INTERNATIONAL MARKETING The Global Market Place Globalization of Markets and Competition: Trade is increasingly global in scope today. There are several reasons for this. One significant reason is technological—because of improved transportation and communication opportunities today, trade is now more practical. Thus, consumers and businesses now have access to the very best products from many different countries. Increasingly rapid technology lifecycles also increases the competition among countries as to who can produce the newest in technology. In part to accommodate these realities, countries in the last several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU). Stages in the International Involvement of a Firm: We discussed several stages through which a firm may go as it becomes increasingly involved across borders. A purely domestic firm focuses only on its home market, has no current ambitions of expanding abroad, and does not perceive any significant competitive threat from abroad. Such a firm may eventually get some orders from abroad, which are seen either as an irritation (for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue) or as "icing on the cake." As the firm begins to export more, it enters the export stage, where little effort is made to market the product abroad, although an increasing number of foreign orders are filled. In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries. In the multi-national stage, some efficiencies are pursued by standardizing across a region (e.g., Central America, West Africa, or Northern Europe). Finally, in the global stage, the focus centers on the entire World market, with decisions made optimize the product’s position across markets—the home country is no longer the center of the product. An example of a truly global company is Coca Cola.
Multinational Corporations
Nov 19, 2014
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INTERNATIONAL MARKETINGThe Global Market Place
Globalization of Markets and Competition: Trade is increasingly global in scope today. There are several reasons for this. One significant reason is technological—because of improved transportation and communication opportunities today, trade is now more practical. Thus, consumers and businesses now have access to the very best products from many different countries. Increasingly rapid technology lifecycles also increases the competition among countries as to who can produce the newest in technology. In part to accommodate these realities, countries in the last several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU).
Stages in the International Involvement of a Firm: We discussed several stages through which a firm may go as it becomes increasingly involved across borders. A purely domestic firm focuses only on its home market, has no current ambitions of expanding abroad, and does not perceive any significant competitive threat from abroad. Such a firm may eventually get some orders from abroad, which are seen either as an irritation (for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue) or as "icing on the cake." As the firm begins to export more, it enters the export stage, where little effort is made to market the product abroad, although an increasing number of foreign orders are filled. In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries. In the multi-national stage, some efficiencies are pursued by standardizing across a region (e.g., Central America, West Africa, or Northern Europe). Finally, in the global stage, the focus centers on the entire World market, with decisions made optimize the product’s position across markets—the home country is no longer the center of the product. An example of a truly global company is Coca Cola.
Note that these stages represent points on a continuum from a purely domestic orientation to a truly global one; companies may fall in between these discrete stages, and different parts of the firm may have characteristics of various stages—for example, the pickup truck division of an auto-manufacturer may be largely domestically focused, while the passenger car division is globally focused. Although a global focus is generally appropriate for most large firms, note that it may not be ideal for all companies to pursue the global stage. For example, manufacturers of ice cubes may do well as domestic, or even locally centered, firms.
Some forces in international trade: The text contains a rather long-winded appendix discussing some relatively simple ideas. Comparative advantage, discussed in more detail in the economics notes, suggests trade between countries is beneficial because these countries differ in their relative economic strengths—some have more advanced technology and some have lower costs. The International Product Life Cycle suggests that countries will differ in their timing of the demand for various products. Products tend to be adopted more quickly in the United States and Japan, for example, so once the demand for a product (say, VCRs) is in the decline in these markets, an increasing market potential might exist in other countries (e.g., Europe and the rest of Asia). Internalization/transaction costs refers to the fact that developing certain very large scale projects, such as an automobile intended for the World market, may entail such large costs that these must be spread over several countries.
Economics of International Trade
Exchange rates come in two forms:
“Floating”—here, currencies are set on the open market based on the supply of and demand for each currency. For example, all other things being equal, if the U.S. imports more from Japan than it exports there, there will be less demand for U.S. dollars (they are not desired for purchasing goods) and more demand for Japanese yen—thus, the price of the yen, in dollars, will increase, so you will get fewer yen for a dollar.
“Fixed”—currencies may be “pegged” to another currency (e.g., the Argentine currency is guaranteed in terms of a dollar value), to a composite of currencies (i.e., to avoid making the currency dependent entirely on the U.S. dollar, the value might be 0.25*U.S. dollar+4*Mexican peso+50*Japanese yen+0.2*German mark+0.1*British pound), or to some other valuable such as gold. Note that it is very difficult to maintain these fixed exchange rates—governments must buy or sell currency on the open market when currencies go outside the accepted ranges. Fixed exchange rates, although they produce stability and predictability, tend to get in the way of market forces—if a currency is kept artificially low, a country will tend to export too much and import too little.
Trade balances and exchange rates: When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.
Measuring country wealth: There are two ways to measure the wealth of a country. The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars. Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much in Japan—food and housing are much more expensive there. Therefore, we introduce the idea of purchase parity adjusted per capita GDP, which reflects what this money can buy in the country.
This is typically based on the relative costs of a weighted “basket” of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items). If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures. The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country. Traditionally, the GNP was more prevalent; today the GPD is more commonly used—in practice, the two measures fall within a few percent of each other.)
In general, the nominal per capita GPD is more useful for determining local consumers’ ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase. For example, the ability of Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income.
It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful. In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market. Similarly, great regional differences exist within some countries—income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy.
Multinational Corporations
Multinational corporations have existed since the beginning of overseas trade. They have
remained a part of the business scene throughout history, entering their modern form in the 17th
and 18th centuries with the creation of large, European-based monopolistic concerns such as
the British East India Company during the age of colonization. Multinational concerns were
viewed at that time as agents of civilization and played a pivotal role in the commercial and
industrial development of Asia, South America, and Africa. By the end of the 19th century,
advances in communications had more closely linked world markets, and multinational
corporations retained their favorable image as instruments of improved global relations through
commercial ties. The existence of close international trading relations did not prevent the
outbreak of two world wars in the first half of the twentieth century, but an even more closely
bound world economy emerged in the aftermath of the period of conflict.
In more recent times, multinational corporations have grown in power and visibility, but
have come to be viewed more ambivalently by both governments and consumers worldwide.
Indeed, multinationals today are viewed with increased suspicion given their perceived lack of
concern for the economic well-being of particular geographic regions and the public impression
that multinationals are gaining power in relation to national government agencies, international
trade federations and organizations, and local, national, and international labor organizations.
Despite such concerns, multinational corporations appear poised to expand their power
and influence as barriers to international trade continue to be removed. Furthermore, the actual
nature and methods of multinationals are in large measure misunderstood by the public, and
their long-term influence is likely to be less sinister than imagined. Multinational corporations
share many common traits, including the methods they use to penetrate new markets, the
manner in which their overseas subsidiaries are tied to their headquarters operations, and their
interaction with national governmental agencies and national and international labor
organizations.
WHAT IS A MULTINATIONAL CORPORATION?
As the name implies, a multinational corporation is a business concern with operations in
more than one country. These operations outside the company's home country may be linked to
the parent by merger, operated as subsidiaries, or have considerable autonomy. Multinational
corporations are sometimes perceived as large, utilitarian enterprises with little or no regard for
the social and economic well-being of the countries in which they operate, but the reality of their
situation is more complicated.
There are over 40,000 multinational corporations currently operating in the global
economy, in addition to approximately 250,000 overseas affiliates running cross-continental
businesses. In 1995, the top 200 multinational corporations had combined sales of $7.1 trillion,
which is equivalent to 28.3 percent of the world's gross domestic product. The top multinational
corporations are headquartered in the United States, Western Europe, and Japan; they have
the capacity to shape global trade, production, and financial transactions. Multinational
corporations are viewed by many as favoring their home operations when making difficult
economic decisions, but this tendency is declining as companies are forced to respond to
increasing global competition.
The World Trade Organization (WTO), the International Monetary Fund (IMF), and the
World Bank are the three institutions that underwrite the basic rules and regulations of
economic, monetary, and trade relations between countries. Many developing nations have
loosened trade rules under pressure from the IMF and the World Bank. The domestic financial
markets in these countries have not been developed and do not have appropriate laws in place
to enable domestic financial institutions to stand up to foreign competition. The administrative
setup, judicial systems, and law-enforcing agencies generally cannot guarantee the social
discipline and political stability that are necessary in order to support a growth-friendly
atmosphere. As a result, most multinational corporations are investing in certain geographic
locations only.
In the 1990s, most foreign investment was in high-income countries and a few geographic
locations in the South like East Asia and Latin America. According to the World Bank's 2002
World Development Indicators, there are 63 countries considered to be low-income countries.
The share of these low-income countries in which foreign countries are making direct
investments is very small; it rose from 0.5 percent 1990 to only 1.6 percent in 2000.
Although foreign direct investment in developing countries rose considerably in the 1990s,
not all developing countries benefited from these investments. Most of the foreign direct
investment went to a very small number of lower and upper middle income developing countries
in East Asia and Latin America. In these countries, the rate of economic growth is increasing
and the number of people living at poverty level is falling. However, there are still nearly 140
developing countries that are showing very slow growth rates while the 24 richest, developed
countries (plus another 10 to 12 newly industrialized countries) are benefiting from most of the
economic growth and prosperity. Therefore, many people in the developing countries are still
living in poverty.
Similarly, multinational corporations are viewed as being exploitative of both their workers
and the local environment, given their relative lack of association with any given locality. This
criticism of multinationals is valid to a point, but it must be remembered that no corporation can
successfully operate without regard to local social, labor, and environmental standards, and that
multinationals in large measure do conform to local standards in these regards.
Multinational corporations are also seen as acquiring too much political and economic
power in the modern business environment. Indeed, corporations are able to influence public
policy to some degree by threatening to move jobs overseas, but companies are often
prevented from employing this tactic given the need for highly trained workers to produce many
products. Such workers can seldom be found in low-wage countries. Furthermore, once they
enter a market, multinationals are bound by the same constraints as domestically owned
concerns, and find it difficult to abandon the infrastructure they produced to enter the market in
the first place.
The modern multinational corporation is not necessarily headquartered in a wealthy
nation. Many countries that were recently classified as part of the developing world, including
Brazil, Taiwan, Kuwait, and Venezuela, are now home to large multinational concerns. The days
of corporate colonization seem to be nearing an end.
ENTRY OF MULTINATIONAL CORPORATIONS INTO NEW MARKETS
Multinational corporations follow three general procedures when seeking to access new
markets: merger with or direct acquisition of existing concerns; sequential market entry; and
joint ventures.
Merger or direct acquisition of existing companies in a new market is the most
straightforward method of new market penetration employed by multinational corporations. Such
an entry, known as foreign direct investment, allows multinationals, especially the larger ones,
to take full advantage of their size and the economies of scale that this provides. The rash of
mergers within the global automotive industries during the late 1990s are illustrative of this
method of gaining access to new markets and, significantly, were made in response to
increased global competition.
Multinational corporations also make use of a procedure known as sequential market
entry when seeking to penetrate a new market. Sequential market entry often also includes
foreign direct investment, and involves the establishment or acquisition of concerns operating in
niche markets related to the parent company's product lines in the new country of operation.
Japan's Sony Corporation made use of sequential market entry in the United States, beginning
with the establishment of a small television assembly plant in San Diego, California, in 1972. For
the next two years, Sony's U.S. operations remained confined to the manufacture of televisions,
the parent company's leading product line. Sony branched out in 1974 with the creation of a
magnetic tape plant in Dothan, Alabama, and expanded further by opening an audio equipment
plant in Delano, Pennsylvania, in 1977.
After a period of consolidation brought on by an unfavorable exchange rate between
the yen and dollar, Sony continued to expand and diversify its U.S. operations, adding facilities
for the production of computer displays and data storage systems during the 1980s. In the
1990s, Sony further diversified it U.S. facilities and now also produces semiconductors and
personal telecommunications products in the United States. Sony's example is a classic case of
a multinational using its core product line to defeat indigenous competition and lay the
foundation for the sequential expansion of corporate activities into related areas.
Finally, multinational corporations often access new markets by creating joint ventures
with firms already operating in these markets. This has particularly been the case in countries
formerly or presently under communist rule, including those of the former Soviet Union, eastern
Europe, and the People's Republic of China. In such joint ventures, the venture partner in the
market to be entered retains considerable or even complete autonomy, while realizing the
advantages of technology transfer and management and production expertise from the parent
concern. The establishment of joint ventures has often proved awkward in the long run for
multinational corporations, which are likely to find their venture partners are formidable
competitors when a more direct penetration of the new market is attempted.
Multinational corporations are thus able to penetrate new markets in a variety of ways,
which allow existing concerns in the market to be accessed a varying degree of autonomy and
control over operations.
Example: Royal Air Morocco
• Royal Air Morocco is an airline passenger and cargo. Its head office is located at the Airport Casablanca CASA NAFA
• The 2nd African airline after South Africa Airways
Creation
• Royal Air Morocco (RAM) was born June 28, 1957 from the merger of Atlas Air and Air Morocco. In 1957, its capital is held to about 68% by the Moroccan State. It was she who in 1976 launched the Boeing 737-200. The first CEO of Royal Air Morocco, Mr. Driss was Cherrad. Royal Air Morocco (RAM) conducted in 2005 on the African market a number of `business estimated at 150 million euro’s, registering an increase of 68% over the previous year`.
• In 2006, RAM placed on growth 75% in Africa, revealing that the company `s account associate with other African airlines` c `as is already the case with Air Senegal International, Air Gabon International. �The RAM has retracted into the purchase of 51% of Air Mauritania announced in August 2006
Creation
• He said that in addition to Cameroon, Cote d'Ivoire, Burkina Faso, Togo and Benin, RAM aims to serve Ghana, Congo, Equatorial Guinea and Democratic Republic of Congo between 2007 and 2008.
• The Dreamliner, Boeing's newest plant in Seattle will enter the fleet of Royal Air Morocco, already composed mainly of Boeing. The company's flagship Moroccan completed 6 December an agreement for the purchase of five Boeing 787. Four are on firm order, the fifth is optional. The RAM is also known worldwide among the best companies in safety.
• In 2007 the group Royal Air Morocco has carried nearly 10 million passengers to over 80
Affiliates
• Air Senegal: 51% for the (RAM) and 49% for the state of Senegal and 2000
• Air Gabon: 51% for the (RAM) and 49% for the state of Gabon in 2005 Royal Air Morocco has created new Air Gabon Gabonese company had completely stopped its flights for lack of `airliners. The 767-200 and 737-200 remained grounded for engine problems.
PRO’S CON’S
Bringing advanced technology to poorer countries and low-cost products to wealthier ones
Plays important role in global investment
Play a key role in spread abroad the technology around the globe
Produce cheapest sources of labour
It’s also forces government to be more careful before imposing costly
Mergers and acquisitions of multinational companies help other companies to achieve economies of scale in marketing and distribution (allows well managed companies to
take over poorly managed companies)
Allow entire world to improve their standard of living and provide access of quality product to entire world regardless of place
Providing new economic opportunity for local economies
Have a wider market. Huge market has been created domestically and internationally
Exploit workers and natural resources with no regard for the economic wellbeing of any country or community
High wage workers lose their jobs
Make it harder for government to raise revenue, protect the environment, and promote worker safety (a fall in social protections)
Give impacts on local traditional economy
Brings cultural homogenization locally
Exert power in a exploitative way (manipulate)
PRO’S CON’S
Huge increase in the capacity of Broadcasting.
Language and culture helped create market for American exports
Falling cost of distribution, as digitization has cut annual operating cost
Many people resent what they seeas foreign influence on national politics
Some worry that this foreign invasion willdestroy local cultures
Others fear of homogenization of distinctive national and regional taste
European broadcasters in particular have become huge markets for imported Television programming. As a result, thiscontinents runs a large and growing account deficit
Global competition threatens the survival of the high cost programming that many state owned broadcasters in Europe produce
A Market View
Political and Legal Influences
The political situation: The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue. For example, oil companies which invested in Iraq or Libya became victims of these countries’ misconduct that led to bans on trade. Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.
Certain issues in the political environment are particularly significant. Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means. Some countries have little tradition of democracy, and thus it may be difficult to implement. For example, even though Russia is supposed to become a democratic country, the history of dictatorships by the communists and the czars has left country of corruption and strong influence of criminal elements.
Laws across borders: When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable. Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application). By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.
The reality of legal systems: Some legal systems, such as that of the U.S., are relatively “transparent”—that is, the law tends to be what its plain meaning would suggest. In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated). Further, the amount of discretion left to government officials tends to vary. In Japan, through the doctrine of administrative guidance, great latitude is left to government officials, who effectively make up the laws.
One serious problem in some countries is a limited access to the legal systems as a means to redress grievances against other parties. While the U.S. may rely excessively on lawsuits, the inability to effectively hold contractual partners to their agreement tends to inhibit business deals. In many jurisdictions, pre-trial discovery is limited, making it difficult to make a case against a firm whose internal documents would reveal guilt. This is one reason why personal relationships in some cultures are considered more significant than in the U.S.—since enforcing contracts may be difficult, you must be sure in advance that you can trust the other party.
Legal systems of the World. There are four main approaches to law across the World, with some differences within each:
Common law, the system in effect in the U.S., is based on a legal tradition of precedent. Each case that raises new issues is considered on its own merits, and then becomes a precedent for future decisions on that same issue. Although the legislature can override judicial decisions by changing the law or passing specific standards through legislation, reasonable court decisions tend to stand by default.
Code law, which is common in Europe, gives considerably shorter leeway to judges, who are charged with “matching” specific laws to situations—they cannot come up with innovative solutions when new issues such as patentability of biotechnology come up. There are also certain differences in standards. For example, in the U.S. a supplier whose factory is hit with a strike is expected to deliver on provisions of a contract, while in code law this responsibility may be nullified by such an “act of God.”
Islamic law is based on the teachings of the Koran, which puts forward mandates such as a prohibition of usury, or excessive interest rates. This has led some Islamic countries to ban interest entirely; in others, it may be tolerated within reason. Islamic law is ultimately based on the need to please God, so “getting around” the law is generally not acceptable. Attorneys may be consulted about what might please God rather than what is an explicit requirements of the government.
Socialist law is based on the premise that “the government is always right” and typically has not developed a sophisticated framework of contracts (you do what the governments tells you to do) or intellectual property protection (royalties are unwarranted since the government ultimately owns everything). Former communist countries such as those of Eastern Europe and Russia are trying to advance their legal systems to accommodate issues in a free market.
Culture
Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals. The definition of culture offered one text is “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member of society.” From this definition, we make the following observations:
Culture, as a “complex whole,” is a system of interdependent components. Knowledge and beliefs are important parts. In the U.S., we know and believe that a
person who is skilled and works hard will get ahead. In other countries, it may be believed that differences in outcome result more from luck. “Chunking,” the name for China in Chinese literally means “The Middle Kingdom.” The belief among ancient Chinese that they were in the center of the universe greatly influenced their thinking.
Other issues are relevant. Art, for example, may be reflected in the rather arbitrary practice of wearing ties in some countries and wearing turbans in others. Morality may be exhibited in the view in the United States that one should not be naked in public. In Japan, on the other hand, groups of men and women may take steam baths together
without perceived as improper. On the other extreme, women in some Arab countries are not even allowed to reveal their faces. Notice, by the way, that what at least some countries view as moral may in fact be highly immoral by the standards of another country.
Culture has several important characteristics:
(1) Culture is comprehensive. This means that all parts must fit together in some logical fashion. For example, bowing and a strong desire to avoid the loss of face are unified in their manifestation of the importance of respect.
(2) Culture is learned rather than being something we are born with. We will consider the mechanics of learning later in the course.
(3) Culture is manifested within boundaries of acceptable behavior. For example, in American society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts and a T-shirt would usually be acceptable. Failure to behave within the prescribed norms may lead to sanctions, ranging from being hauled off by the police for indecent exposure to being laughed at by others for wearing a suit at the beach.
(4) Conscious awareness of cultural standards is limited. One American spy was intercepted by the Germans during World War II simply because of the way he held his knife and fork while eating.
(5) Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change. For example, American culture has changed a great deal since the 1950s, while the culture of Saudi Arabia has changed much less.
Dealing with culture. Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand. One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance).
Warning about stereotyping. When observing a culture, one must be careful not to over-generalize about traits that one sees. Research in social psychology has suggested a strong tendency for people to perceive an “out group” as more homogenous than an “in group,” even when they knew what members had been assigned to each group purely by chance. When there is often a “grain of truth” to some of the perceived differences, the temptation to over-generalize is often strong. Note that there are often significant individual differences within cultures.
Cultural lessons. We considered several cultural lessons in class; the important thing here is the big picture. For example, within the Muslim tradition, the dog is considered a “dirty” animal, so portraying it as “man’s best friend” in an advertisement is counter-productive. Packaging, seen as a reflection of the quality of the “real” product, is considerably more important in Asia
than in the U.S., where there is a tendency to focus on the contents which “really count.” Many cultures observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point is considered. Cultural characteristics as a continuum. There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivistic). Note, however, countries fall on a continuum of cultural traits. Hofstede’s research demonstrates a wide range between the most individualistic and collectivistic countries, for example—some fall in the middle.
Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM executives in various countries, and found that cultural differences tended to center around four key dimensions:
Individualism vs. collectivism: To what extent do people believe in individual responsibility and reward rather than having these measures aimed at the larger group? Contrary to the stereotype, Japan actually ranks in the middle of this dimension, while Indonesia and West Africa rank toward the collectivistic side. The U.S., Britain, and the Netherlands rate toward individualism.
Power distance: To what extent is there a strong separation of individuals based on rank? Power distance tends to be particularly high in Arab countries and some Latin American ones, while it is more modest in Northern Europe and the U.S.
Masculinity vs. femininity involves a somewhat more nebulous concept. “Masculine” values involve competition and “conquering” nature by means such as large construction projects, while “feminine” values involve harmony and environmental protection. Japan is one of the more masculine countries, while the Netherlands rank relatively low. The U.S. is close to the middle, slightly toward the masculine side. ( The fact that these values are thought of as “masculine” or “feminine” does not mean that they are consistently held by members of each respective gender—there are very large “within-group” differences. There is, however, often a large correlation of these cultural values with the status of women.)
Uncertainty avoidance involves the extent to which a “structured” situation with clear rules is preferred to a more ambiguous one; in general, countries with lower uncertainty avoidance tend to be more tolerant of risk. Japan ranks very high. Few countries are very low in any absolute sense, but relatively speaking, Britain and Hong Kong are lower, and the U.S. is in the lower range of the distribution.
Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term orientation has been proposed. In the U.S., managers like to see quick results, while Japanese managers are known for take a long term view, often accepting long periods before profitability is obtained.
High vs. low context cultures: In some cultures, “what you see is what you get”—the speaker is expected to make his or her points clear and limit ambiguity. This is the case in the U.S.—if you have something on your mind, you are expected to say it directly, subject to some reasonable standards of diplomacy. In Japan, in contrast, facial expressions and what is not said may be an important clue to understanding a speaker’s meaning. Thus, it may be very
difficult for Japanese speakers to understand another’s written communication. The nature of languages may exacerbate this phenomenon—while the German language is very precise, Chinese lacks many grammatical features, and the meaning of words may be somewhat less precise. English ranks somewhere in the middle of this continuum.
Ethnocentrism and the self-reference criterion. The self-reference criterion refers to the tendency of individuals, often unconsciously, to use the standards of one’s own culture to evaluate others. For example, Americans may perceive more traditional societies to be “backward” and “unmotivated” because they fail to adopt new technologies or social customs, seeking instead to preserve traditional values. In the 1960s, a supposedly well read American psychology professor referred to India’s culture of “sick” because, despite severe food shortages, the Hindu religion did not allow the eating of cows. The psychologist expressed disgust that the cows were allowed to roam free in villages, although it turns out that they provided valuable functions by offering milk and fertilizing fields. Ethnocentrism is the tendency to view one’s culture to be superior to others. The important thing here is to consider how these biases may come in the way in dealing with members of other cultures.
It should be noted that there is a tendency of outsiders to a culture to overstate the similarity of members of that culture to each other. In the United States, we are well aware that there is a great deal of heterogeneity within our culture; however, we often underestimate the diversity within other cultures. For example, in Latin America, there are great differences between people who live in coastal and mountainous areas; there are also great differences between social classes.
Language issues. Language is an important element of culture. It should be realized that regional differences may be subtle. For example, one word may mean one thing in one Latin American country, but something off-color in another. It should also be kept in mind that much information is carried in non-verbal communication. In some cultures, we nod to signify “yes” and shake our heads to signify “no;” in other cultures, the practice is reversed. Within the context of language:
There are often large variations in regional dialects of a given language. The differences between U.S., Australian, and British English are actually modest compared to differences between dialects of Spanish and German.
Idioms involve “figures of speech” that may not be used, literally translated, in other languages. For example, baseball is a predominantly North and South American sport, so the notion of “in the ball park” makes sense here, but the term does not carry the same meaning in cultures where the sport is less popular.
Neologisms involve terms that have come into language relatively recently as technology or society involved. With the proliferation of computer technology, for example, the idea of an “add-on” became widely known. It may take longer for such terms to “diffuse” into other regions of the world. In parts of the World where English is heavily studied in
schools, the emphasis is often on grammar and traditional language rather than on current terminology, so neologisms have a wide potential not to be understood.
Slang exists within most languages. Again, regional variations are common and not all people in a region where slang is used will necessarily understand this. There are often significant generation gaps in the use of slang.
Writing patterns, or the socially accepted ways of writing, will differs significantly between cultures. In English and Northern European languages, there is an emphasis on organization and conciseness. Here, a point is made by building up to it through background. An introduction will often foreshadow what is to be said. In Romance languages such as Spanish, French, and Portuguese, this style is often considered “boring” and “inelegant.” Detours are expected and are considered a sign of class, not of poor organization. In Asian languages, there is often a great deal of circularity. Because of concerns about potential loss of face, opinions may not be expressed directly. Instead, speakers may hint at ideas or indicate what others have said, waiting for feedback from the other speaker before committing to a point of view.
Because of differences in values, assumptions, and language structure, it is not possible to meaningfully translate “word-for-word” from one language to another. A translator must keep “unspoken understandings” and assumptions in mind in translating. The intended meaning of a word may also differ from its literal translation. For example, the Japanese word hai is literally translated as “yes.” To Americans, that would imply “Yes, I agree.” To the Japanese speaker, however, the word may mean “Yes, I hear what you are saying” (without any agreement expressed) or even “Yes, I hear you are saying something even though I am not sure exactly what you are saying.”
Differences in cultural values result in different preferred methods of speech. In American English, where the individual is assumed to be more in control of his or her destiny than is the case in many other cultures, there is a preference for the “active” tense (e.g., “I wrote the marketing plan”) as opposed to the passive (e.g., “The marketing plan was written by me.”)
Because of the potential for misunderstandings in translations, it is dangerous to rely on a translation from one language to another made by one person. In the “decentering” method, multiple translators are used. The text is first translated by one translator—say, from German to Mandarin Chinese. A second translator, who does not know what the original German text said, will then translate back to German from Mandarin Chinese translation. The text is then compared. If the meaning is not similar, a third translator, keeping in mind this feedback, will then translate from German to Mandarin. The process is continued until the translated meaning appears to be satisfactory.
Different perspectives exist in different cultures on several issues; e.g.:
Monochronic cultures tend to value precise scheduling and doing one thing at a time; in polychronic cultures, in contrast, promptness is valued less, and multiple tasks may be performed simultaneously. (See text for more detail).
Space is perceived differently. Americans will feel crowded where people from more densely populated countries will be comfortable.
Symbols differ in meaning. For example, while white symbols purity in the U.S., it is a symbol of death in China. Colors that are considered masculine and feminine also differ by culture.
Americans have a lot of quite shallow friends toward whom little obligation is felt; people in European and some Asian cultures have fewer, but more significant friends. For example, one Ph.D. student from India, with limited income, felt obligated to try buy an airline ticket for a friend to go back to India when a relative had died.
In the U.S. and much of Europe, agreements are typically rather precise and contractual in nature; in Asia, there is a greater tendency to settle issues as they come up. As a result, building a relationship of trust is more important in Asia, since you must be able to count on your partner being reasonable.
In terms of etiquette, some cultures have more rigid procedures than others. In some countries, for example, there are explicit standards as to how a gift should be presented. In some cultures, gifts should be presented in private to avoid embarrassing the recipient; in others, the gift should be made publicly to ensure that no perception of secret bribery could be made.
Cross-Cultural Market Research
Primary vs. secondary research. There are two kinds of market research: Primary research refers to the research that a firm conducts for its own needs (e.g., focus groups, surveys, interviews, or observation) while secondary research involves finding information compiled by someone else. In general, secondary research is less expensive and is faster to conduct, but it may not answer the specific questions the firm seeks to have answered (e.g., how do consumers perceive our product?), and its reliability may be in question.
Secondary sources. A number of secondary sources of country information are available. One of the most convenient sources is an almanac, containing a great deal of country information. Almanacs can typically be bought for $10.00 or less. The U.S. government also publishes a guide to each country, and the handbook International Business Information: How to Find It, How to Use It (HF 54.5.P33 [1998] in the Reference Department of the Gelman Library), provides leads on numerous sources by topic. Stat-USA, a database compiled by the U.S. Department of Commerce and available through the Gelman Library (you can access it through the “Links” section of my web-site), contains a great deal of statistical information online. Excellent full text searchable indices to periodicals include Lexis-Nexis and RDS Business and Industry, also available through Gelman.
Several experts may be available. Anthropologists and economists in universities may have built up a great deal of knowledge and may be available for consulting. Consultants specializing in various regions or industries are typically considerably more expensive. One should be careful about relying on the opinions of expatriates (whose views may be biased or outdated) or one’s own experience (which may relate to only part of a country or a certain subsegment) and may also suffer from the limitation of being a sample of size 1.
Hard vs. soft data. “Hard” data refers to relatively quantifiable measures such as a country’s GDP, number of telephones per thousand residents, and birth rates (although even these supposedly “objective” factors may be subject to some controversy due to differing definitions and measurement approaches across countries). In contrast, “soft” data refers to more subjective issues such as country history or culture. It should be noted that while the “hard” data is often more convenient and seemingly objective, the “soft” data is frequently as important, if not more so, in understanding a market.
Data reliability. The accuracy and objectivity of data depend on several factors. One significant one is the motivation of the entity that releases it. For example, some countries may want to exaggerate their citizens’ literacy rates owing to national pride, and an organization promoting economic development may paint an overly rosy picture in order to attract investment. Some data may be dated (e.g., a census may be conducted rarely in some regions), and some countries may lack the ability to collect data (it is difficult to reach people in the interior regions of Latin America, for example). Differences in how constructs are defined in different countries (e.g., is military personnel counted in people who are employed?) may make figures of different jurisdictions non-comparable.
Cost of data. Much government data, or data released by organizations such as the World Bank or the United Nations, is free or inexpensive, while consultants may charge very high rates.
Issues in primary research. Cultural factors often influence how people respond to research. While Americans are used to market research and tend to find this relatively un-threatening, consumers in other countries may fear that the data will be reported to the government, and may thus not give accurate responses. In some cultures, criticism or confrontation are considered rude, so consumers may not respond honestly when they dislike a product. Technology such as scanner data is not as widely available outside the United States. Local customs and geography may make it difficult to interview desired respondents; for example, in some countries, women may not be allowed to talk to strangers.
“GLOBAL MARKETING STRATEGIES”
International marketing involves the marketing of goods and services outside the organization`s home country. Multinational marketing is a complex form of international marketing that engages an organization in marketing operations in many countries. Global marketing refers to marketing activities coordinated and integrated across multiple markets. A firm`s overseas involvement may fall into one of several categories:
1. Domestic: Operate exclusively within a single country.
2. Regional exporter: Operate within a geographically defined region that crosses national boundaries. Markets served are economically and culturally homogenous. If activity occurs outside the home region, it is opportunistic.
3. Exporter: Run operations from a central office in the home region, exporting finished goods to a variety of countries; some marketing, sales and distribution outside the home region.
4. International: Regional operations are somewhat autonomous, but key decisions are made and coordinated from the central office in the home region. Manufacturing and assembly, marketing and sales are decentralized beyond the home region. Both finished goods and intermediate products are exported outside the home region.
5. International to global: Run independent and mainly self-sufficient subsidiaries in a range of countries. While some key functions (R&D, sourcing, financing) are decentralized, the home region is still the primary base for many functions.
6. Global: Highly decentralized organization operating across a broad range of countries. No geographic area (including the home region) is assumed a priori to be the primary base for any functional area. Each function including R&D, sourcing, manufacturing, marketing and sales is performed in the location(s) around the world most suitable for that function.
Technology and globalization shape the world. The first helps determine human preferences; the second, economic realities. Standardized consumer products, low price and technology are key points for successful globalization. The globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation. The world`s needs and desires have been irrevocably homogenized (market needs). This makes the multinational corporation obsolete and the global corporation absolute.
Nobody is safe from global reach and the irresistible economies of scale (reduction of costs and prices) and scope. The multinational and global corporations are not the same thing. The multinational corporation operates in a number of countries and adjusts its products and practices in each at high relative costs. The global corporation operates with resolute constancy at low relative cost (price) as if the entire world (or major regions of it) were a single entity; it sells markets the same high-quality things similarly everywhere. But, many global firms produce the same products the same way for a global market but tailor their selling approaches to local variations in the global market. (Standardization vs. Localization) The modern global corporation contrasts powerfully with the aging multinational corporation. Instead of adapting to superficial and even entrenched differences within and between nations, it will seek sensibly to force suitably (more or less) standardized products and practices on the entire globe. (think globally, act locally)
Global Marketing Strategies
Although some would stem the foreign invasion through protective legislation, protectionism in the long run only raises living costs and protects inefficient domestic firms (national controls). The right answer is that companies must learn how to enter foreign markets and increase their global competitiveness. Firms that do venture abroad find the international marketplace far different from the domestic one. Market sizes, buyer behavior and marketing practices all vary, meaning that international marketers must carefully evaluate all market segments in which they expect to compete. Whether to compete globally is a strategic decision (strategic intent) that will fundamentally affect the firm, including its operations and its management. For many companies, the decision to globalize remains an important and difficult one (global strategy and action). Typically, there are many issues behind a company`s decision to begin to compete in foreign markets. For some firms, going abroad is the result of a deliberate policy decision (exploiting market potential and growth); for others, it is a reaction to a specific business opportunity (global financial turmoil, etc.) or a competitive challenge (pressuring competitors). But, a decision of this magnitude is always a strategic proactive decision rather than simply a reaction (learning how to business abroad).Reasons for global expansion are mentioned below:
a) Opportunistic global market development (diversifying markets)b) Following customers abroad (customer satisfaction)c) Pursuing geographic diversification (climate, topography, space, etc.)d) Exploiting different economic growth rates (gaining scale and scope)e) Exploiting product life cycle differences (technology)f) Pursuing potential abroadg) Globalizing for defensive reasonsh) Pursuing a global logic or imperative (new markets and profits)
Moreover, there can be several reasons to be mentioned including comparative advantage, economic trends, demographic conditions, competition at home, the stage in the product life cycle, tax structures and peace. To succeed in global marketing companies need to look carefully at their geographic expansion.
To some extent, a firm makes a conscious decision about its extent of globalization by choosing a posture that may range from entirely domestic without any international involvement (domestic focus) to a global reach where the company devotes its entire marketing strategy to global competition. In the development of an international marketing strategy, the firm may decide to be domestic-only, home-country, host-country or regional/global-oriented. Each level of globalization will profoundly change the way a company competes and will require different strategies with respect to marketing programs, planning, organization and control of the international marketing effort. An industry in which firm competes is also important in applying different strategies. For example, when a firm which competes in the pharmaeutical industry which is heavily globalized, it has to set its own strategies to deal with global competitors. (constant innovation) Tracking the development of the large global corporations today reveals a recurring, sequential pattern of expansion. The first step is to understand the international marketing environment, particularly the international trade system. Second, the company must consider what proportion of foreign to total sales to seek, whether to do business in a few or many countries and what types of countries to enter. The third step is to decide on which particular markets to enter and this calls for evaluating the probable rate of return on investment against the level of risk (market differences). Then, the company has to decide how to enter each attractive market. Many companies start as indirect or direct export exporters and then move to licensing, joint-ventures and finally direct investment; this company evolution has been called the internationalization process. Companies must next decide on the extent to which their products, promotion, price and distribution should be adapted to individual foreign markets. Finally, the company must develop an effective organization for pursuing international marketing. Most firms start with an export department and graduate to an international division. A few become global companies which means that top management plans and organizes on a global basis (organization history).
Typically, these companies began their business development phase by entrenching themselves first in their domestic markets. Often, international development did not occur until maturity was reached domestically. After that phase, these firms began to turn into companies with some international business, usually on an export basis. But, this process may vary dramatically with the size of the domestic market. For example, when we contrast the Netherlands market for Philips vs. the US market for GE, we see that smallness of Netherlands`s market resulted in rapid globalization of Philips` activities when compared with GE`s activities in US. As the international side of their sales grew, the companies increasingly distributed their assets into many markets and achieved what was once termed the status of a multinational corporation (MNC). Pursuing multidomestic strategies on a market-by-market basis, companies began to enlarge and build considerable local presence. Regions are treated as single markets and products are standardized by region or globally; promotion projects a uniform image. Although this orientation improves coordination and control, it often discounts national differences. The French automobile industry offers a good illustration of the evolution of an international marketing strategy. In the 1980s, according to an industry analyst for Eurofinance:
“For years, the French industry depended on the domestic market. Then in the 1970s, itdeveloped a Europewide market. Now it finds it must crack the world market if it expects to survive. And it is getting a late start.”
France`s Renault was moving quickly into the world market. It purchased 10 percent of Sweden`s Volvo and planned to design a new car in conjunction with Volvo. But, the Volvo deal fell apart which is one of the reasons that they went to Nissan. Only during their latest phase have these firms begun to transform themselves into global marketing behemoths whose marketing operations are closely coordinated across the world market rather than developed and executed locally. This traditional sequencing of the growth from domestic to international, to multi-domestic or multinational to global seems to be followed by most firms and also by many newly formed companies. However, some newer firms are jumping right into the latest or global category and not necessarily going through the various stages of development (management vision). Once a company commits to extending its business internationally management is confronted with the task of setting a geographic or regional emphasis. A company may decide to emphasize developed nations such as Japan or those of Europe or North America. Alternatively, some companies may prefer to pursue primarily developing countries in Latin America, Africa or Asia. Management must make a strategic decision to direct business development in such a way that the company`s overall objectives are congruent with the particular geographic mix of its activities. Other factors in this decision of foreign market selection include in addition to macro-environmental issues (economic, socio-cultural and political-legal factors), micro-environmental issues such as market attractiveness and company capability profile (skills, resources, product adaptation and competitive advantage).
Developed economies account for a disproportionately large share of world gross national product (GNP) and tend to create many new companies. In particular, firms with technology-intensive products have concentrated their activities in the developed world. Although competition from both other international firms and local companies is usually more intense in those markets, doing business in developed countries is generally preferred over doing business in developing nations. Because the business environment is more predictable and the investment climate is more favorable. Emerging markets differ substantially from developed economies by geographic region and by the level of economic development. Markets in Latin America, Africa, the Middle East and Asia are also characterized by a higher degree of risk than markets in developed countries. Because of the less stable economic climates (income, employment, prices, development, etc.) in those areas, a company`s operation can be expected to be subject to greater uncertainty and fluctuation. The issues are infrastructure such as transportation, technology, telecommunications, stable banking, convertibility of currency, protection of Intellectual Property Rights, enforceability of contracts, and transparency in the legal system (government agencies systems, laws and ordinances, etc.). Moreover, huge foreign indebtedness, unstable governments, foreign exchange problems, foreign government entry requirements, tariffs and other trade barriers, corruption, bureaucracy, technological pirating and high cost of product and communication adaptation can be issues in those countries. Furthermore, the frequently changing political situations in developing countries (war, nationalism, etc.) often affect operating results negatively. As a result, some markets that may have experienced high growth for some years may suddenly experience drastic reductions in growth. In many situations, however, the higher risks are compensated for by higher returns, largely because competition is often less intense in those markets.
Consequently, companies need to balance the opportunity for future growth in the developing nations with the existence of higher risk. The economic liberalization of the countries in Eastern Europe opened a large new market for many international firms. The market typically represents about 15 percent of the worldwide demand in a given industry, about two-thirds of that accounted for by Russia and other countries of the former Soviet Union. Although many companies consider this market as long-term potential with little profit opportunity in the near term, a number of firms have moved to take advantage of opportunities in areas where they once were prohibited from doing business. Many countries are changing from a centrally planned economy to a market-oriented one. East Germany has made the fastest transformation because its dominant western half was already there. Eastern European nations like Hungary and Poland have also been moving quickly with market reforms. Many of the reforms have increased foreign trade and investment. For example, in Poland, foreigners are now allowed to invest in all areas of industry, including agriculture, manufacturing and trade. Poland even gives companies that invest in certain sectors some tax advantages.
At some point, the development of any global marketing strategy will come down to selecting individual countries in which a company intends to compete. There are more than two hundred countries and territories from which companies have to select, but very few firms end up competing in all of these markets. The decision on where to compete, the country selection decision is one of the components of developing a global marketing strategy.
Why is country selection a strategic concern for global marketing management? Adding another country to a company`s portfolio always requires additional investment in management time and effort and in capital. Although opportunities for additional profits are usually the driving force, each additional country also represents both a new business opportunity and risk. It takes time to build up business in a country where the firm has not previously been represented and profits may not show until much later on. Consequently, companies need to go through a careful analysis before they decide to move ahead. They can analyze the investment climate of the country and determine market attractiveness of it.
In the context of selecting markets for special emphasis, the lead market concept can help in identifying those countries. Lead market is the market where a company should place extra emphasis. It is essential for globally competing firms to monitor lead markets in their industries or better yet to build up some relevant market presence in those markets. As global marketers eye the array of countries available for selection, they soon become aware that not all countries are of equal importance on the path to global leadership. Markets that are defined as crucial to global market leadership, markets that can determine the global winners among all competitors, markets that companies can ill afford to avoid or neglect-such markets are “must win” markets. Contrary to other markets, “must win” markets can not be avoided if global market leadership is at stake. Firms need to understand their competitors because corporate success results from providing more value to customers than the competition. Industry structure is the framework within which companies compete. Five forces determine the attractiveness of an industry: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the presence of substitute products and the intensity of the rivalry between firms in the industry. Firms need to manage these factors so that industry structure is favorable.
Generic strategies are general classifications of prototype strategies that help us understand different approaches to globalization. The concept has been widely used by writers on business and corporate strategies. Generic strategies such as differentiation, cost leadership and the like are archetypes that describe fundamentally different ways to compete. Creating and sustaining a competitive advantage can be achieved by offering superior value through a differential advantage or managing for cost leadership. Firms can gain a competitive advantage through differentiation of their product offering or marketing mix which provide superior customer value or by managing for lowest delivered cost. These two means of competitive advantage when combined with the competitive scope of activities (broad vs narrow) result in four generic strategies: differentiation, cost leadership, differentiation focus and cost focus. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments whereas differentiation focus and cost focus strategies are confined to a narrow segment. When we consider the idea of sustainability of competitive advantage here, many of these advantages are only temporary and can easily be copied.
The sources of competitive advantage are the skills and resources of the company. Analyzing these factors can lead to the definition of the company`s core competences. These are the skills and resources at which the company excels and can be used to develop new products and markets. To many readers, the term “global marketing strategy” probably suggests a company represented everywhere and pursuing more or less the same marketing strategy. However, global marketing strategies are not to be equated with global standardization, although they may be the same in some situations. A global marketing strategy represents the application of a common set of strategic marketing principles across most world markets. It may include but does not require similarity in products or in marketing processes. A company that pursues a global marketing strategy looks at the world market as a whole rather than at markets on a country-by-country basis which is more typical for multinational firms. Globalization deals with the integration of the many country strategies and the subordination of these country strategies to one global framework. As a result, it is conceivable that one company may have a globalized approach to its marketing strategy but leave the details for many parts of the marketing plan to local subsidiaries.
Few companies will want to globalize all of their marketing operations. The difficulty then is to determine which marketing operations elements will gain from globalization. Such a modular approach to globalization is likely to yield greater return than a total globalization of a company`s marketing strategy. To a large extent, international firms operating as multi-domestic firms have organized their businesses around countries or geographic regions. Although some key strategic decisions with respect to products and technology are made at the central or head office, the initiative of implementing marketing strategies is left largely to local-country subsidiaries. As a result, profit and loss responsibility tends to reside in each individual country. At the extreme, this leads to an organization that runs many different businesses in a number countries-therefore the term multi-domestic. Each subsidiary represents a separate business that must be run profitably. Multinational corporations tend to be represented in a large number of countries and the world`s principal trading regions.
Many of today`s large internationally active firms may be classified as pursuing multidomestic strategies. Companies might globalize production or "back office" operations while maintain multiple local brands. Economic conditions, changes in consumer attitudes and behavior and the rise of generic brands have all contributed to a decline in brand loyalty. More consumers have been selecting products from among manufacturers` brands, distributors` brands and generic products. Often a coupon, price special or a desire for variety will influence
the purchase decision. Regional marketing strategies focusing on Europe, Asia or Latin America represent a halfway point between multi-domestic and truly global strategy types. Conceptually, they are not global because the coordination takes place across one single region only, with pan-European strategies standing out as the first real regional marketing strategies created because of the run up to the European Union integration. The marketing research surveys study and analyze various factors within foreign markets and their importance to the decision about which foreign markets to enter. These factors include: economic-financial factors, political-legal factors, cultural factors, demographic factors and trade agreements.
Integrated Global Business Strategies
Looking at global business strategies, companies have several choices to make: first, the global focus strategy and second, the global business unit.
Formulating Global Focus Strategies
Geographic extension is one of two key dimensions in the strategy of an international company. The second dimension is concerned with the range of a firm`s product and service offerings. To what extent should a company become a supplier of a wide range of products aimed at several or many market segments? Should a company become the global specialist in a certain area by satisfying one or a small number of target segments, doing this in most major markets around the world? Even some of the largest companies can not pursue all available initiatives. Resources for most companies are limited, often requiring a tradeoff between product expansion and geographic expansion strategies. Resolving this question is necessary to achieve a concentration of resources and efforts in areas where they will bring the most return. We can distinguish between two models: on the one hand, we have the broad-based firm marketing a wide range of products to many different customer groups, both domestic and overseas; on the other hand, we have the narrowly-based firm marketing a limited range of products to a homogenous customer group around the world. Both types of companies can be successful in their respective markets.
Creating Global Business Units
Many firms have come to realize that a strong global presence in one given product was becoming a strategic requirement. Since traditional multinational firms often competing through a multi-domestic strategy have realized the weakness of their unfocused patterns of global coverage, they have begun to assemble business units that have a better global focus. Many are striving to change their business to reflect more a coherent market position whereby a business consists of strong units in major markets.
Avoiding globally unfocused strategies, international firms have either retrenched to become regional specialists or changed their business focus to adopt global niche strategies, selective globalization or complete globalization. A strategy of complete globalization is selected by firms that essentially globalize all of their business units. Selective globalization is adopted by firms that globalize several or many businesses but also exit from others because financial resources may be limited. Global niche strategies are selected by firms that focus on one or very few businesses worldwide and exit from others to make up for a lack of resources. In
general, companies with a narrow product or business focus but globally marketed perform better than firms with a broad product line. Since the establishment of strong global marketing positions requires substantial resources, many firms have begun to adopt the narrow focus model by spinning off business no longer viewed as part of the company`s core operations.
Global Marketing Strategies
A global marketing strategy that totally globalizes all marketing activities is not always achievable or desirable (differentiated globalization). In the early phases of development, global marketing strategies were assumed to be of one type only, offering the same marketing strategy across the globe. As marketers gained more experience, many other types of global marketing strategies became apparent. Some of those were much less complicated and exposed a smaller aspect of a marketing strategy to globalization. A more common approach is for a company to globalize its product strategy (product lines, product designs and brand names) and localize distribution and marketing communication.
Integrated Global Marketing Strategy
When a company pursues an integrated global marketing strategy, most elements of the marketing strategy have been globalized. Globalization includes not only the product but also the communications strategy, pricing and distribution as well as such strategic elements as segmentation and positioning. Such a strategy may be advisable for companies that face completely globalized customers along the lines. It also assumes that the way a given industry works is highly similar everywhere, thus allowing a company to unfold its strategy along similar paths in country by country. One company that fits the description of an integrated global marketing strategy to a large degree is Coca Cola. That company has achieved a coherent, consistent and integrated global marketing strategy that covers almost all elements of its marketing program from segmentation to positioning, branding, distribution, bottling, advertisingand more. Reality tells us that completely integrated global marketing strategies will continue to be the exception. However, there are many other types of partially globalized marketing strategies; each may be tailored to specific industry and competitive circumstances.
Global Product Category Strategy
Possibly the least integrated type of global marketing strategy is the global product category strategy. Leverage is gained from competing in the same category country after country and may come in the form of product technology or development costs. Selecting the form of global product category implies that the company while staying within that category will consider targeting different segments in each category or varying the product, advertising and branding according to local market requirements. Companies competing in the multi-domestic mode are frequently applying the global category strategy and leveraging knowledge across markets without pursuing standardization. That strategy works best if there are significant differences across markets and when few segments are present in market after market. Several traditional multinational players who had for decades pursued a multi-domestic marketing approach tailoring marketing strategies to local market conditions and assigning management to local management teams- have been moving toward the global category strategy. Among them are Nestle, Unilever and Procter & Gamble, three large international consumer goods companies doing business in food and household goods.
Global Segment Strategy
A company that decides to target the same segment in many countries is following a global segment strategy. The company may develop an understanding of its customer base and leverage that experience around the world. In both consumer and industrial industries significant knowledge is accumulated when a company gains in-depth understanding of a niche or segment. A pure global segment strategy will even allow for different products, brands or advertising although some standardization is expected. The choices may consist of competing always in the upper or middle segment of a given consumer market or for a particular technical application in an industrial segment. Segment strategies are relatively new to global marketing.
Global Marketing Mix Element Strategies
These strategies pursue globalization along individual marketing mix elements such as pricing, distribution, place, promotion, communications or product. They are partially globalized strategies that allow a company that customize other aspects of its marketing strategy. Although various types of strategies may apply, the most important ones are global product strategies, global advertising strategies and global branding strategies. Typically companies globalize those marketing mix elements that are subject to particularly strong global logic forces. A company facing strong global purchasing logic may globalize its account management practices or its pricing strategy. Another firm facing strong global information logic will find it important to globalize its communications strategy.
Global Product Strategy
Pursuing a global product strategy implies that a company has largely globalized its product offering. Although the product may not need to be completely standardized worldwide, key aspects or modules may in fact be globalized. Global product strategies require that product use conditions, expected features and required product functions be largely identical so that few variations or changes are needed. Companies pursuing a global product strategy are interested in leveraging the fact that all investments for producing and developing a given product have already been made. Global strategies will yield more volume, which will make the original investment easier to justify.
Global Branding Strategies
Global branding strategies consist of using the same brand name or logo worldwide. Companies want to leverage the creation of such brand names across many markets, because the launching of new brands requires a considerable marketing investment. Global branding strategies tend to be advisable if the target customers travel across country borders and will be exposed to products elsewhere. Global branding strategies also become important if target customers are exposed to advertising worldwide. This is often the case for industrial marketing customers who may read industry and trade journals from other countries. Increasingly, global branding has become important also for consumer products where cross-border advertising through international TV channels has become common. Even in some markets such as Eastern Europe, many consumers had become aware of brands offered in Western Europe before the liberalization of the economies in the early 1990s. Global branding allows a company
to take advantage of such existing goodwill. Companies pursuing global branding strategies may include luxury product marketers who typically face a large fixed investment for the worldwide promotion of a product.
Global Advertising Strategy
Globalized advertising is generally associated with the use of the same brand name across the world. However, a company may want to use different brand names partly for historic purposes. Many global firms have made acquisitions in other countries resulting in a number of local brands. These local brands have their own distinctive market and a company may find it counterproductive to change those names. Instead, the company may want to leverage a certain theme or advertising approach that may have been developed as a result of some global customer research. Global advertising themes are most advisable when a firm may market to customers seeking similar benefits across the world. Once the purchasing reason has been determined as similar, a common theme may be created to address it.
Composite Global Marketing Strategy
The above descriptions of the various global marketing models give the distinct impression that companies might be using one or the other generic strategy exclusively. Reality shows, however, that few companies consistently adhere to only one single strategy. More often companies adopt several global strategies and run them in parallel. A company might for one part of its business follow a global brand strategy while at the same time running local brands in other parts. Many firms are a mixture of different approaches, thus the term composite.
Competitive Global Marketing Strategies
Two types of approaches emerge as of particular interest to us. First, there are a number of heated global marketing duels in which two firms compete with each other across the entire global chessboard. The second, game pits a global company versus a local company- a situation frequently faced in many markets. One of the longest running battles in global competition is the fight for market dominance between Coca Cola and PepsiCo, the world`s largest soft drink companies. Global firms are able to leverage their experience and market position in one market for the benefit of another. Consequently, the global firm is often a more potent competitor for a local company. Although global firms have superior resources, they often become inflexible after several successful market entries and tend to stay with standard approaches when flexibility is called for. In general, the global firms` strongest local competitors are those who watch global firms carefully and learn from their moves in other countries. With some global firms requiring several years before a product is introduced in all markets, local competitors in some markets can take advantage of such advance notice by building defenses or launching a preemptive attack on the same segment.
Global Market Entry StrategiesExporting as an Entry Strategy
Exporting represents the least commitment on the part of the firm entering a foreign market. Exporting to a foreign market is a strategy many companies follow for at least some of their markets. Since many countries do not offer a large enough opportunity to justify local production, exporting allows a company to centrally manufacture its products for several markets and therefore to obtain economies of scale. Furthermore, since exports add volume to an already existing production operation located elsewhere, the marginal profitability of such exports tends to be high. A firm has two basic options for carrying out its export operations. The form of exporting can be directly under the firm`s control or indirect and outside the firm`s control. It can contact foreign markets through a domestically located (in the exporter`s country of operation) intermediary-an approach called indirect exporting. Alternatively, it can use an intermediary located in the foreign market-an approach termed direct exporting.
Indirect Exporting
Indirect exporting includes dealing through export management companies of foreign agents, merchants or distributors. Several types of intermediaries located in the domestic market are ready to assist a manufacturer in contacting international markets or buyers. The major advantage for managers using a domestic intermediary lies in that individual`s knowledge of foreign market conditions. Particularly, for companies with little or no experience in exporting, the use of a domestic intermediary provides the exporter with readily available expertise. The most common types of intermediaries are brokers, combination export and manufacturers` export agents. Group selling activities can also help individual manufacturers in their export operations.
Direct Exporting
Direct exporting includes setting up an export department within the firm or having the firm`s sales force sell directly to foreign customers or marketing intermediaries. A company engages in direct exporting when it exports through intermediaries located in the foreign markets. Under direct exporting, an exporter must deal with a large number of foreign contacts, possibly one or more for each country the company plans to enter. Although a direct exporting operation requires a larger degree of expertise, this method of market entry does provide the company with a greater degree of control over its distribution channels than would indirect exporting. The exporter may select from two major types of intermediaries: agents and merchants. Also, the exporting company may establish its own sales subsidiary as an alternative to independent intermediaries. Successful direct exporting depends on the viability of relationship built up between the exporting firm and the local distributor or importer. By building the relationship well, the exporter saves considerable investment costs.
The independent distributor earns a margin on the selling price of the products. Although the independent distributor does not represent a direct cost to the exporter, the margin the distributor earns represents an opportunity that is lost to the exporter. By switching to a sales subsidiary to carry out the distributor`s tasks, the exporter can earn the same margin. With increasing volume, the incentive to start a sales subsidiary grows.
On the other hand, if the anticipated sales volume is small, the independent distributor will be more efficient since sales are channeled through a distributor who is maintaining the necessary staff for several product lines. The lack of control frequently causes exporters to shift from an independent distributor to wholly owned sales subsidiaries. Many companies export directly to their own sales subsidiaries abroad, sidestepping independent intermediaries. The sales subsidiary assumes the role of the independent distributor by stocking the company's products and/or services, sometimes jointly advertising and promoting the products, selling to buyers and assuming the credit risk. The sales subsidiary offers the manufacturer full control of selling operations in a foreign market. Such control may be important if the company`s products require the use of special marketing skills such as advertising or selling. The exporter finds it possible to transfer or export not only the product but also the entire marketing program that often makes the product a success.
The operation of a subsidiary adds a new dimension to a company`s international marketing operation. It requires the commitment of capital in a foreign country, primarily for the financing of account receivables and inventory. Also, the operation of a sales subsidiary entails a number of general administrative expenses that are essentially fixed in nature. As a result, a commitment to a sales subsidiary should not be made without careful evaluation of all the costs involved.
Foreign Production as an Entry Strategy
Many companies realize that to open a new market and serve local customers better,exporting into that market is not a sufficiently strong commitment to realize strong local presence. As a result, these companies look for ways to strengthen their base by entering into one of several ways to manufacture.
Licensing
Licensing is similar to contract manufacturing, as the foreign licensee receives specifications for producing products locally, but the licensor generally receives a set fee or royalty rather than finished products. Licensing may offer the foreign firm access to brands, trademarks, trade secrets or patents associated with products manufactured. Under licensing, a company assigns the right to a patent (which protects a product, technology or process) or a trademark (which protects a product name) to another company for a fee or royalty. Using licensing as a method of market entry, a company can gain market presence without an equity (capital) investment. The foreign company, or licensee gains the right to commercially exploit the patent or trademark on either an exclusive (the exclusive right to a certain geographic region) or an unrestricted basis. Due to advantages of low risk and low investment, licensing is a particularly attractive mode for small and medium-sized firms. Licensing also is an effective mode for testing the future viability of more active involvement with a foreign partner. Licenses are signed for a variety of time periods. Depending on the investment needed to enter the market, the foreign licensee may insist on a longer licensing period to pay off the initial investment. Typically, the licensee will make all necessary capital investments (machinery, inventory and so forth) and market the products in the assigned sales territories, which may consist of one or several countries. Licensing agreements are subject to negotiation and tend to vary considerably from company to company and from industry to industry.
Companies use licensing for a number of reasons. For one, a company may not have the knowledge or the time to engage more actively in international marketing. The market potential of the target country may also be too small to support a manufacturing operation. A licensee has the advantage of adding the licensed product`s volume to an ongoing operation thereby reducing the need for a large investment in new fixed assets. A company with limited resources can gain advantage by having a foreign partner market its products by signing a licensing contract. Licensing not only saves capital because no additional investment is necessary but also allows scarce managerial resources to be concentrated on more lucrative markets. Also, some smaller companies with a product in high demand may not be able to satisfy demand unless licenses are granted to other companies with sufficient manufacturing capacity.
In some countries where the political or economic situation appears uncertain, a licensing agreement will avoid the potential risk associated with investments in fixed facilities. Representing an export of technology rather than goods (as in exporting) or capital, licensing is an attractive mode in markets where political and economic uncertainties make a greater involvement risky. Both commercial and political risks are absorbed by the licensee. In other countries governments favor the granting of licenses to independent local manufacturers as a means of building up an independent local industry. In such cases, a foreign manufacturer may prefer to team up with capable licensee despite a large market size, because other forms of entry may not be possible. A major disadvantage of licensing is the company`s substantial dependence on the local licensee to produce revenues and thus royalties usually paid as a percentage on sale volume only. Once a license is granted, royalties are paid only if the licensee is capable of performing an effective marketing job. Since the local company`s marketing skills may be less developed, revenues from licensing may suffer accordingly. Another disadvantage is the resulting uncertainty of product quality. A foreign company`s image may suffer if a local licensee markets a product of substandard quality. Ensuring a uniform quality requires additional resources from the licenser that may reduce the profitability of the licensing activity.
Thus, the producer loses some control in certain situations. The risk of losing control of intellectual property and/or technological advantages can also be mentioned as another disadvantage of licensing. Another potential problem is that the licensee may adapt the licensed product and compete head on with the licensor. The possibility of nurturing a potential competitor is viewed by many companies as a disadvantage of licensing. With licenses usually limited to a specific time period, a company has to guard against the situation in which the licensee will use the same technology independently after the license has expired and therefore turn into a competitor.
Although there is a great variation according to industry, licensing fees in general are substantially lower than the profits that can be made by exporting or local manufacturing. Depending on the product, licensing fees may range anywhere between 1 percent and 20 percent of sales, with 3 to 5 percent being more typical for industrial products. Conceptually, licensing should be pursued as an entry strategy if the amount of the licensing fees exceeds the incremental revenues of any other entry strategy such as exporting or local manufacturing. A thorough investigation of the market potential is required to estimate potential revenues from any one of the entry strategies under consideration.
Franchising
Franchising is a special form of licensing in which the franchiser makes a total marketing program available including the brand name, logo, products and method of operation. Usually the franchise agreement is more comprehensive than a regular licensing agreement in as much as the total operation of the franchisee is prescribed. It differs from licensing principally in the depth and scope of quality controls placed on all phases of the franchisee`s operation. The franchise concept is expanding rapidly beyond its traditional businesses (such as service stations, restaurants and real-estate brokers) to include less traditional formats such as travel agencies, used car dealers, the video industry and professional and health improvement services. About 80 percent of all McDonald`s restaurants are franchised and as of 1999 the firm operated about 24,500 stores in 116 countries.
Local Manufacturing
A common and widely practiced form of market entry is the local manufacturing of a company`s products. Many companies find it to their advantage to manufacture locally instead of supplying the particular market with products made elsewhere. Numerous factors such as local costs, market size, tariffs, laws and political considerations may affect a choice to manufacture locally. The actual type of local production depends on the arrangements made; it may be contract manufacturing, assembly or fully integrated production. Since local production represents a greater commitment to a market than other entry strategies, it deserves considerable attention before a final decision is made.
Under contract manufacturing, a company arranges to have its products manufactured by an independent local company on a contractual basis. This is an entry mode in which a firm contracts with a foreign firm to manufacture parts or finished products or to assemble parts into finished products. The manufacturer`s responsibility is restricted to production. Afterward, products are turned over to the international company which usually assumes the marketing responsibilities for sales, promotion and distribution. In a way, the international company rents the production capacity of the local firm to avoid establishing its own plant or to circumvent barriers set up to prevent the import of its products. Contract manufacturing differs from licensing with respect to the legal relationship of the firms involved. The local producer manufactures based on orders from the international firm but the international firm gives virtually no commitment beyond the placement of orders. Typically, the contracting firm supplies complete product specifications to the foreign firm, sets production volume and guarantees purchase. Lower labor costs abroad are the major incentive for using this entry mode.
Typically, contract manufacturing is chosen for countries with a low-volume market potential combined with high tariff protection. In such situations, local production appears advantageous to avoid the high tariffs, but the local market does not support the volume necessary to justify the building of a single plant. These conditions tend to exist in the smaller countries in Central America, Africa and Asia. Of course, whether an international company avails itself of this method of entry also depends on its products. Usually, contract manufacturing is employed where the production technology involved is widely available and where the marketing effort is of crucial importance in the success of the product.
By moving to an assembly operation, the international firm locates a portion of the manufacturing process in the foreign country. Typically, assembly consists only of the last
stages of manufacturing and depends on the ready supply of components or manufactured parts to be shipped in from another country. Assembly usually involves heavy use of labor rather than extensive investment in capital outlays or equipment. Motor vehicle manufacturers and electronics industries have made extensive use of assembly operations in numerous countries.
Often, companies want to take advantage of lower wage costs by shifting the labor-intensive operation to the foreign market; this results in a lower final price of the products. In many cases, however, the local government forces the setting up of assembly operations either by banning the import of fully assembled products or by charging excessive tariffs on imports. As a defensive move, foreign companies begin assembly operations to protect their markets. However, successful assembly operations require dependable access to imported parts. This is often not guaranteed and in countries with chronic foreign exchange problems, supply interruptions can occur.
To establish a fully integrated local production unit represents the greatest commitment a company can make for a foreign market. Since building a plant involves a substantial outlay in capital, companies only do so where demand appears assured. International companies may have any number of reasons for establishing factories in foreign countries. Often, the primary reason is to take advantage of lower costs in a country, thus providing a better basis for competing with local firms or other foreign companies already present. Also, high transportation costs and tariffs may make imported goods uncompetitive.
Some companies want to build a plant to gain new business and customers. Such an aggressive strategy is based on the fact that local production represents a strong commitment and is often the only way to convince clients to switch suppliers. Local production is of particular importance in industrial markets where service and reliability of supply are main factors in the choice of product or supplier.
Many times, companies establish production abroad not to enter new markets but to protect what they have already gained through exporting. Changing economic or political factors may make such a move necessary. The Japanese car manufacturers who had been subject to an import limitation of assembled cars imported from Japan, began to build factories in United States in the 1980s to protect their market share. As mentioned above, Japanese manufacturers` reasons for the local production were partly political as the United States imposed import targets for several years. Also, with the value of the yen increasing to one hundred yen per US dollar, exports from Japan became uneconomical compared with local production. Thus, to defend market positions, Japanese car companies instituted a longer-term strategy of making cars in the region where they are sold.
Moving with an established customer can also be a reason for setting up plants abroad. In many industries, important suppliers want to keep a relationship by establishing plants near customer locations; when customers build new plants elsewhere, suppliers move too. Another reason can also be shifting production abroad to save costs.
Ownership Strategies
Companies entering foreign markets have to decide on more than the most suitable entry strategy. They also need to arrange ownership, either as a wholly owned subsidiary, in a joint venture, or more recently in strategic alliance.
Joint Ventures
In a joint venture, an investing firm owns roughly 25 to 75 percent of a foreign firm, allowing the investing firm to affect management decisions of the foreign firm. Under a joint venture (JV) arrangement, the foreign company invites an outside partner to share stock ownership in the new unit. The particular participation of the partners may vary, with some companies accepting either a minority or majority position. In most cases, international firms prefer wholly owned subsidiaries for reasons of control; once a joint venture partner secures part of the operation, the international firm can no longer function independently, which sometimes lead to inefficiencies and disputes over responsibility for the venture. If an international firm has strictly defined operating procedures, such as for budgeting, planning and marketing, getting the JV company to accept the same methods of operation may be difficult. Problems may also arise when the JV partner wants to maximize dividend payout instead of reinvestment or when the capital of the JV has to be increased and one side is unable to raise the required funds. Experience has shown that JVs can be successful if the partners share the same goals with one partner accepting primary responsibility for operations matters. Despite the potential for problems, joint ventures are common because they offer important advantages to the foreign firm. By bringing in a partner the company can share the risk for a new venture. Furthermore, the JV partner may have important skills or contacts of value to the international firm. Sometimes, the partner may be an important customer who is willing to contract for a portion of the new unit`s output in return for an equity participation. In other cases, the partner may represent important local business interests with excellent contacts to the government. A firm with advanced product technology may also gain market access through the JV route by teaming up with companies that are prepared to distribute its products. Many international firms have entered Japan, China and Eastern Europe with JVs. But, not all joint ventures are successful and fulfill their partners` expectations. Despite the difficulties involved, it is apparent that the future will bring many more joint ventures. Successful international and global firms will have to develop the skills and experience to manage JVs successfully often in different and difficult environmental circumstances. And in many markets, the only viable access to be gainedwill be through JVs.
Wholly Owned Subsidiaries
Companies can avoid some of the disadvantages posed by partnering with other firms by setting up wholly owned subsidiaries in the target markets. The assumptions behind a wholly owned subsidiary are that:
• The company can afford the costs involved in setting up a wholly owned subsidiary.• The company is willing to commit to the market in the long term.• The local government allows foreign companies to set up wholly owned subsidiaries on its territory.
My suggests that the company can develop its own subsidiary, referred to as green fielding, which represents a costly proposition, or it can purchase an existing company through acquisitions or mergers. Many opportunities for acquisitions have recently emerged in developing and developed markets alike: Governments have been de-socializing services and industries, rapidly privatizing industries that were formerly government owned or operated. Opportunities have emerged in the area of telecommunications, health care, energy, and even the national mail service. The most important advantage that a wholly owned subsidiary can provide is a relative control of all company operations in the target market. In particular, asubsidiary offers the company control over how to handle revenue and profits. Wholly owned subsidiaries also carry the greatest level of risk. A nationalization attempt on the part of the local government could leave the company with just a tax write-off. Additional difficulties could arise when a company decides to acquire or merge with another.
In the case of DaimlerChrysler, Daimler quickly found out that the former Chrysler was not performing up to par and quickly proceeded to restructure, weeding out former Chrysler employees. In general, the company acquiring another or building its wholly owned subsidiary will not be able to share risks with a local partner, nor will it benefit from a partner's connections; it must build its own. Even selling the subsidiary can eventually haunt the company years later. Harrods Buenos Aires was originally set up as a subsidiary of Harrods London, but became an independent company in 1913 and changed hands several times. Today, Harrods Buenos Aires operates in Argentina and has no relationship whatsoever with Harrods London—which cannot address this issue successfully in the local courts in Argentina.
Strategic Alliances
A more recent phenomenon is the development of a range of strategic alliances. Alliances are different from traditional joint ventures in which two partners contribute a fixed amount of resources and the venture develops on its own. In an alliance, two entire firms pool their resources directly in a collaboration that goes beyond the limits of a joint venture. Although a new entity may be formed, it is not a requirement. Sometimes, the alliance is supported by some equity acquisition of one or both of the partners. In an alliance, each partner brings a particular skill or resource usually they are complementary-and by joining forces, each expects to profit from the other`s experience.
Typically, alliances involve either distribution access, technology transfers or production technology with each partner contributing a different element to the venture. Alliances can be in the forms of technology-based alliances, production based alliances or distribution-based alliances. Although many alliances have been forged in a large number of industries, the evidence is not yet in as to whether these alliances will actually become successful business ventures. Experience suggests that alliances with two equal partners are more difficult to manage than those with a dominant partner. In particular, it is important to recognize that the needs and aspirations of partners may change over the life of an alliance and do so in divergent ways. Predicting what the goals and incentives of the various parties will be under various circumstances is a critical part of effective planning. Furthermore, many observers question the value of entering alliances with technological competitors, such as between western and Japanese firms. The challenge in making an alliance work lies in the creation of multiple layers of connections or webs that reach across the partner organizations. Eventually such
connections will result in the creation of new organizations out of the cooperating parts of the partners. In that sense, alliances may very well be just an intermediate stage until a new company can be formed or until the dominant partner assumes control.
Entering Markets Through Mergers and Acquisitions
Although international firms have always made acquisitions, the need to enter markets more quickly than through building a base from scratch or entering some type of collaboration has made the acquisition route extremely attractive. This trend has probably been aided by the opening of many financial markets, making the acquisition of publicly traded companies much easier. Most recently even unfriendly takeovers in foreign markets are now possible. Nevertheless, international mergers and acquisitions are difficult to make work. A major advantage of acquisitions is that they can quickly position a firm in a new business. By purchasing an existing player, a firm does not have to take the time to establish its presence or develop for itself the resources it does not already possess. This can be particularly important when the critical resources are difficult to imitate or accumulate. Acquiring an existing firm also takes a potential competitor out of the market. Despite these advantages, acquisitions can have serious drawbacks. First and foremost, acquisitions can be a very expensive way to enter a market. In addition to the likelihood of overbidding, acquisitions pose a number of other challenges. Most targets contain bundles of assets and capabilities, only some of which are of interest to the acquirer. Disposing of unwanted assets or maintaining them in the portfolio is often done at significant cost, either in real terms or in management time. Although these obstacles are serious, a number of acquisitions fail on another account: the post acquisition integration process fails. Integrating an acquired company into a corporation is probably one of the most challenging tasks confronting top management.
Preparing An Entry Strategy Analysis
Of course, assembling accurate data is the cornerstone of any entry strategy analysis. The necessary sales projections have to be supplemented with detailed cost data and financial need projections on assets (managerial, financial, etc. resources). The data need to be assembled for all entry strategies under consideration. Financial data are collected not only on the proposed venture but also on its anticipated impact on the existing operations of the international firm.
The combination of the two sets of financial data results in incremental financial data incorporating the net overall benefit of the proposed move for the total company structure. For best results, the analyst must take a long-term view of the situation. Asset requirements, costs and sales have to be evaluated over the planning horizon of the proposed venture, typically three to five years for an average company. Furthermore, a thorough sensitivity analysis must be incorporated. Such an analysis may consists of assuming several scenarios of international risk factors that may adversely affect the success of the proposed venture. The financial data can be adjusted to reflect each new set of circumstances. One scenario may include a 20 percent devaluation in the host country, combined with currency control and difficulty of receiving new supplies from foreign plants. Another situation may assume a change in political leadership to a group less friendly to foreign investments. With the help of a sensitivity analysis approach, a company can quickly spot the key variables in the environment that will determine the outcome of the proposed market entry. The international company then has the opportunity to further add to its information on such key variables or at least to closely monitor their
development. It is assumed that any company approaching a new market is looking for profitability and growth. Consequently, the entry strategy must support these goals. Each project has to be analyzed for the expected sales level, costs and asset levels that will eventually determine profitability. Sales, costs and assets levels have to be estimated before. Also, profitability has to be estimated (past sales analysis, market test method). In order to do this, assessing international risk factors, maintaining flexibility and assessing total company impact are required. Market research that focuses on buying patterns, customer segmentation on ability to pay especially in developing countries, etc. (survey of buyers` intentions, composite of sales force opinion, expert opinion) (SWOT Analysis-strengths, weaknesses, opportunities, threats)
Entry Strategy Configuration
In reality, most entry strategies consist of a combination of different formats. We refer to the process of deciding on the best possible entry strategy mix as entry strategy configuration.
Rarely do companies employ a single entry mode per country. A company may open up asubsidiary that produces some products locally and imports others to round out its product line. The same foreign subsidiary may even export to other foreign subsidiaries, combining exporting, importing and local manufacturing into one unit. Furthermore, many international firms grant licenses for patents and trademarks to foreign operations, even when they are fully owned. This is done for additional protection or to make the transfer of profits easier. In many cases, companies have bundled such entry forms into a single legal unit, in effect layering several entry strategy options on top of each other. Bundling of entry strategies is the process of providing just one legal unit in a given country or market. In other words, the foreign company sets up a single company in one country and uses that company as a legal umbrella for all its entry activities. However, such strategies have become less typical-particularly in larger markets, many firms have begun to unbundle their operations.
When a company unbundles, it essentially divides its operations in a country into different companies. The local manufacturing plant may be incorporated separately from the sales subsidiary. When this occurs, companies may select different ownership strategies, for instance, allowing a JV in one operation while keeping full ownership in another part.
Such unbundling becomes possible in the larger markets such as the United States, Germany and Japan. It also allows the company to run several companies or product lines in parallel. Global firms granting global mandates to their product divisions will find that each division will need to develop its own entry strategy for key markets.
Portal or E-Business Entry Strategies
The technological revolution of the Internet with its wide range of connected and networked computers has given rise to the virtual entry strategy. Using electronic means, primarily web pages, e-mail, file transfer and related communications tools, firms have begun to enter markets without ever touching down. A company that establishes a server on the Internet and opens up a web page can be connected from anywhere in the world. Consumers and industrial buyers who use modern Internet browsers, such as Netscape, can search for products, services or companies and in many instances even make purchases online. Whatever the forecasts, most experts agree that the opportunity for Internet-based commerce will be huge. The Internet will eliminate some of the hurdles that plagued smaller firms from competing
beyond their borders. Given the low cost of the Internet, it is very likely that many more established firms will use the Internet as the first point of contact for countries where they do not yet have a major base. However, there are many challenges to would-be Internet-based global marketers. One of the biggest is language. The second big challenge is the fulfillment side of the e-business. Here, we are dealing with completing a sale, shipping, collecting funds and providing after-sales service to customers all over the world.
Exit Strategies
Circumstances may make companies want to leave a country or market. Other than the failure to achieve marketing objectives, there may be political, economic or legal reasons for a company to want to dissolve or sell an operation (management myopia). International companies have to be aware of the high costs attached to the liquidation of foreign operations; substantial amounts of severance pay may have to be paid to employees and any loss of credibility in other markets can hurt future prospects.
Sometimes, an international firm may need to withdraw from a market to consolidate its operations. This may mean a consolidation of factories from many to fewer such plants. Production consolidation when not combined with an actual market withdrawal is not really what we are concerned with here. Rather, our concern is a company`s actual abandoning its plan to serve a certain market or country. This is differentiation between production withdrawal or consolidation and brand withdrawal. A firm can consolidate production elsewhere while retaining a strong brand and marketing presence.
Changing political situations have at times forced companies to leave markets. Changing government regulations can at times pose problems, prompting some companies to leave a country. Exit strategies can also be the result of negative reactions in a firm`s home market. Several of the markets left by international firms over the past decades have changed in attractiveness, making companies reverse their exit decisions and enter those markets a second time.
Product issues International TradingProducts and Services. Some marketing scholars and professionals tend to draw a strong distinction between conventional products and services, emphasizing service characteristics such as heterogeneity (variation in standards among providers, frequently even among different locations of the same firm), inseperability from consumption, intangibility, and, in some cases, perishability—the idea that a service cannot generally be created during times of slack and be “stored” for use later. However, almost all products have at least some service component—e.g., a warranty, documentation, and distribution—and this service component is an integral part of the product and its positioning. Thus, it may be more useful to look at the product-service continuum as one between very low and very high levels of tangibility of the service. Income tax preparation, for example, is almost entirely intangible—the client may receive a few printouts, but most of the value is in the service. On the other hand, a customer who picks up rocks for construction from a landowner gets a tangible product with very little value added for service. Firms that offer highly tangible products often seek to add an intangible component to improve perception. Conversely, adding a tangible element to a service—e.g., a binder with information—may address many consumers’ psychological need to get something to show for their money.
On the topic of services, cultural issues may be even more prominent than they are for tangible goods. There are large variations in willingness to pay for quality, and often very large differences in expectations. In some countries, it may be more difficult to entice employees to embrace a firm’s customer service philosophy. Labor regulations in some countries make it difficult to terminate employees whose treatment of customers is substandard. Speed of service is typically important in the U.S. and western countries but personal interaction may seem more important in other countries.
Product Need Satisfaction. We often take for granted the “obvious” need that products seem to fill in our own culture; however, functions served may be very different in others—for example, while cars have a large transportation role in the U.S., they are impractical to drive in Japan, and thus cars there serve more of a role of being a status symbol or providing for individual indulgence. In the U.S., fast food and instant drinks such as Tang are intended for convenience; elsewhere, they may represent more of a treat. Thus, it is important to examine through marketing research consumers’ true motives, desires, and expectations in buying a product.
Approaches to Product Introduction. Firms face a choice of alternatives in marketing their products across markets. An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from “scratch” in creating a product for each market. On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification—e.g., Intel microprocessors are the same regardless of the country in which they are sold. Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets—e.g., in the United States, where fuel is relatively less expensive, many cars have larger engines than their comparable models in
Europe and Asia; however, much of the design is similar or identical, so some economies are achieved. Similarly, while Kentucky Fried Chicken serves much the same chicken with the eleven herbs and spices in Japan, a lesser amount of sugar is used in the potato salad, and fries are substituted for mashed potatoes.
There are certain benefits to standardization. Firms that produce a global product can obtain economies of scale in manufacturing, and higher quantities produced also lead to a faster advancement along the experience curve. Further, it is more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product. On the down side, there may be significant differences in desires between cultures and physical environments—e.g., software sold in the U.S. and Europe will often utter a “beep” to alert the user when a mistake has been made; however, in Asia, where office workers are often seated closely together, this could cause embarrassment.
Adaptations come in several forms. Mandatory adaptations involve changes that have to be made before the product can be used—e.g., appliances made for the U.S. and Europe must run on different voltages, and a major problem was experienced in the European Union when hoses for restaurant frying machines could not simultaneously meet the legal requirements of different countries. “Discretionary” changes are changes that do not have to be made before a product can be introduced (e.g., there is nothing to prevent an American firm from introducing an overly sweet soft drink into the Japanese market), although products may face poor sales if such changes are not made. Discretionary changes may also involve cultural adaptations—e.g., in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.
Another distinction involves physical product vs. communication adaptations. In order for gasoline to be effective in high altitude regions, its octane must be higher, but it can be promoted much the same way. On the other hand, while the same bicycle might be sold in China and the U.S., it might be positioned as a serious means of transportation in the former and as a recreational tool in the latter.
In some cases, products may not need to be adapted in either way (e.g., industrial equipment), while in other cases, it might have to be adapted in both (e.g., greeting cards, where the both occasions, language, and motivations for sending differ). Finally, a market may exist abroad for a product which has no analogue at home—e.g., hand-powered washing machines.
Branding. While Americans seem to be comfortable with category specific brands, this is not the case for Asian consumers. American firms observed that their products would be closely examined by Japanese consumers who could not find a major brand name on the packages, which was required as a sign of quality. Note that Japanese keiretsus span and use their brand name across multiple industries—e.g., Mitsubishi, among other things, sells food, automobiles, electronics, and heavy construction equipment.
The International Product Life Cycle (PLC). Consumers in different countries differ in the speed with which they adopt new products, in part for economic reasons (fewer Malaysian than American consumers can afford to buy VCRs) and in part because of attitudes toward new products (pharmaceuticals upset the power afforded to traditional faith healers, for example). Thus, it may be possible, when one market has been saturated, to continue growth in another market—e.g., while somewhere between one third and one half of American homes now contain a computer, the corresponding figures for even Europe and Japan are much lower and thus, many computer manufacturers see greater growth potential there. Note that expensive capital equipment may also cycle between countries—e.g., airlines in economically developed countries will often buy the newest and most desired aircraft and sell off older ones to their counterparts in developing countries. While in developed countries, “three part” canning machines that solder on the bottom with lead are unacceptable for health reasons, they have found a market in developing countries.
Diffusion of innovation. Good new innovations often do not spread as quickly as one might expect—e.g., although the technology for microwave ovens has existed since the 1950s, they really did not take off in the United States until the late seventies or early eighties, and their penetration is much lower in most other countries. The typewriter, telephone answering machines, and cellular phones also existed for a long time before they were widely adopted.
Certain characteristics of products make them more or less likely to spread. One factor is relative advantage. While a computer offers a huge advantage over a typewriter, for example, the added gain from having an electric typewriter over a manual one was much smaller. Another issue is compatibility, both in the social and physical sense. A major problem with the personal computer was that it could not read the manual files that firms had maintained, and birth control programs are resisted in many countries due to conflicts with religious values. Complexity refers to how difficult a new product is to use—e.g., some people have resisted getting computers because learning to use them takes time. Trialability refers to the extent to which one can examine the merits of a new product without having to commit a huge financial or personal investment—e.g., it is relatively easy to try a restaurant with a new ethnic cuisine, but investing in a global positioning navigation system is riskier since this has to be bought and installed in one’s car before the consumer can determine whether it is worthwhile in practice. Finally, observability refers to the extent to which consumers can readily see others using the product—e.g., people who do not have ATM cards or cellular phones can easily see the convenience that other people experience using them; on the other hand, VCRs are mostly used in people’s homes, and thus only an owner’s close friends would be likely to see it.
At the societal level, several factors influence the spread of an innovation. Not surprisingly, cosmopolitanism, the extent to which a country is connected to other cultures, is useful. Innovations are more likely to spread where there is a higher percentage of women in the work force; these women both have more economic power and are able to see other people use the products and/or discuss them. Modernity refers to the extent to which a culture values “progress.” In the U.S., “new and improved” is considered highly attractive; in more traditional countries, their potential for disruption cause new products to be seen with more skepticism. Although U.S. consumers appear to adopt new products more quickly than those of other countries, we actually score lower on homiphily, the extent to which consumers are relatively similar to each other, and physical distance, where consumers who are more spread out are less likely to interact with other users of the product. Japan, which ranks second only to the U.S., on the other hand, scores very well on these latter two factors.
Promotional tools. Numerous tools can be used to influence consumer purchases:
Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.
Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.
Sponsorships Point-of-purchase—the manufacturer pays for extra display space in the store or puts a
coupon right by the product Other method of getting the consumer’s attention—all the Gap stores in France may
benefit from the prominence of the new store located on the Champs-Elysees
Promotional objectives. Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more). Some common objectives that firms may hold:
Awareness. Many French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are often afforded very little attention by consumers, potential buyers may have to be exposed to the promotional stimulus numerous times before it “registers.”
Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.
Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to believe positive things about the product—e.g., that it has a superior taste and is better than generics or store brands. This is often achieved through advertising.
Temporary sales increases. For mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales (which are likely to go away the incentives are removed). In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again (in developing countries, in contrast, trial may be a more appropriate objective in this category).
Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.
Constraints on Global Communications Strategies. Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:
Language barriers: The advertising will have to be translated, not just into the generic language category (e.g., Portuguese) but also into the specific version spoken in the region (e.g., Brazilian Portuguese). (Occasionally, foreign language ads are deliberately run to add mystique to a product, but this is the exception rather than the rule).
Cultural barriers. Subtle cultural differences may make an ad that tested well in one country unsuitable in another—e.g., an ad that featured a man walking in to join his wife in the bathroom was considered an inappropriate invasion in Japan. Symbolism often differs between cultures, and humor, which is based on the contrast to people’s experiences, tends not to travel well. Values also tend to differ between cultures—in the U.S. and Australia, excelling above the group is often desirable, while in Japan, “The nail that sticks out gets hammered down.” In the U.S., “The early bird gets the worm” while in China “The first bird in the flock gets shot down.”
Local attitudes toward advertising. People in some countries are more receptive to advertising than others. While advertising is accepted as a fact of life in the U.S., some Europeans find it too crass and commercial.
Media infrastructure. Cable TV is not well developed in some countries and regions, and not all media in all countries accept advertising. Consumer media habits also differ dramatically; newspapers appear to have a higher reach than television and radio in parts of Latin America.
Advertising regulations. Countries often have arbitrary rules on what can be advertised and what can be claimed. Comparative advertising is banned almost everywhere outside the U.S. Holland requires that a toothbrush be displayed in advertisements for sweets, and some countries require that advertising to be shown there be produced in the country.
Some cultural dimensions:
Directness vs. indirectness: U.S. advertising tends to emphasize directly why someone would benefit from buying the product. This, however, is considered too pushy for Japanese consumers, where it is felt to be arrogant of the seller to presume to know what the consumer would like.
Comparison: Comparative advertising is banned in most countries and would probably be very counterproductive, as an insulting instance of confrontation and bragging, in Asia even if it were allowed. In the U.S., comparison advertising has proven somewhat effective (although its implementation is tricky) as a way to persuade consumers what to buy.
Humor. Although humor is a relatively universal phenomenon, what is considered funny between countries differs greatly, so pre-testing is essential.
Gender roles. A study found that women in U.S. advertising tended to be shown in more traditional roles in the U.S. than in Europe or Australia. On the other hand, some countries are even more traditional—e.g., a Japanese ad that claimed a camera to be “so simple that even a woman can use it” was not found to be unusually insulting.
Explicitness. Europeans tend to allow for considerably more explicit advertisements, often with sexual overtones, than Americans.
Sophistication. Europeans, particularly the French, demand considerably more sophistication than Americans who may react more favorably to emotional appeals—e.g., an ad showing a mentally retarded young man succeeding in a job at McDonald’s was very favorably received in the U.S. but was booed at the Cannes film festival in France.
Popular vs. traditional culture. U.S. ads tend to employ contemporary, popular culture, often including current music while those in more traditional cultures tend to refer more to classical culture.
Information content vs. fluff. American ads contain a great deal of “puffery,” which was found to be very ineffective in Eastern European countries because it resembled communist propaganda too much. The Eastern European consumers instead wanted hard, cold facts.
Advertising standardization. Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization. On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others. On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult. Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.
Legal issues. Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example). Other forms of promotion may also be banned or regulated. In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.
Promotional tools. Numerous tools can be used to influence consumer purchases:
Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.
Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.
Sponsorships Point-of-purchase—the manufacturer pays for extra display space in the store or puts a
coupon right by the product Other method of getting the consumer’s attention—all the Gap stores in France may
benefit from the prominence of the new store located on the Champs-Elysees.
Promotional objectives. Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more). Some common objectives that firms may hold:
Awareness. Many French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are often afforded very little attention by consumers, potential buyers may have to be exposed to the promotional stimulus numerous times before it “registers.”
Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.
Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to believe positive things about the product—e.g., that it has a superior taste and is better than generics or store brands. This is often achieved through advertising.
Temporary sales increases. For mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales (which are likely to go away the incentives are removed). In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again (in developing countries, in contrast, trial may be a more appropriate objective in this category).
Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.
Constraints on Global Communications Strategies. Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:
Language barriers: The advertising will have to be translated, not just into the generic language category (e.g., Portuguese) but also into the specific version spoken in the region (e.g., Brazilian Portuguese). (Occasionally, foreign language ads are deliberately run to add mystique to a product, but this is the exception rather than the rule).
Cultural barriers. Subtle cultural differences may make an ad that tested well in one country unsuitable in another—e.g., an ad that featured a man walking in to join his wife in the bathroom was considered an inappropriate invasion in Japan. Symbolism often differs between cultures, and humor, which is based on the contrast to people’s experiences, tends not to travel well. Values also tend to differ between cultures—in the U.S. and Australia, excelling above the group is often desirable, while in Japan, “The nail that sticks out gets hammered down.” In the U.S., “The early bird gets the worm” while in China “The first bird in the flock gets shot down.”
Local attitudes toward advertising. People in some countries are more receptive to advertising than others. While advertising is accepted as a fact of life in the U.S., some Europeans find it too crass and commercial.
Media infrastructure. Cable TV is not well developed in some countries and regions, and not all media in all countries accept advertising. Consumer media habits also differ dramatically; newspapers appear to have a higher reach than television and radio in parts of Latin America.
Advertising regulations. Countries often have arbitrary rules on what can be advertised and what can be claimed. Comparative advertising is banned almost everywhere outside the U.S. Holland requires that a toothbrush be displayed in advertisements for sweets, and some countries require that advertising to be shown there be produced in the country.
Some cultural dimensions:
Directness vs. indirectness: U.S. advertising tends to emphasize directly why someone would benefit from buying the product. This, however, is considered too pushy for Japanese consumers, where it is felt to be arrogant of the seller to presume to know what the consumer would like.
Comparison: Comparative advertising is banned in most countries and would probably be very counterproductive, as an insulting instance of confrontation and bragging, in Asia even if it were allowed. In the U.S., comparison advertising has proven somewhat effective (although its implementation is tricky) as a way to persuade consumers what to buy.
Humor. Although humor is a relatively universal phenomenon, what is considered funny between countries differs greatly, so pre-testing is essential.
Gender roles. A study found that women in U.S. advertising tended to be shown in more traditional roles in the U.S. than in Europe or Australia. On the other hand, some countries are even more traditional—e.g., a Japanese ad that claimed a camera to be “so simple that even a woman can use it” was not found to be unusually insulting.
Explicitness. Europeans tend to allow for considerably more explicit advertisements, often with sexual overtones, than Americans.
Sophistication. Europeans, particularly the French, demand considerably more sophistication than Americans who may react more favorably to emotional appeals—e.g., an ad showing a mentally retarded young man succeeding in a job at McDonald’s was very favorably received in the U.S. but was booed at the Cannes film festival in France.
Popular vs. traditional culture. U.S. ads tend to employ contemporary, popular culture, often including current music while those in more traditional cultures tend to refer more to classical culture.
Information content vs. fluff. American ads contain a great deal of “puffery,” which was found to be very ineffective in Eastern European countries because it resembled communist propaganda too much. The Eastern European consumers instead wanted hard, cold facts.
Advertising standardization. Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization. On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others. On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult. Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.
Legal issues. Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example). Other forms of promotion may also be banned or regulated. In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.
Summary
Global marketing is the process of focusing an organization`s resources on the selection of global market opportunities consistent with and supportive of its short and long-term strategic objectives and goals. In this paper, I tried to analyze the ways a company competes in global environment by using different tactics. Those tactics differ in a way a company’s capabilities and willingness permit. A company must be careful in using those tactics before globalizing its operations. Because sometimes those tactics may fail and result in loss of profit or even closure of the company.
Most of the managers thinking about which market they should enter and how this should be done might have a certain predisposition to decide in favor of a market with a culture which is similar to the domestic one. If this is not possible they can be assumed to prefer a low equity mode for those markets with a high cultural distance. This is supported by Grant Thornton’s survey from which it is concluded, for example, that European firms are less active in exporting to China due to the assumed or existing cultural differences (Grant Thornton’s2003 IBOS). However, as shown above, there are many theoretical and empirical results supporting the opposite as well. There are also many firms that have been very successful by operating in new markets with quite different cultures, such as NOKIA, MOTOROLA, and SIEMENS, in China for instance. So cultural distance is a factor to be considered when entry mode decision is being made, but it is not a determinative one, and it should not be an obstacle of entering into a potential market with the right mode. But also some other factors such as firm size and international experience are not determinative unilaterally. Due to being a multistage decision making process (Root 1994) the choice of foreign market entry mode must be addressed in accordance to that. This means that at least near-optimum solutions are only attainable if the relevant factors as well as their interactions and tradeoffs are considered from a dynamic perspective.
References
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2. Kenichi Ohmae, “The Borderless World,” Harper Collins, 1990.3. Tatsuo Ohbora, Andrew Parsons and Hago Riesenbeck, “Alternate
routes to global marketing,” The McKinsey Quarterly 1992 Number 3, pp 52-74.
4. T C Chu and Trevor MacMurray, “The road ahead for Asia’s leading conglomerates,” The McKinsey Quarterly 1993 Number 3, pp 117- 126.
5. Stephen M Shaw and Johannes Meier, “Second generation MNCs in China,” The Mc Kinsey Quarterly 1993 Number 4, pp 3-16.
6. Andrea Mackiewicz, "Guide to building a global image," The Economist Intelligence Unit, McGraw Hill Inc, 1993.
7. Philip M Rosenzweig, “The New American Challenge: Foreign Multinationals in the United States,” California Management Review, Spring 1994,
8. John Fahy and Fuyuki Taguchi, “Reassessing the Japanese Distribution System,” Sloan Management Review, Winter 1995, pp 49-61.
9. George. S. Yip, “Total Global Strategy,” Prentice Hall Inc, New Jersey, 1995.
10. Louis Kraar, “Acer’s Edge: PCs to go,” Fortune, October 30,1995, pp 73 – 86.
11. Pete Engardio and Peter Burrows, “Acer: A Global Power House,” Business Week, July 1, 1996, www. businessweek.com
12. Patricia Sellers, “How Coke is Kicking Pepsi’s can,” Fortune, October 28,1996, pp 36-48.
13. Patricia Sellers, “Why Pepsi needs to become more like Coke,” Fortune, March 3, 1997, pp 16 – 17.
14. Keith Naughton, etal, "Can Honda build a world car?", Business Week, September 8, 1997, www. businessweek . com
15. Charles Batchelor and Scott Morrison, “The Global Company: Erasing old frontiers, DHL and Kallback: two pioneers of globalisation,” Financial Times, September 30, 1997, globalarchive.
ft. com
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