bonus to regular domestic profits to a position in which the company becomes dependent on foreign sales and profits to meet its goals. In this stage the company is proactive in its approach to global business as it wants to develop foreign sales. MeterMan, a small company of 25 employees from southern Minnesota that makes agricultural measuring devices, is a good example of this stage. It began manufacturing in 1955 and began exporting in 1989; by 1992 the company was shipping products to Europe. Today one-third of its sales are from 35 countries.

Opening Side*Companies in this stage are full committed to and involved in international marketing activities. They are proactively searching for newer global markets. They also plan on having production facilities in foreign countries to effectively reduce cost and meet the needs of their customers. Firms in this stage are usually called Multi National Corporations (MNCs). A good example of this is Fedders and its extremely proactive approach to garnering international markets: It decided that Asia, with its steamy climate and expanding middle class, offered the best opportunity for its air conditioners. After studying the Chinese market, they designed a new type of air conditioner: the split unit. It was great success and the company plan to introduce them in the U.S.!Opening Side*At this stage, there is a profound change in the orientation of the company toward markets and associated planning activities. Companies treat the world, including their home market, as one market. Companies have oriented their thinking toward one market and become more proactive in seeing the world as one market. Market segmentation decisions are no longer focused on national borders. Instead, market segments are defined by income levels, usage patterns, or other factors that often span countries and regions. Often this transition from international marketing to global marketing is catalyzed by a companys crossing the threshold of more than half its sales revenues coming from abroad (GE, Siemens, Apple). The best people in the company begin to seek international assignments, and the entire operation organizational structure, sources of finance, production, marketing, and so forth begins to take on a global perspective.

Opening Side*The global market orientation or philosophy entails operating as if all the country markets in a companys scope of operations (including the domestic market) were approachable as a single global market and standardizing the marketing mix where culturally feasible and cost effective. This type of firm strives for efficiencies of scale by developing a standardized marketing mix applicable across national boundaries. Markets are still segmented, but country or region is considered side by side with a variety of other segmentation variables, such as consumer characteristics (age, income, language group), usage patterns, and legal constraints. The world as a whole is viewed as the market, and the firm develops a global marketing strategy). Coca-Cola Company, Ford Motor Company, and Intel are among the companies that can be described as global companies. But there are companies who also use a transnational strategy, which is a mix of both global and multidomestic strategies. For example, depending on the product and market, firms may pursue a global market strategy for one product (global market orientation P&G diapers) but a multidomestic strategy for another product (international market orientation = P&G detergents.

Opening Side*The orientation of this textbook is an environmental/cultural approach to international strategic marketing. Most problems encountered by the foreign marketer result from the strangeness of the environment within which marketing programs must be implemented. Success hinges, in part, on the ability to assess and adjust properly to the impact of a strange environment. The successful international marketer possesses the best qualities of the anthropologist, sociologist, psychologist, diplomat, lawyer, prophet, and businessperson. Therefore, the orientation of this text is described as an environmental/cultural approach to international marketing. The aim of this textbook is to demonstrate the unique problems of international marketing. Finally, although marketing principles are universally applicable, the cultural environment within which the marketer must implement marketing plans can change dramatically from country to country. Therefore, the textbook attempts to relate the foreign environment to the marketing process and to illustrate the many ways in which culture can influence the marketing task. Opening Side**As mentioned, it is the opinion of the authors that a study of foreign marketing environments, people, and cultures and their influences on the total marketing process is of primary concern. Exhibit 1.4 shows the most recent ranking of countries on their extent of globalization (in trade, travel, technology, and links to the rest of the world) supports that viewpoint. Even though the United States is near the top of the list, most of the Global Top 20 are small countries. However, the key conclusion to be drawn from the graph is the dominance of technological connectivity for America. In particular, notice that as a country the United States is weakest on the personal contact dimension. Compared to folks in other countries, Americans generally do not experience foreign environments. Opening Side*