Managing Transnational Corporations Global Marketing and R & D.

Managing Transnational Corporations

Global Marketing and R & D

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Opening Case

• Kodak entered Russia in the early 1990’s- Country was deep in the middle of a turbulent transition

from a communist economy to a new democracy- Russian consumers had little knowledge of Kodak’s

products- The consumer market for photography was

underdeveloped- Apart from state-run stores, there was little or no

infrastructure in place for distributing photographic equipment, film, and processing

- Consumers were poor and lacked the ability to afford all but the most inexpensive cameras

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Opening Case

• Kodak’s entry into Russia is widely regarded as a major success because it accounts for a significant portion of $2.59 billion in international sales and growth rate of 26%

• Reasons for Kodak’s success include- A clear and consistent marketing message communicated

through a number of media- saving memories; you press button and we do the rest

- They invested in promoting a corporate image as a firm that takes a stand against corruption and black-market practices

- The product strategy has been to sell lower-end film and cameras in Russia

- Encouraged major enterprises to give cameras to valued employees

- Built a distribution channel through franchising – Kodak Express

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The Globalization of Markets and Brands

• Important to determine when product standardization is appropriate in an international market

• Firms may need to vary marketing mix in each different country

• Globalization may be the exception rather than the rule in many consumer goods markets and industrial markets due to significant differences in countries

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Key Focus areas of this session

• Market Segmentation• Distribution Strategy• Communication Strategy• Push Versus Pull Strategy• Pricing Strategy• Configuring the Marketing Mix• New Product Development• Integrating R&D, Marketing and Production

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Market Segmentation

• Refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways

• Segments can based on:- Geography- Demography- Socio-cultural factors- Psychological factors

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Market Segmentation

• Two main issues relating to segmentation:- Extent of differences between countries in the

structure of market segments- Existence of segments that transcend national borders

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Product Attributes

• Cultural differences• Economic development• Product and technical standards

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Cultural Differences

• Differ along dimensions such as social structure, language, religion, and education

• Impact of tradition• Some tastes and preferences becoming cosmopolitan

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Economic Development

• Consumer behavior is influenced by economic development

- Consumers in highly developed countries tend to demand extra performance attributes in their products

• Price not a factor due to high income level

- Consumers in less developed countries value basic features as more important

• Price a factor due to lower income level- Cars: no air-conditioning, power steering, power windows,

radios, and cassette players

• Product reliability is more important

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Product and Technical Standards

- Government standards can rule out mass production and marketing of a standardized product

- Differing technical standards constrain globalization of markets

• Different television signal frequencies• 120 vs 220 volt equipments

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Distribution Strategy

• Choice of the optimal channel for delivering a product to the consumer

- Optimal strategy is determined by the relative costs and benefits of each alternative

- Depends on differences between countries• Retail concentration• Channel length• Channel exclusivity

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Typical Distribution System

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Retail Concentration

• Concentrated system- Common in developed countries- Contributing factors: increase in car ownership,

number of households with refrigerators and freezers, and two-income households

• Fragmented system- Common in developing countries- Contributing factors: great population density with

large number of urban centers, e.g. Japan- Uneven or mountainous terrain, e.g. Nepal

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Channel Length

• Refers to number of intermediaries between the producer and the consumer

• Determined by degree to which the retail system is fragmented

- Long distribution channel- Short distribution channel

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Channel Length

• Long distribution channel- Fragmented retail system promotes growth of

wholesalers and retailers- Firms go through intermediaries such as wholesalers

to cut selling costs

• Short distribution channel- Concentrated retail system- Firms deal directly with retailers

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Channel Exclusivity

• Degree to which it is difficult for outsiders to access distribution channels

• Varies between countries- Japan - exclusive systems because personal relations,

often decades old, play an important role in stocking products

- Difficult for new firm to get shelf space as compared to an old firm

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Choosing a Distribution Strategy

• The optimal strategy is determined by the relative costs and benefits of each alternative

- Varies from country to country

• Benefits of a shorter distribution channel- The longer the channel, the greater the aggregate markup

and the higher the price that consumers are charged for the final product

- If price is an important competitive weapon the firm might choose a shorter channel

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Choosing a Distribution Strategy

• Benefits of a longer distribution channel- Cuts selling costs when the retail sector is fragmented

- Longer channels can provide increased market access

• If channel quality is poor, a firm should consider what steps it could take to upgrade the quality of the channel

- This may include establishing its own distribution channel

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Communication Strategy

• Defines the process the firm will use in communicating the attributes of its product to prospective customers

Cultural barriersSource effects

Noise levels

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Barriers to International Communication

• Cultural Barriers- Develop cross-cultural literacy- Firm should use local input such as local advertising

agency and sales force

• Source and country of origin effects- Receiver of the message evaluates the message based on

status or image of the sender • Anti-Japan wave in US in 1990’s

- Place of manufacturing influences product evaluations• Often used when consumer lacks more detailed knowledge of the

product- Examples: French wines, Italian clothes, and German luxury cars

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Barriers to International Communication

• Noise levels- Amount of other messages competing for a potential

customer’s attention• Developed countries - high• Less developed countries - low

• Standardized advertising strategy execution more difficult (culture, laws)

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Push Versus Pull Strategy

• Push strategy emphasizes personal selling - Requires intense use of a sales force- Relatively costly

• Pull strategy depends on mass media advertising- Can be cheaper for a large market segment

• Determining factors of type of strategy- Product type and consumer sophistication- Channel length- Media availability

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Product Type and Consumer Sophistication

• Pull strategy- Consumer goods- Large market segment- Long distribution

channels- Mass communication has

cost advantages

• Push strategy- Industrial products or

complex new products- Direct selling allows firms

to educate users- Short distribution

channels- Used in poorer nations

for consumer goods where direct selling only way to reach consumers

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Channel Length

• Pull strategy- Long or exclusive distribution channels

• e.g. Japan

- Mass advertising to generate demand to pull product through various layers

• Push Strategy- In countries with low literacy levels to educate

consumers

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Media Availability

• Pull strategy- Relies on access to advertising media- Common in developed nations

• Push strategy- Media availability limited by law- All electronic media state owned with no commercial policy

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Global Advertising

• Standardized:- Significant economic advantages- Scarce creative talent- Many global brand names

• Non-standardized:- Cultural differences- Advertising regulations can be a restriction

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Pricing Strategy

• Three aspects of international pricing strategy- Price discrimination- Strategic pricing- Regulatory influence on prices

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Price Discrimination

• Said to occur when consumers in different countries are charged different prices for the same product

• Two conditions necessary- National markets kept separate to prevent arbitrage

• Capitalization of price differentials by purchasing product in countries where prices are lower and reselling where prices are higher

- Different price elasticities of demand in different countries

• Greater in countries with low income levels and highly competitive conditions

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Elastic and Inelastic Demand

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Strategic Pricing

• Predatory pricing- Using price as a competitive weapon to drive weaker

competition out of a national market- Firms then raise prices to enjoy high profits- Firms normally have profitable position in another

national market

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Strategic Pricing

• Multipoint pricing strategy- Two or more international firms compete against each

other in two or more national markets- A firm’s pricing strategy in one market may impact a rival in

another market• Kodak and Fuji

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Strategic Pricing

• Experience curve pricing- Firms price low worldwide to build market share- Incurred losses are made up as company moves

down experience curve, making substantial profits- Cost advantage over its less-aggressive competitors

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Regulatory Influences on Prices

• Antidumping regulations- Selling a product for a price that is less than the cost of

producing it- Antidumping rules vague, but place a floor under export

prices and limit a firm’s ability to pursue strategic pricing• Article 6 of GATT allows action against an importer if the product is

sold at ‘less than fair value’ and causes ‘material injury to a domestic industry’

• Competition policy- Regulations designed to promote competition and restrict

monopoly practices

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Configuring the Marketing Mix

Culture

Economy

Com

petition

Stan

dard

s

Distrib

ution

Gov’t Regs

Product

Attrib

utes

Dis

tribu

tion

Stra

tegy

Comm

unications

Strategy

Pricing Strategy

Differences Here

Requires Variation Here

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New Product Development

• The location of R & D- Rate of new product development greater in countries

where• More money spent on R&D• Underlying demand is strong• Consumers are affluent• Competition is intense

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Integrating R&D, Marketing and Production

• Integrating R&D, production and marketing ensures

- Project development driven by customer needs- New products are designed for ease of manufacture- Development costs are kept in check- Time to market is minimized

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Integrating R&D, Marketing and Production

• High failure rate ratio- Between 33 % and 60% of new products fail to earn

adequate profits

• Reasons for failure:- Limited product demand- Failure to adequately commercialize product- Inability to manufacture product cost-effectively

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Cross-Functional Product Development Teams

• Objective of team to take a product development project from the initial concept development to market introduction

• Effective teams must have - “Heavyweight “ project manager- One member from each key function- Physically co-located to facilitate communication- Clear plan and goals- Own process for communication and conflict resolution

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Looking Ahead to next session

• Global Human Resource Management- The Strategic Role of International HRM- Staffing Policy- Training and Management Development- Performance Appraisal- Compensation- International Labor Relations- Please Read: 1-Cross cultural case study 2-Hindustanizaion of Levers