Globalization Imperative

1. Globalization Imperative Chapter Overview Why Global Marketing is Imperative? Globalization of Markets: Convergence and Divergence Evolution of Global Marketing Theories of International Trade and the Multinational Enterprise

2. Introduction • Products have been traded across borders throughout recorded civilization, extending back beyond the Silk Roadthat once connected East with West from Xian (China) to Rome (Italy). • Total world trade volume in goods and services grew from $7.6 trillion in 2000 to nearly $11 trillion in 2004.

3. Introduction • According to the World Trade Organization (WTO), the world’s five exporting countries were Germany ($912 billion), the United States ($819 billion), China ($593 billion), Japan ($566 billion), and France ($449 billion), collectively accounting for 36 percent of global trade in 2004. • The Triad Regions (North America, Western Europe, and Japan) of the world collectively produce over 78 percent of world GDP in 2004.

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

5. 1. Why Global Marketing is Imperative • Saturation of domestic markets: Domestic-market saturation in the industrialized parts of the world and marketing opportunities overseas are evident in global marketing. • Global competition: Competition around the world and proliferation of the Internet have been on the rise and are now intensifying. • Need for global cooperation: Global competition brings global cooperation.

6. 1. Why Global Marketing is Imperative • Internet revolution: The Internet and electronic commerce (e-commerce) are bringing major structural changes to the way companies operate worldwide. • The term “global” epitomizes both the competitive pressure and expanding market opportunities. • Whether a company operates domestically or across national boundaries, it can no longer avoid competitive pressures from around the world.

7. Exhibit 1-1

8. 2. Globalization of Markets: Convergence and Divergence • Per capita income is an important determinant of consumer buying behavior. • When a country’s per capita income is less than $10,000, much of the income is spent on food and other necessities, and very little disposable income remains. • As a country’s per capita incomes reaches $20,000, the disposable portion of income increases dramatically. • This increased disposable income level results in increased convergent pressures on consumer buying behavior.

9. 2. Globalization of Markets: Convergence and Divergence • People with higher incomes tend to enjoy similar educational levels, desires for material positions, ways of spending leisure time, and aspirations for the future. • Globalization does not suffocate local cultures, but rather liberates them from the ideological conformity of nationalism, with consumers becoming more receptive to new things. • Consumers also have a wider, more divergent “choice set” of goods and services to choose from. • In other words, the divergence of consumer needs is taking place at the same time.

10. 2. Globalization of Markets: Convergence and Divergence • International trade consists of exports and imports. • International business includes international trade and foreign production. • Extensive international penetration of companies is called global reach. • International trade and foreign production activities are managed on a global basis. • Growth of Multinational Corporations (MNCs) and intra-firm trade is a major aspect of global markets.

11. 2. Globalization of Markets: Convergence and Divergence Who manages international trade? • Intrafirm trade: Trade between MNCs and their foreign affiliates. Comprises 34 percent of world trade. • An additional 33 percent of world trade was exports between MNCs and their affiliates. • In other words, two-thirds of world trade is managed one way or another by MNCs.

12. 3. Evolution of Global Marketing • What is marketing? Marketing involves the planning and execution of the conception, pricing, promotion, and distribution of ideas, products, and services. • Marketing involves customer satisfaction and their current and future needs. • Marketing is much more than selling and involves the entire company. • Within marketing strategies, companies are always under competitive pressure to move forward both reactively and proactively.

13. 3. Evolution of Global Marketing (contd.) • Five stages in the evolution of global marketing (see Exhibit 1-2): 1. Domestic Marketing (domestic focus; home country customers; ethnocentric orientation). 2. Export Marketing (indirect vs. direct exporting; country choice, exports; ethnocentric orientation; home country customers). 3. International Marketing (markets in many countries; polycentric orientation; use of multidomestic marketing when customer needs are different across national markets).

14. 3. Evolution of Global Marketing 4. Multinational Marketing (many markets; consolidation on regional basis; regiocentric orientation; standardization within regions). 5. Global Marketing (international, multinational & geocentric orientation; company’s willingness to adopt a global perspective; global products with local variations).

15. Exhibit 1-2

16. 3. Evolution of Global Marketing • Global Marketing: Global marketing refers to marketing activities that emphasize the following: • Standardization efforts. • Coordination across markets. • Global integration.

17. 3. Evolution of Global Marketing • Global marketing does not necessarily mean that products can be developed anywhere on a global scale. • The economic geography, climate, and culture affect how companies develop certain products. • The Internet adds a new dimension to global marketing. • E-commerce retailers gain substantial savings by selling online.

18. 4. Appendix: Theories of International Trade & the Multinational Enterprise • Comparative Advantage Theory (see Exhibit 1-3) • Absolute Advantage • Comparative Advantage • Commodity Terms of Trade • Principles of International Trade • Factor Endowment Theory • International Product Cycle Theory (see Exhibit 1-4) • Economies of Scale

19. Exhibit 1-3

20. 4. Appendix: Theories of International Trade & the Multinational Enterprise • Economies of Scope • Technological Gap • Preference Similarity • Stages of International Product Cycle Theory: • Introduction Stage • A U.S. company innovates on a new product in its home country.

21. 4. Appendix: Theories of International Trade & the Multinational Enterprise • Growth Stage • Product standards emerge and mass production becomes feasible. • Maturity Stage • Many U.S. and foreign companies vie for market share in the international markets. • Decline Stage • Companies in the developing countries also begin producing the product and marketing it in the rest of the world.

22. Exhibit 1-4

23. 4. Appendix: Theories of International Trade & the Multinational Enterprise • Internalization/Transaction Cost Theory • Appropriability Regime • Dominant Design • Manufacturing and Marketing Ability