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BA 178 – Introduction to International Business

BA 178 – Introduction to International Business. Discussion Section April 13, 2007 Brian Chen/Sanny Liao. Globalization. Last week: globalization of production This week: globalization of market. Identifying markets.

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BA 178 – Introduction to International Business

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  1. BA 178 – Introduction to International Business Discussion Section April 13, 2007 Brian Chen/Sanny Liao

  2. Globalization • Last week: globalization of production • This week: globalization of market

  3. Identifying markets • Def:Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important way (e.g geography, demography, social-cultural factors) • Examples: Toyota/Lexis, Old Navy/Gap/Banana Republic, anything else? • Can market segmentation extend beyond national borders? Yes.

  4. What factors should firms consider in order to target each market segment? • Product attributes • Distribution strategy • Communication strategy • Pricing strategy

  5. How do product attributes differ across markets? • Hamburgers do not sell in Islamic countries – cultural differences • Kodak sells a lower end camera in Russia – economic development differences • Different DVD regional coding – product and technical standards

  6. How do firms adjust their distribution strategy across different markets? • The US has less concentrated urban areas and extensive use of cars; Japan has a highly concentrated population, little use of cars in urban centers, and government protection of small retailers  more small retailers, and fewer large chains and malls in Japan. I.e. less retail concentration • Other factors that may affect retail concentration: economic development (car ownership), transportation systems, etc. • You are a toothpaste manufacturer in China who sells to millions of small retailers, is it worthwhile for you to contact and supply to each retailer? No.  fragmented retail systems are more likely to use intermediaries (longer channel length) • Other factors that may affect channel length: internet shopping, large discount superstores such as Wal-Mart

  7. Distribution strategies – cont’d • In Japan, relationships between manufacturers, wholesalers, and retailers often go back decades  very hard for outsider to break into. Japan has high channel exclusivity • Outsiders can break into the Japanese market more easily with new products • Developing countries often have lower quality downstream retailers  poor channel quality • Which distribution strategy to take? Benefit and cost analysis.

  8. How do firms adjust their communication strategy to different markets? BARRIERS TO INTERNATIONAL COMMUNICATION • A Benetton ad campaign features a black woman breast-feeding a white baby, and a another one shows a black man and a white man handcuffed together – fared well in France but accused of promoting white racial domination in U.S.  cultural barriers • Made in Japan, Made in China stickers carry different connotations to buyers  source and country of origin effects • Competition from other advertiser  noise levels

  9. Communication strategy, cont’d PUSH VS. PULL STRATEGIES • Push strategy: emphasizes on selling • Requires a large sales force • Good for complex products or when firms need to educate potential consumers about the features of the product • Pull strategy: emphasizes on creating demand • Less costly when the potential market is big • More effective if there is little need to educate customers • More effective when channel length is short • More cost-effective when media is widely available

  10. How do firms adjust their pricing strategy to different markets? • Def: price discrimination exists when consumers in different countries/markets are charged different prices for the same product. • Why? • What are the necessary conditions for this to be successful? • Ability to keep markets separate • Difference price elasticity of demand (firms can usually charge a higher price in inelastic markets)

  11. Pricing strategies, cont’d • Other pricing strategies: • Predatory pricing: price out the competitor • Multipoint pricing: compete in different markets • Experience curve pricing: economies of scale • Regulatory influences • Antidumping regulations • Under GATT, 2 criteria – “less than fair value” and “material injury to a domestic industry” • Competition policies – penalizes monopolistic practices

  12. Finally • Importance of new product development • Creative destruction • How to achieve fast product development • Location of R&D • Integration of R&D, marketing and production • Cross functional teams • Building global R&D capabilities

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