Introduction to Global Marketing

Global Marketing in the U.S.

International market entry allows companies to expand their customer base and grow their profitability with either custom or standard products.

Learning Objectives

Examine different global marketing methods and entities

Key Takeaways

Key Points

  • The basic principles of domestic marketing apply to international marketing, but environmental factors in a foreign country can affect international efforts.
  • International approaches to marketing, such as cost-based product development by the Japanese, put U.S. competitors at a disadvantage. It is important to address the various approaches and find new operating methodologies in order to compete successfully on a global scale.
  • For small and medium-sized firms in particular, exporting remains the most promising alternative to a full-blooded international marketing effort, since it appears to offer a degree of control over risk, cost, and resource commitment.
  • The various methods of entering the global market are through exporting, licensing, joint ventures, direct investment, U.S. Commercial Centers, trade intermediaries and alliances.

Key Terms

  • marketing mix: The marketing mix is often crucial when determining a product or brand’s unique selling point (the unique quality that differentiates a product from its competitors), and is often synonymous with the four Ps: price, product, promotion, and place.

U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. In general, the basic principles of domestic marketing can be applied to international marketing, but when attempting the latter, environmental factors in foreign countries must be taken into account. These include the (a) economic environment, (b) competitive environment, (c) cultural environment, (d) political/legal environment, (e) technological environment, and (f) ethical environment in foreign countries

There are five basic ways a firm can enter a foreign market, the selection of which depends largely on how much control a firm wishes to maintain over its marketing. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program. Some firms customize their market programs, adjusting their marketing mix for each target market. Others use a standard marketing mix everywhere.

The Global Competitive Environment

U.S. companies must compete internationally with foreign marketers, who might have superior business strategies. Japanese companies, for example, have a method for designing products that is less wasteful than American strategies. Japanese companies typically begin a design process by determining what a market will be willing to pay for a product, and then advise their design teams to make a product based on this target cost. American companies, on the other hand, typically develop a product first, before determining whether a market can afford its cost.

The Types of International Exposure

Firms typically approach international marketing cautiously. For smaller firms in particular, exporting is often chosen over other strategies, because it offers a degree of control over risk, cost, and resource commitment. Smaller firms often only export in response to an unsolicited overseas order, which is perceived as low-risk.

A diagram that shows the decision sequence in international marketing based on the corporate, business, and functional levels.

Decision Sequence in International Marketing: The challenge of international marketing is to ensure that any international strategy has thorough research and an accurate evaluation of what is required to achieve a competitive advantage.

Exporting

Exporting is low-risk and is attractive for several reasons. First, products in the maturity stage of a domestic life-cycle might find new growth opportunities overseas. Second, some firms find it less risky and more profitable to export current products, instead of developing new products. Third, firms that face seasonal domestic demand might choose to market abroad in relation to these demands. Finally, some firms might export because there is less competition overseas.

Licensing/Franchising

Under a licensing agreement, a firm (licensor) provides a product to a foreign firm (licensee) by granting that firm the right to use the licensor’s manufacturing process, brand name, patents, or sales knowledge, in return for payment. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to a new market. Scarce capital, import restrictions, or government restrictions often make this the only way a firm can market internationally. This method does contain some risks. It is typically the least profitable method for entering a foreign market, and it is a long-term commitment. Furthermore, if a licensee firm fails to successfully reproduce a particular product, it could tarnish that product’s original brand image.

Joint Ventures

A joint venture is a partnership between a domestic and foreign firm. Both partners invest money, share ownership, and share control of the venture. Joint ventures require a greater commitment from firms than other methods, because they are riskier and less flexible.

Direct Investment

Multinational organizations may choose to engage in full-scale production and marketing abroad by directly investing in wholly-owned subsidiaries. As opposed to the previously mentioned methods of entry, this type of entry results in a company directly owning manufacturing or marketing subsidiaries overseas. This allows firms to compete more aggressively abroad, because they are literally “in” the marketplace. However, because the subsidiary is responsible for all the marketing activities in a foreign country, this method requires a much larger investment. This strategy is also risky, because it requires a complete understanding of business conditions and customs in a foreign country.

U.S. Commercial Centers

These centers provides resources to promote the export of U.S. goods and services abroad. The commercial center does this by familiarizing U.S. firms with industries, markets, and customs in other countries. U.S. commercial centers provide the following services: business facilities; translation and clerical services; a commercial library with legal information; and assistance with contracts and export/import arrangements. They also facilitate contacts between buyers, seller, bankers, distributors, and governmental officials.

Trade Intermediaries

If a small company lacks the resources or expertise to enter a foreign market, they can hire trade intermediaries, who do possess relationships in other countries. These entrepreneurial middlemen typically purchase U.S. produced goods at 15 per cent below a manufacturer’s best discount, and then resell these products in overseas markets.

Alliances

In alliances, two or more separate entities jointly promote and sell a single concept, product, or service that is beneficial to all stakeholders. The stakeholders in such a case think a combined marketing approach will produce more significant results.

Trade and Globalization

Countries engage in international trade to focus on producing goods most efficiently and to achieve economies of scale in production.

Learning Objectives

Review the relationship between trade and globalization from a marketing perspective

Key Takeaways

Key Points

  • Factors influencing international trade include trade sanctions, trade barriers, and the free trade movement.
  • The World Trade Organization (WTO) deals with trade regulations, provides a framework for negotiating trade agreements, and fosters a dispute resolution process aimed at enforcing adherence to WTO agreements.
  • The Doha Development Round of the World Trade Organization’s negotiations aims to lower barriers to trade around the world, with a focus on making trade fairer for developing countries.
  • Future prospects for trade liberalization versus trade protection will depend on the length and severity of the economic crisis. If the crisis abates soon, liberalization may return, but if it continues for years and if unemployment rates remain high, then demands for trade protection may increase.

Key Terms

  • globalization: The process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture.
  • protectionism: The term is mostly used in the context of economics, where it refers to policies or doctrines that protect businesses and workers within a country by restricting or regulating trade with foreign nations.

Countries engage in international trade for two basic reasons, each of which contributes to the country’s gain from trade. First, countries trade because they are different from one another. Nations can benefit from their differences by reaching agreements in which each party contributes its strengths and focuses on producing goods efficiently. Second, countries trade to achieve economies of scale in production. If each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything.

International Trade

While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of industrialization, advanced transportation, globalization, multinational corporations, and outsourcing. In fact, it is probably the increasing prevalence of international trade that is usually meant by the term “globalization. ” Empirical evidence for the success of trade can be seen in the contrast between countries such as South Korea, which adopted a policy of export-oriented industrialization, and India, which historically had a more closed policy (although it has begun to open its economy, as of 2005). South Korea has done much better by economic criteria than India over the past fifty years, though its success also has to do with effective state institutions.

The World Trade Organization (WTO) was formed to supervise and liberalize international trade on January 1, 1995 under the Marrakech Agreement. The organization deals with regulation of trade between participating countries. It provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements.

A global map that shows the World Trade Organization's participation.

World Trade Organization Participation: The WTO was founded in 1995 with 123 member countries. By 2009, it included 153 countries.

Trade Sanctions

Trade sanctions against a specific country are sometimes imposed in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another. For example, the United States has had an embargo against Cuba for over 40 years.

Trade Barriers

Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions, and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies. All of these are called trade barriers, which are established by a government who implements a protectionist policy.. If a government removes all trade barriers, a condition of free trade exists.

Fair Trade

The fair trade movement promotes the use of labor, environmental, and social standards for the production of commodities, particularly those exported from the Third and Second Worlds to the First World. Importing firms voluntarily adhere to fair trade standards or governments may enforce them through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of goods made using slave labor, to minimum price support schemes such as those for coffee in the 1980s. Non-governmental organizations (NGOs) also play a role in promoting fair trade standards by serving as independent monitors of compliance with fair trade labeling requirements.

Current Trends

The WTO is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain: The conflict between free trade on industrial goods and services, but retention of protectionism on farm subsidies to the domestic agricultural sector (requested by developed countries) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress toward launching new WTO negotiations beyond the Doha Development Round.

China

Beginning around 1978, the People’s Republic of China (PRC) began an experiment in economic reform. In contrast to the previous Soviet-style, centrally planned economy, the new measures progressively relaxed restrictions on farming, agricultural distribution and, several years later, urban enterprises and labor.

The more market-oriented approach reduced inefficiencies and stimulated private investment, particularly by farmers, that led to increased productivity and output. The reforms proved successful in terms of increased output, variety, quality, price, and demand. In real terms, the economy doubled in size between 1978 and 1986. By 2008, the economy was 16.7 times the size it was in 1978, and 12.1 times its previous per capita levels.

International trade progressed even more rapidly, doubling on average every 4.5 years. Total two-way trade in January 1998 exceeded that for all of 1978. In the first quarter of 2009, trade exceeded the full-year 1998 level. In 2008, China’s two-way trade totaled US $2.56 trillion. In 1991, the PRC joined the Asia-Pacific Economic Cooperation group, a trade-promotion forum. In 2001, it also joined the World Trade Organization.

Are Global Corporations Beneficial?

International expansion can drive significant shareholder value, but the net impact of globalization is hotly contested.

Learning Objectives

Discuss the benefits and challenges of global corporations from a marketing perspective

Key Takeaways

Key Points

  • Despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors: Public Relations, Ethics, Org. Structure, & Leadership.
  • Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases.
  • Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage.

Key Terms

  • globalization: The process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture.

Global Corporations

A global company is generally referred to as a multinational corporation (MNC). An MNC is a company that operates in two or more countries, leveraging the global environment to approach varying markets in attaining revenue generation. These international operations are pursued as a result of the strategic potential provided by technological developments, making new markets a more convenient and profitable pursuit both in sourcing production and pursuing growth.

A map that shows McDonald's presence globally.

McDonald’s Locations: Over the last 70 years, McDonald’s has become a global corporation.

International operations are therefore a direct result of either achieving higher levels of revenue or a lower cost structure within the operations or value-chain. MNC operations often attain economies of scale, through mass producing in external markets at substantially cheaper costs, or economies of scope, through horizontal expansion into new geographic markets. If successful, these both result in positive effects on the income statement (either larger revenues or stronger margins), but contain the innate risk in developing these new opportunities.

Opportunities

As gross domestic product ( GDP ) growth migrates from mature economies, such as the US and EU member states, to developing economies, such as China and India, it becomes highly relevant to capture growth in higher growth markets. is a particularly strong visual representation of the advantages a global corporation stands to capture, where the darker green areas reppresent where the highest GDP growth potential resides. High growth in the external environment is a strong opportunity for most incumbents in the market.

image

GDP Growth Rate : This map highlights (via dark green) where the strongest growth opportunities currently are as of 2010.

Challenges

However, despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors:

  • Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum.
  • Ethics: Arguably the most substantial of the challenges faced by MNCs, ethics have historically played a dramatic role in the success or failure of global players. For example, Nike had its brand image hugely damaged through utilizing ‘sweat shops’ and low wage workers in developing countries. Maintaining the highest ethical standards while operating in developing countries is an important consideration for all MNCs.
  • Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations.
  • Leadership: The final factor worth noting is attaining effective leaders with the appropriate knowledge base to approach a given geographic market. There are differences in strategies and approaches in every geographic location worldwide, and attracting talented managers with high intercultural competence is a critical step in developing an efficient global strategy.

Combining these four challenges for global corporations with the inherent opportunities presented by a global economy, companies are encouraged to chase the opportunities while carefully controlling the risks to capture the optimal amount of value. Through effectively maintaining ethics and a strong public image, companies should create strategic business units with strong international leadership in order to capture value in a constantly expanding global market.

Globalization

Opportunities

Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases. This means larger volumes of sales and exchange, larger growth rates in GDP, and more empowerment of individuals and political systems through acquiring additional resources and capital. These benefits of globalization are viewed as utilitarian, providing the best possible benefits for the largest number of people.

Challenges

Along with arguments supporting the benefits of a more globally-connected economy, there are criticisms that question the profits that are captured. Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage. Other commonly raised concerns include damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values.

Global Marketing Standardization

To the extent that global consumers desire standardized products, companies can easily lower operating costs and expand their consumer bases.

Learning Objectives

Discuss the concept of global marketing standardization

Key Takeaways

Key Points

  • Firms ascribing to Global Standardization theory view the world as one entity, not a collection of national markets. These firms compete on a basis of appropriate value, i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function.
  • Critics of global standardization say each country should have custom marketing strategies since the average product requires about 4 – 5 adaptations of the 11 marketing elements: label, package, materials, colors, name, product features, advertising themes, media, execution, price, and promotion.
  • Global marketing doesn’t have to be either full standardization or local control. Rather it can fall anywhere on a spectrum from tight worldwide coordination on programming details to loose agreements on a product ideas.

Key Terms

  • competitive advantage: The strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment.

In 1983, Theodore Levitt, the famous Harvard marketing professor wrote an article entitled, “The Globalization of Markets”. Since then, the field of marketing has not been the same. According to Levitt, a new economic reality—the emergence of global consumer markets for single standard products–has been triggered in part by technological developments. Worldwide communications ensure the instant diffusion of new lifestyles and pave the way for a mass transfer of goods and services. Adopting this global strategy provides a competitive advantage in cost and effectiveness. In contrast to multinational companies, standardized (global) corporations view the world and its major regions as a single entity rather than a collection of national markets. These world marketers compete on a basis of appropriate value, i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function. Ultimately, consumers tend to prefer a good price/quality ratio to a highly customized but less cost-effective item. Levitt distinguished between products and brands. While the global product itself is standardized or sold with only minor modifications, the branding, positioning, and promotion may have to reflect local conditions.

Critics of Levitt’s perspective suggest that his argument for global standardization is inaccurate and that market strategy should be customized to each country. According to Kotler, one study found that 80 per cent of US exports require one or more adaptations. Furthermore, the average product requires at least four to five adaptations out of a set of eleven marketing elements, namely, labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion. Kotler suggests that all eleven factors should be evaluated before standardization is considered.

To date, no study has empirically validated either perspective. While critics of Levitt can proffer thousands of anecdotes contradicting the validity of standardization, a more careful read of Levitt’s ideas indicate that he offers standardization as a strategic option, not a fact. Although, global marketing has its pitfalls, it also has some great advantages. Standardized products can lower operating costs. More importantly, effective coordination can exploit a company’s best product and marketing ideas. Too often, executives view global marketing as an either/or proposition-either full standardization or local control. But when a global approach can fall anywhere on a spectrum – from tight worldwide coordination on programming details to loose agreements on product ideas – there is no reason for this rigid view. In applying the global marketing concept and making it work effectively, flexibility is essential. The big issue today is not whether to go global, but how to tailor the global marketing concept to meet the specific needs of each business.

A display case that shows Coke signs from around the globe.

Coca-Cola: Coke has used a mix of standardization and localized marketing. For instance, the classic red and white colors remain the same globally, while the flavor profile is slightly tweaked based on region of distribution.