Globalization Imperative Chapter Overview Why Global Marketing is Imperative? Why Global Marketing is Imperative? Globalization of Markets: Convergence.

Globalization Imperative Globalization Imperative

Chapter OverviewChapter Overview

Why Global Marketing is Imperative?Why Global Marketing is Imperative? Globalization of Markets: Convergence and Globalization of Markets: Convergence and

DivergenceDivergence Evolution of Global MarketingEvolution of Global Marketing Theories of International Trade and the Theories of International Trade and the

Multinational Enterprise Multinational Enterprise

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IntroductionIntroduction

Products have been traded across borders Products have been traded across borders throughout recorded civilization, extending back throughout recorded civilization, extending back beyond the beyond the Silk RoadSilk Road that once connected East that once connected East with West from Xian (China) to Rome (Italy).with West from Xian (China) to Rome (Italy).

Total world trade volume in goods and services Total world trade volume in goods and services grew from $7.6 trillion in 2000 to nearly $11 trillion grew from $7.6 trillion in 2000 to nearly $11 trillion in 2004. in 2004.

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IntroductionIntroduction

According to the World Trade Organization (WTO), According to the World Trade Organization (WTO), the world’s five exporting countries were Germany the world’s five exporting countries were Germany ($912 billion), the United States ($912 billion), the United States ($819 billion($819 billion), ), China China ($593 billion($593 billion), Japan ), Japan ($566 billion($566 billion), and ), and France France ($449 billion($449 billion), collectively accounting for 36 ), collectively accounting for 36 percent of global trade in 2004.percent of global trade in 2004.

The Triad RegionsThe Triad Regions (North America, Western (North America, Western Europe, and Japan) of the world collectively Europe, and Japan) of the world collectively produce over 78 percent of world GDP in 2004.produce over 78 percent of world GDP in 2004.

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IntroductionIntroduction

Big Emerging Markets (BEMs):Big Emerging Markets (BEMs): In the next ten to In the next ten to twenty years, BEMs such as the Chinese twenty years, BEMs such as the Chinese Economic Area (CEA: including China, Hong Kong Economic Area (CEA: including China, Hong Kong Region, and Taiwan), India, South Korea, Mexico, Region, and Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, Brazil, Argentina, South Africa, Poland, Turkey, and the Association of Southeast Asian Nations and the Association of Southeast Asian Nations (ASEAN: including Indonesia, Brunei, Malaysia, (ASEAN: including Indonesia, Brunei, Malaysia, Thailand, the Philippines, and Vietnam) will Thailand, the Philippines, and Vietnam) will provide many opportunities in global business. provide many opportunities in global business.

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1. Why Global Marketing is Imperative1. Why Global Marketing is Imperative

Saturation of domestic marketsSaturation of domestic markets: Domestic-market : Domestic-market saturation in the industrialized parts of the world saturation in the industrialized parts of the world and marketing opportunities overseas are evident and marketing opportunities overseas are evident in global marketing.in global marketing.

Global competitionGlobal competition: Competition around the world : Competition around the world and proliferation of the Internet have been on the and proliferation of the Internet have been on the rise and are now intensifying.rise and are now intensifying.

Need for global cooperationNeed for global cooperation: Global competition : Global competition brings global cooperation.brings global cooperation.

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1. Why Global Marketing is Imperative1. Why Global Marketing is Imperative

Internet revolutionInternet revolution: The Internet and electronic : The Internet and electronic commerce (e-commerce) are bringing major commerce (e-commerce) are bringing major structural changes to the way companies operate structural changes to the way companies operate worldwide.worldwide.

The term “The term “globalglobal” epitomizes both the competitive ” epitomizes both the competitive pressure and expanding market opportunities.pressure and expanding market opportunities.

Whether a company operates domestically or Whether a company operates domestically or across national boundaries, it can no longer avoid across national boundaries, it can no longer avoid competitive pressures from around the world.competitive pressures from around the world.

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Exhibit 1-1Exhibit 1-1

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2. Globalization of Markets: 2. Globalization of Markets: Convergence and DivergenceConvergence and Divergence

Per capita income is an important determinant of Per capita income is an important determinant of consumer buying behavior. consumer buying behavior.

When a country’s per capita income is less than When a country’s per capita income is less than $10,000, much of the income is spent on food and $10,000, much of the income is spent on food and other necessities, and very little disposable other necessities, and very little disposable income remains.income remains.

As a country’s per capita incomes reaches As a country’s per capita incomes reaches $20,000, the disposable portion of income $20,000, the disposable portion of income increases dramatically.increases dramatically.

This increased disposable income level results in This increased disposable income level results in increased convergent pressures on consumer increased convergent pressures on consumer buying behavior.buying behavior.

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2. Globalization of Markets: 2. Globalization of Markets: Convergence and DivergenceConvergence and Divergence

People with higher incomes tend to enjoy similar People with higher incomes tend to enjoy similar educational levels, desires for material positions, educational levels, desires for material positions, ways of spending leisure time, and aspirations for ways of spending leisure time, and aspirations for the future.the future.

Globalization does not suffocate local cultures, but Globalization does not suffocate local cultures, but rather liberates them from the ideological rather liberates them from the ideological conformity of nationalism, with consumers conformity of nationalism, with consumers becoming more receptive to new things. becoming more receptive to new things.

Consumers also have a wider, more divergent Consumers also have a wider, more divergent “choice set” of goods and services to choose from.“choice set” of goods and services to choose from.

In other words, the divergence of consumer needs In other words, the divergence of consumer needs is taking place at the same time.is taking place at the same time.

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2. Globalization of Markets: 2. Globalization of Markets: Convergence and DivergenceConvergence and Divergence

International trade consists of exports and imports.International trade consists of exports and imports. International business includes international trade International business includes international trade

and foreign production.and foreign production. Extensive international penetration of companies Extensive international penetration of companies

is called global reach.is called global reach. International trade and foreign production activities International trade and foreign production activities

are managed on a global basis.are managed on a global basis. Growth of Multinational Corporations (MNCs) and Growth of Multinational Corporations (MNCs) and

intra-firm trade is a major aspect of global intra-firm trade is a major aspect of global markets.markets.

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2. Globalization of Markets: 2. Globalization of Markets: Convergence and DivergenceConvergence and Divergence

Who manages international tradeWho manages international trade? ? – Intrafirm trade: Trade between MNCs and Intrafirm trade: Trade between MNCs and

their foreign affiliates. Comprises 34 their foreign affiliates. Comprises 34 percent of world trade.percent of world trade.

– An additional 33 percent of world trade was An additional 33 percent of world trade was exports between MNCs and their affiliates. exports between MNCs and their affiliates.

– In other words, two-thirds of world trade is In other words, two-thirds of world trade is managed one way or another by MNCs.managed one way or another by MNCs.

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3. Evolution of Global Marketing3. Evolution of Global Marketing

What is marketing?What is marketing? Marketing involves the Marketing involves the planning and execution of the conception, pricing, planning and execution of the conception, pricing, promotion, and distribution of ideas, products, and promotion, and distribution of ideas, products, and services.services.

Marketing involves customer satisfaction and their Marketing involves customer satisfaction and their current and future needs.current and future needs.

Marketing is much more than selling and involves Marketing is much more than selling and involves the entire company.the entire company.

Within marketing strategies, companies are Within marketing strategies, companies are always under competitive pressure to move always under competitive pressure to move forward both forward both reactively reactively and and proactivelyproactively..

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3. Evolution of Global Marketing (contd.)3. Evolution of Global Marketing (contd.)

Five stages in the evolution of global marketingFive stages in the evolution of global marketing (see Exhibit 1-2):(see Exhibit 1-2):

1. 1. Domestic MarketingDomestic Marketing (domestic focus; home country (domestic focus; home country customers; ethnocentric orientation).customers; ethnocentric orientation).

2. 2. Export MarketingExport Marketing (indirect vs. direct exporting; country (indirect vs. direct exporting; country choice, exports; ethnocentric orientation; home country choice, exports; ethnocentric orientation; home country customers).customers).

3. 3. International MarketingInternational Marketing (markets in many countries; (markets in many countries; polycentric orientation; use of multidomestic marketing polycentric orientation; use of multidomestic marketing when customer needs are different across national when customer needs are different across national markets). markets).

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3. Evolution of Global Marketing3. Evolution of Global Marketing

4. 4. Multinational MarketingMultinational Marketing (many markets; consolidation on (many markets; consolidation on regional basis; regiocentric orientation; standardization regional basis; regiocentric orientation; standardization within regions).within regions).

5. 5. Global MarketingGlobal Marketing (international, multinational & geocentric (international, multinational & geocentric orientation; company’s willingness to adopt a global orientation; company’s willingness to adopt a global perspective; global products with local variations).perspective; global products with local variations).

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Exhibit 1-2Exhibit 1-2

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3. Evolution of Global Marketing3. Evolution of Global Marketing

Global MarketingGlobal Marketing: Global marketing refers to : Global marketing refers to marketing activities that emphasize the following:marketing activities that emphasize the following:

1.1. Standardization efforts.Standardization efforts.

2.2. Coordination across markets.Coordination across markets.

3.3. Global integration.Global integration.

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3. Evolution of Global Marketing3. Evolution of Global Marketing

Global marketing does not necessarily mean that Global marketing does not necessarily mean that products can be developed anywhere on a global products can be developed anywhere on a global scale.scale.

The economic geography, climate, and culture The economic geography, climate, and culture affect how companies develop certain products.affect how companies develop certain products.

The Internet adds a new dimension to global The Internet adds a new dimension to global marketing.marketing.

E-commerce retailers gain substantial savings by E-commerce retailers gain substantial savings by selling online.selling online.

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4. Appendix: Theories of International 4. Appendix: Theories of International Trade & the Multinational EnterpriseTrade & the Multinational Enterprise

Comparative Advantage TheoryComparative Advantage Theory (see Exhibit 1-3) (see Exhibit 1-3)– Absolute AdvantageAbsolute Advantage– Comparative AdvantageComparative Advantage– Commodity Terms of TradeCommodity Terms of Trade– Principles of International TradePrinciples of International Trade– Factor Endowment TheoryFactor Endowment Theory

International Product Cycle TheoryInternational Product Cycle Theory (see Exhibit (see Exhibit 1-4)1-4)– Economies of ScaleEconomies of Scale

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Exhibit 1-3Exhibit 1-3

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4. Appendix: Theories of International 4. Appendix: Theories of International Trade & the Multinational EnterpriseTrade & the Multinational Enterprise

– Economies of ScopeEconomies of Scope– Technological GapTechnological Gap– Preference SimilarityPreference Similarity– Stages of International Product Cycle Theory:Stages of International Product Cycle Theory:

Introduction StageIntroduction Stage– A U.S. company innovates on a new product in its A U.S. company innovates on a new product in its

home country.home country.

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4. Appendix: Theories of International 4. Appendix: Theories of International Trade & the Multinational EnterpriseTrade & the Multinational Enterprise

Growth StageGrowth Stage– Product standards emerge and mass Product standards emerge and mass

production becomes feasible.production becomes feasible. Maturity StageMaturity Stage

– Many U.S. and foreign companies vie for Many U.S. and foreign companies vie for market share in the international markets.market share in the international markets.

Decline StageDecline Stage– Companies in the developing countries also Companies in the developing countries also

begin producing the product and marketing begin producing the product and marketing it in the rest of the world.it in the rest of the world.

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Exhibit 1-4Exhibit 1-4

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4. Appendix: Theories of International 4. Appendix: Theories of International Trade & the Multinational EnterpriseTrade & the Multinational Enterprise

Internalization/Transaction Cost TheoryInternalization/Transaction Cost Theory– Appropriability RegimeAppropriability Regime– Dominant DesignDominant Design– Manufacturing and Marketing AbilityManufacturing and Marketing Ability