International Marketing

1. International Marketing

2. Understanding International Marketing • Market, Marketing, International marketing • Domestic vs. International Marketing • Strategic Orientation: domestic, multidomestic, and global • Marketing mix: 4 Ps • Environmental forces: controllables vs. uncontrollables • Environment and the marketing mix

3. The International Marketing Mix 7 Foreign environment (uncontrollable) 1 Economic forces Political/legal forces Domestic environment (uncontrollable) 2 7 Competitive structure Political/ legal forces Competitive Forces (controllable) Cultural forces Environmental uncontrollables country market A Price Product 3 Channels of distribution Promotion Environmental uncontrollables country market B 6 Level of Technology Geography and Infrastructure Economic climate Environmental uncontrollables country market C 4 5 Structure of distribution

4. Environment Product Price Promotion Place Economic Competitive Technological Demographic Geographic Cultural Political/legal Environment and Marketing mix

5. Understanding International Marketing • International Marketing…. developing a mindset? • Developing awareness • Self-Reference Criterion (SRC) • Adapting to local culture • FPs’ Globalization Index • Economic integration • Personal contact • Political engagement • Technological connectivity

6. Global Governance • Politics/Peace- United Nations • Trade- World Trade Organization (WTO) • Money/Finance- International Monetary Fund (IMF) • Development- World Bank • Overall- G8 Nations (USA, Canada, UK, France, Germany, Italy, Japan, and Russia) • Other international institutions/bodies

7. Institutions in International Trade • World Economic and Trade Environment • WTO, IMF, and World Bank in the World Economy • Role of the organizations • Easing trade restrictions • Protest against globalization • Multinationals in the global economy • Role of American, European, Japanese, and Third World multinationals on a timeline |_______|________|_______|_______|_______|_______I 1950 1960 1970 1980 1990 20002010

8. Protectionism and Trade Barriers • Protectionism and Tariff Barriers • Cost of protectionism: arguments for and against • Nontariff Barriers: • Quota and Import Licenses • Domestic Subsidy and Economic Stimuli • Standards and documentation requirements • Boycotts and Embargoes • Monetary barriers • Antidumping Penalties

9. Balance of Payments (BOP) Account BOP Account must balance, Equation: A+B = C+D

10. Ch 1 and 2: Questions for Discussion • What is international marketing? How does it differ from domestic marketing? • What is “developing a mindset” in international marketing? How is it related to self-reference criteria? • What is protectionism? Is it good (or bad) for an economy? How? • Explain how nontraiff barriers affect trade. • What is subsidy? What is the effect of subsidy on trade and economy? • What is a BOP account? Explain the four subheads of a BOP account. Why should an international marketing manager study the BOP account of a country?

11. Buying Boom for Asia, 1995-2000 What the added Between 1993 and middle class will 1995 2000 buy (In million) 73.3 Millions of households approaching $18,000 per year buying power Indexed to Singapore prices Bedrooms 32 116 Living Rooms 16 58 Kitchens 16 58 Bathrooms 32 116 Living space (sq.m.) 1,200 4,350 Large appliances 16 58 Televisions 24 87 Telephones 24 87 Cars 16 58 32.5 14.4 1991 1995 2000 SOURCE: Bill Saporito, “Where the Global Action Is.” Fortune, Autumn-Winter 1993, p.64.

12. The Price of Protectionism Industry Total Costs to Number of Cost per Consumers Jobs Saved Job Saved (in $ millions) Textiles and apparel $27,000 640,000 $ 42,000 Carbon Steel 6,800 9,000 $ 750,000 Autos 5,800 55,000 $ 105,000 Dairy products 5,500 25,000 $ 220,000 Shipping 3,000 11,000 $ 270,000 Meat 1,800 11,000 $ 160,000 SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.

13. Evaluating Opportunities in the Changing Marketing Environment

14. 1. Know the variables that shape the environment of marketing strategy planning. 2. Understand why company objectives are important in guiding marketing strategy planning. 3. See how the resources of a firm affect the search for opportunities. 4. Know how the different kinds of competitive situations affect strategy planning. 5. Understand how the economic and technological environment can affect strategy planning. 6. Know why you might be sent to prison if you ignore the political and legal environment. 7. Understand how to screen and evaluate marketing strategy opportunities. 8. Understand the important new terms. Chapter 4 Objectives When you finish this chapter, you should 4-2

15. Provide Guidelines Be Explicit Setting Company Objectives Coordinate Effort Lead to Marketing Objectives The Importance of Objectives 4-3

16. Company Objectives Production Objectives Finance Objectives Marketing Objectives HR Objectives R&D Objectives Product Objectives Place Objectives Promotion Objectives Price Objectives Personal Selling Objectives Mass Selling Objectives Sales Promotion Objectives A Hierarchy of Objectives Exhibit 4-1 4-4

17. Financial Strength ????? ????? ????? ????? ????? Producing Capability and Flexibility Marketing Strengths Limits on Opportunity Search 4-5

18. The Competitive Environment Kinds of Markets Competitor Analysis Key Concepts in the Competitive Environment Competitive Rivals Competitive Barriers Information on Competitors 4-6

19. Global Economy Rapid Change Key Economic Forces Interest Rates The Economic and Technological Environment 4-7

20. The Impact of Technology • Technology is the application of science to convert and economy’s resources to output • Technology impacts marketing both through opportunities for new products and new ways (processes) for handling marketing functions • Example: consider the Internet • Products: software for computer users • Process: selling from a web site 4-8

21. Nationalism Consumerism Characteristics of the Political Environment Regional Groupings The Political and Legal Environment 4-9

22. Some Important U.S. Federal Regulatory Agencies Agencies Responsibilities Federal Trade Commission (FTC) Enforces laws and develops guidelines regarding unfair business practices Food and Drug Administration (FDA) Enforces laws and develops regulations to prevent distribution and sale of hazardous consumer products Consumer Product Safety Commission Enforces Consumer Product Safety Act(CPSC) Federal Communications Commission Regulates interstate wire, radio, and (FCC) television Environmental Protection Agency (EPA) Develops and enforces environmental protection standards Office of Consumer Affairs (OCA) Handles consumer complaints Exhibit 4-4 4-10

23. Time Poverty Economic Power Cultural Trend: The Changing Roles of Women Career Opportunity The Cultural and Social Environment 4-11

24. Product A Sales Total cost Dollars 0 1 2 3 4 5 Years Sales and Cost Curves ofTwo Strategies In this graphic, a too-narrow focus on the first year’s results might cause the marketing manager to abandon this product as too costly. Exhibit 4-6 4-12

25. Product B Sales Total cost 0 1 2 3 4 5 Years Sales and Cost Curves of Two Strategies In this graphic, a too-narrow focus on the first year’s results might cause the marketing manager to adopt the product prematurely, since its performance in year one is misleading. Exhibit 4-6 4-13

26. Product A Product B Sales Sales Total cost Total cost Dollars 0 1 2 3 4 5 0 1 2 3 4 5 Years Years Seen together, it is easy to see that Product A offers a vastly better overall return than does Product B Sales and Cost Curves of Two Strategies Exhibit 4-6 4-14

27. Industry Attractiveness High Medium Low High Business Strength Medium No Growth Borderline Low Growth Evaluating Opportunities Exhibit 4-7 4-15

28. Insensitive Sensitive Continuum of Environmental Sensitivity Industrial products Basic commodity-type consumer products Consumer products that are linked to cultural variables Exhibit 4-8 4-16

29. 0 Entry and Expansion Chapter 9 Market Entry and Expansion

30. Proactive Stimuli Profit advantage Unique products Technological advantages Exclusive information Economies of scale Market size Reactive Stimuli Competitive pressures Overproduction Stable or declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports Why Firms go International

31. Foreign Market Entry Strategies – 1/2. • (A) Exporting (Casual, Indirect, Direct) • Contractual Agreements • Licensing (patents, technology, trade secrets) • Franchising (brand, managerial know-how) • Subcontracting (from prime contractors) • Contract manufacturing (for foreign brands) • Turnkey Operations • Co-production Agreements • Management Contracts (IK)

32. Foreign Market Entry Strategies – 2/2. (C) Joint Ventures (minority/majority equity) (D) Wholly-Owned Subsidiaries • Local Sales only • Local Assembly & Sales • Local Production & Sales • Local Production, Sales & Export • Start-up of new operations • Merger with an existing enterprise • Acquisition of an existing enterprise • Greenfield investment

33. 0 Exporting • Export management companies (EMCs) • Domestic firms that perform international marketing services as commission representatives or distributors for other firms. • Two primary forms of operation • Take title to goods and operate internationally. • Perform services as agents.

34. 0 Exporting • Trading companies • The most famous trading companies are the sogoshoshaof Japan. • Reasons for the success of the Japanese sogoshosha: • gather, evaluate, and translate market information into business opportunities. • Their vast transaction volume provides them with cost advantages. • serve large markets around the world and have transaction advantages. • access to capital, both within Japan and in the international capital markets.

35. 0 Exporting • Export trading companies Act (ETCs) • Designed to improve the export performance of small- and medium-sized firms. • Permits bank participation in trading companies to allow better access to capital. • Reduces the antitrust threat to joint export efforts to enable firms to share the cost of international market entry. • Must balance the demands of the market and the supply of the members to be successful.

36. 0 Trading companies • Independent distributors that match up buyers and sellers. Do not represent a manufacturer but find many who can supply a buyer. • Most major trading companies are the sogoshoshaof Japan. • Reasons for the success of the Japanese sogoshosha: • Are organized to gather, evaluate, and translate market information into business opportunities. • Cost advantages because of vast transaction volume • Serve large markets around the world and have transaction advantages. • Have access to capital, both within Japan and in the international capital markets.

37. 0 Going International • E-commerce: Offering goods and services over the Web: • Corporate websites. • B-to-C and C-to-B forums. • Firms must: • Provide 24-hour order taking and customer support service (often outsourced) • Have the regulatory and customs-handling expertise to deliver internationally. • Understand global marketing environments for further development of business relationships.

38. 0 Licensing and Franchising Advantages of licensing • Capital investment or knowledge or marketing strength is not required. • Additional return on R&D investments already incurred. • Reduces the risk of R&D failures • Ongoing licensing cooperation and support enables the Licensee benefits from new developments. • Allows a firm to test a foreign market without major investment of capital or management time. • Preempts a market for competition, especially if the licensor’s resources permit full-scale involvement only in selected markets. • Increases protection of intellectual property rights.

39. 0 Licensing and Franchising • Disadvantages of licensing • Licensor gets limited expertise. • Licensor creates its own competitor. • Allows multinational corporations (MNCs) to capitalize on older technology.

40. 0 Foreign Direct Investment • Types of ownership - Joint ventures • Collaborations of two or more organizations for more than a transitory period. • Partners share assets, risks, and profits in proportion to ownership. • Governmental and commercial reasons for joint ventures

41. Advantages of joint ventures Pooling of resources. Better relationships with local organizations. The partner’s knowledge of the local market. Minimize exposure to political risk. Tap local capital markets. Disadvantages of joint ventures Different levels of control are required. Difficulty in maintaining the relationship. Disagreements over business decisions. Disagreements over profit accumulation and distribution (profit repatriation). 0 Foreign Direct Investment

42. 0 Foreign Direct Investment • Firms are categorized as: • Resource seekers - Search for natural and human resources. • Market seekers - Search for better opportunities to enter and expand within markets. • Efficiency seekers - Attempt to obtain the most economic sources of production.

43. 0 Foreign Direct Investors • Bring in capital, economic activity, and employment. • Transfer technology and managerial skills. • Encourage competition, market choice, and competitiveness. But, they: • Drain resources from host countries. • Starve smaller capital markets. • Discourage local technology development. • Bring in outmoded technology. • Create new competition for local firms.

44. 0 Export Pricing

45. 0 Price Dynamics • The alternatives strategies for first-time pricing: • Skimming - Achieve the highest possible contribution in a short initial time period, and then gradually lower the price as more segments are targeted and more products are available. • Market pricing – Determined based on competitive prices; production and marketing is adjusted to the price. • Penetration pricing – Offer products at a low price to generate volume sales and achieve high market share, to compensate for lower per unit return.

46. 0 The Setting of Export Prices • Export pricing strategy • The standard worldwide price may be the same regardless of the buyer or may be based on average unit costs of fixed, variable, and export-related costs. • Dual pricing differentiates between domestic and export prices.

47. 0 Export pricing strategy • Approaches to pricing products for exports: • Full cost method – Fully allocating domestic and foreign costs to the product; ensures profit margins but may compromise the firm’s competitiveness • Marginal cost method – Considers direct costs of producing and selling products for export as the floor beneath which prices cannot be set. • Market-differentiated pricing • based on the dynamic conditions of the marketplace. • prices change frequently due to changes in competition, exchange rate, or environment.

48. 0 The Setting of Export Prices • Export-related costs • Unique export-related costs include: • Cost of modifying a product for a foreign market. • Operational costs of exporting. • Cost incurred in entering the foreign market. • Price escalation • A combined effect of clear-cut and hidden costs results in an increase in export prices over and above the domestic prices.

49. 0 Mitigating export-related costs - Reorganize the channel of distribution (consolidate or go around certain middlemen and/or their functions) • Product adaptation • Local sourcing of inputs - Use new or more economical tariff or tax classifications. - Assemble or produce overseas.

50. 0 Payment Risks • Commercial risk • Refers to the insolvency of, or protracted payment default by, an overseas buyer. • Results from deterioration of conditions in the buyer’s market, fluctuations in demand, unanticipated competition, or technological changes. • Political risk • Can neither be controlled by the buyer nor the seller.