Chapter 15The Global Marketplace

Previewing the Concepts: Chapter Objectives

1. Discuss how the international trade system, economic, political-legal, and cultural environments affect a company’s international marketing decisions.

2. Describe three key approaches to entering international markets.3. Explain how companies adapt their marketing mixes for international markets.4. Identify the three major forms of international marketing organizations.

JUST THE BASICS

Chapter Overview

This chapter looks at the special considerations that companies face when they market their brands globally. Advances in communication, transportation, and other technologies have made the world a much smaller place. Almost every firm, large or small, faces international marketing issues.

International trade is booming. Since 1969, the number of multinational corporations in the world’s 14 richest countries has more than tripled, from 7,000 to 24,000. Global competition is intensifying. Foreign firms are expanding aggressively into new international markets, and home markets are no longer as rich in opportunity. If companies delay taking steps toward internationalizing, they risk being shut out of growing markets.

Before deciding to operate internationally, a company must thoroughly understand the international marketing environment. There are many issues to understand regarding the international trade system, such as tariffs, quotas, embargoes, and other barriers to entry. The World Trade Organization (WTO) was established in the latest round of the General Agreement on Trade in Services (GATT) negotiations. The WTO acts as an umbrella organization, overseeing GATT, and a similar agreement governing intellectual property. In addition, the WTO mediates global disputes and imposes trade sanctions.

Two factors reflect a country’s attractiveness as a market—the country’s industrial structure and its income distribution. There are also several factors to contend with in the political-legal environment, as well as the cultural environment.

There are several factors that draw a company into the international arena. Global competitors might attack the company’s domestic market by offering better products or lower prices. The company might want to counterattack these competitors in their home markets to tie up their resources. Or the company might discover foreign markets that

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present higher profit opportunities than the domestic market does. Before going abroad, the company must weigh several risks and answer many questions about its ability to operate globally. The company should try to define its international marketing objectives and policies. The company needs to choose how many countries it wants to market in, and it needs to decide on the types of countries to enter. Once the decision has been made to sell in a foreign country, the company must determine the best mode of entry.

Most companies start with exporting, using either indirect or direct exporting, or they could go into a joint venture, through such means as licensing, contract manufacturing, management contracting, or joint ownership. Finally, the company could make a direct investment by developing assembly or manufacturing facilities. Each form of entry carries its own risks and rewards; the company must weigh these carefully before making final decisions.

Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing mixes to local conditions. At one extreme are global companies that use a standardized marketing mix, selling largely the same products and using the same marketing approaches worldwide. At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return. However, global standardization is not an all-or-nothing proposition. Rather, it is a matter of degree.

Finally, companies can manage their international marketing activities in at least three different ways. Most companies first organize an export department, then create an international division, and finally become a global organization.

Chapter Outline

1. Introductiona. Coca-Cola is a brand that is as American as baseball and apple pie. But

from the beginning, Coke was destined to be more than just America’s soft drink.

b. First introduced in 1893, by 1900 Coca-Cola had already ventured beyond America’s borders into numerous countries.

c. Coca-Cola’s worldwide success results from a skillful balancing of global standardization and brand building with local adaptation. For years, the company adhered to the mantra “Think globally, act locally.” The company carefully adapts its mix of brands and flavors, promotions, price, and distribution to local customs and preferences in each market.

d. As a result of its international marketing prowess, Coca-Cola dominates the global soft drink market.

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2. Global Marketing in the Twenty-first Centurya. The world is shrinking rapidly with the advent of faster communication,

transportation, and financial flows. Products developed in one country are finding enthusiastic acceptance in other countries.

b. International trade is booming. 1. Since 1969, the number of multinational corporations in the world

has grown from 7,000 to more than 63,000.2. Since 2003, world trade has been growing at 5 to 10 percent

annually. World trade of products and services was valued at over 10.9 trillion dollars in 2004, which accounted for 20 percent of gross domestic product worldwide.

3. This trade growth is most visible in developing countries, which saw their share in world merchandise trade rise sharply to 31 percent, the highest since 1950.

c. If companies delay taking steps toward internationalizing, they risk being shut out of growing markets.

d. Although the need for companies to go abroad is greater today than in the past, so are the risks.1. Companies that go global may face highly unstable governments

and currencies, restrictive government policies and regulations, and high trade barriers.

2. Corruption is an increasing problem—officials in several countries often award business not to the best bidder but to the highest briber.

e. A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors.1. The global company sees the world as one market. It minimizes the

importance of national boundaries and develops “transnational” brands.

2. The rapid move toward globalization means that all companies will have to answer some basic questions as to market position, competitors, strategies, resources, production, and strategic alliances.

Use Key Term Global Firm here.Use Figure 15-1 here.

Use Application Questions 1 here.

3. Looking at the Global Marketing Environmenta. Before deciding whether to operate internationally, a company must

thoroughly understand the international marketing environment.

Use Chapter Objective 1 here.

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The International Trade Systemb. When selling to another country, the U.S. firm faces various trade

restrictions.1. A tariff is a tax levied by a foreign government against certain

imported products. It may be designed either to raise revenue or to protect domestic firms.

2. A quota sets limits on the amount of goods the importing country will accept in certain product categories. The purpose of the quota is to conserve on foreign exchange and to protect local industry and employment.

3. Exchange controls limit the amount of foreign exchange and the exchange rate against other currencies.

4. Nontariff trade barriers are things such as biases against U.S. company bids or restrictive product standards or other rules that go against American product features.

Use Key Terms Tariff, Quota, Exchange Controls, and Nontariff Trade Barriers here.Use Discussing the Issues 1 here.

c. The General Agreement on Tariffs and Trade (GATT) is a 58-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers.1. Since its inception in 1948, there have been eight rounds of GATT

negotiations to reassess trade barriers and set new rules for international trade.i. The first seven rounds reduced the average worldwide

tariffs on manufactured goods from 45% to just 5%.ii. The Uruguay round, the most recent, lasted seven years.

a. It reduced the world’s remaining merchandise tariffs by 30%, boosting global merchandise trade by as much as 10%.

b. It extended GATT to cover trade in agriculture and a wide range of services.

c. It toughened international protection of copyrights, patents, trademarks, and other intellectual property.

d. It established the World Trade Organization (WTO) to enforce GATT rules. The WTO mediates global disputes and imposes trade sanctions.

d. Certain countries have formed free trade zones or economic communities, which are groups of nations organized to work toward common goals in the regulation of international trade.

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Use Key Term Economic Community here.

1. The European Community was formed in 1957.i. European unification offers tremendous trade opportunities

for U.S. and other non-European firms.ii. It also poses threats.

a. European companies will grow bigger and more competitive.

b. Lower trade barriers inside Europe will create only thicker outside walls.

c. Widespread adoption of the euro will decrease currency risk, making member countries with previously weak currencies more attractive markets.

2. In January 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada.

3. Given the apparent success of NAFTA, talks are underway to investigate establishing a Free Trade Area of the Americas (FTAA). This free trade zone would include 34 countries stretching form the Bering Strait to Cape Horn, with a population of 800 million.

4. Other free trade areas have formed in Latin America and South America.

Let’s Discuss ThisWhy would the United States want to enter into free trade agreements? What benefits do they offer? What might be the disadvantages?

e. The trend toward free trade zones has raised some concerns.1. In the United States, unions fear that NAFTA will lead to the

further exodus of manufacturing jobs to Mexico, where wage rates are much lower.

2. Environmentalists worry that companies that are unwilling to play by the strict rules of the U.S. Environmental Agency will relocate to Mexico, where pollution regulation has been lax.

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Economic Environmentf. The international marketer must study each country’s economy.g. Two economic factors reflect the country’s attractiveness as a market: the

country’s industrial structure and its income distribution.1. The country’s industrial structure shapes its product and service

needs, income levels, and employment levels.i. Subsistence economies are those where the vast majority of

people engage in simple agriculture.ii. Raw material exporting economies are countries that are

rich in one or more natural resources, but poor in other ways.

iii. Industrializing economies are those where manufacturing accounts for 10% to 20% of the country’s economy.

iv. Industrialized economies are major exporters of manu-factured goods and investment funds.

Applying the ConceptWhat kinds of goods or services might the United States provide to countries that have a subsistence economy? How about an industrializing economy?

2. The second economic factor is the country’s income distribution.i. Countries with subsistence economies may consist mostly

of households with very low family incomes.ii. Industrialized nations may have low-, medium-, and high-

income households.iii. Other countries may have households with only either very

low or very high incomes.iv. Even low-income and developing economies may be

attractive markets for all kinds of goods and luxuries.

Political-Legal Environmenth. Nations differ greatly in their political-legal environments. i. At least four political-legal factors should be considered in deciding

whether to do business in a given country.1. In their attitudes toward international buying, some nations are

quite receptive to foreign firms, and others are less accommodating.

2. Some countries such as India bother foreign business with import quotas, currency restrictions, and other limitations that make operating there a challenge.

3. Political stability is another issue. 4. Monetary regulations need to be studied.

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j. Nations with too little hard currency may want to pay with other items instead of cash, which has led to the growing practice called countertrade. It takes several forms.1. Barter involves the direct exchange of goods or services.2. Compensation, or buyback, occurs when the seller sells a plant,

equipment, or technology to another country and agrees to take payment in the resulting products.

3. Counterpurchase occurs when the seller receives full payment in cash but agrees to spend some portion of the money in the other country within a stated time period.

Use Key Term Countertrade here.

Cultural Environmentk. Each country has its own folkways, norms, and taboos. When designing

global strategies, companies must understand how culture affects con-sumer reactions in each of its world markets. In turn, they must also understand how their strategies affect local cultures.1. The seller must examine the ways consumers in different countries

think about and use certain products before planning a marketing program.

2. Business norms and behaviors vary from country to country.l. Some critics argue that “globalization” really means “Americanization.”

1. These critics contend that exposure to American values and prod-ucts erode other cultures and westernize the world.

Use Marketing at Work 15-1 here.Use Focus on Ethics here.

4. Deciding Whether to Go Internationala. Any of several factors might draw a company into the international arena.

1. Global competitors might attack the company’s domestic market by offering better products or lower prices.

2. The company might want to counterattack those competitors in their home markets to tie up their resources.

3. The company might discover foreign markets that present higher profit opportunities than the domestic market does.

4. The company’s home market might be stagnant or shrinking. 5. The company’s customers might be expanding abroad and require

international servicing.b. Before going abroad, the company must weigh several risks and answer

many questions about its ability to operate globally.

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c. Because of the difficulties of entering international markets, most companies do not act until some situation or event thrusts them into the global arena.

5. Deciding Which Markets to Entera. Before going abroad, the company should try to define its international

marketing objectives and policies.b. The company also needs to choose how many countries it wants to enter.

1. Companies must be careful not to spread themselves too thin or to expand beyond their capabilities in too many countries too soon.

c. The company needs to decide on the type of countries to enter.1. A country’s attractiveness depends on the product, geographic

factors, income and population, political climate, and other factors.d. After listing possible international markets, the company must screen and

rank each one.1. Possible global markets should be ranked on several factors,

including market size, market growth, cost of doing business, competitive advantage, and risk level.

2. The goal is to determine the potential of each market, using indicators such as those shown in Table 15-1.

Use Table 15-1 here.Use Application Questions 3 here.

Use Under the Hood/Focus on Technology here.

6. Deciding How to Enter the Marketa. Once a company has decided to sell in a foreign country, it must determine

the best mode of entry.b. Figure 15-2 shows three market entry strategies, along with the options

each one offers.c. Each succeeding strategy involves more commitment and risk, but also

more control and potential profits.

Use Figure 15-2 here.Use Chapter Objective 2 here.

Exportingd. The simplest way to enter a foreign market is through exporting.e. The company may passively export its surpluses from time to time, or it

may make an active commitment to expand exports to a particular market.1. In either case, the company produces all its goods in its home

country.

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2. It may or may not modify them for the export market.f. Companies typically start with indirect exporting, working through

independent international marketing intermediaries.1. Indirect exporting involves less investment because the firm does

not require an overseas sales force or set of contacts.2. It also involves less risk.

g. Sellers may eventually move into direct exporting.1. The investment and risk are somewhat greater in this strategy, but

so is the potential return.2. A company can set up a domestic export department that carries

out export activities.3. The company can set up an overseas sales branch that handles

sales, distribution, and perhaps promotion.4. The company can also send home-based salespeople abroad at

certain times in order to find business.5. The company can do its exporting either through foreign-based

distributors who buy and own the goods or through foreign-based agents who sell the goods on behalf of the company.

Use Key Term Exporting here.

Joint Venturingh. Joint venturing occurs when the company joins with foreign companies to

produce or market products or services.1. It differs from exporting in that the company joins with a host

country partner to sell or market abroad.2. It differs from direct investment in that an association is formed

with someone in the foreign country.i. There are four types of joint ventures.

1. Licensing is a simple way for a manufacturer to enter international marketing.i. For a fee or royalty, the licensee buys the right to use the

company’s manufacturing process, trademark, patent, trade secret, or other item of value.

ii. The company thus gains entry into the market at little risk; the licensee gains production expertise or a well-known product or name without having to start from scratch.

iii. Disadvantages include the firm having less control over the licensee than it would over its own production facilities; if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor.

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2. In contract manufacturing, the company contracts with manu-facturers in the foreign market to produce its product or provide its service.i. The drawbacks of contract manufacturing are decreased

control over the manufacturing process and loss of potential profits on manufacturing.

ii. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or to buy out the local manufacturer.

3. Under management contracting, the domestic firm supplies man-agement know-how to a foreign company that supplies the capital.i. Management contracting is a low-risk method of getting

into a foreign market, and it yields income from the beginning.

ii. The arrangement is not sensible if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture.

iii. Management contracting also prevents the company from setting up its own operations for a period of time.

4. Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control.i. A company may buy an interest in a local firm, or the two

parties may form a new business venture.ii. Joint ownership may be needed for economic or political

reasons.iii. The firm may lack the financial, physical, or managerial

resources to undertake the venture alone.iv. A foreign government may require joint ownership as a

condition for entry.v. The drawbacks include the fact that the partners may

disagree over investment, marketing, or other policies.

Use Key Terms Joint Venturing, Licensing, Contract Manufacturing, Management Contracting, and Joint Ownership here.

Use Discussing the Issues 2 here.

Direct Investmentj. The biggest involvement in a foreign market comes through direct

investment—the development of foreign-based assembly or manufacturing facilities.

k. Foreign product facilities offer many advantages.

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1. The firm may have lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings.

2. The firm may improve its image in the host country because it creates jobs.

3. Generally, a firm develops a deeper relationship with government, customers, local suppliers, and distributors.

4. The firm keeps control over the investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives.

l. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes.

Use Key Term Direct Investment here.Use Application Questions 2 here.

7. Deciding on the Global Marketing Programa. Companies that operate in one or more foreign markets must decide how

much, if at all, to adapt their marketing mixes to local conditions.1. At one extreme is a standardized marketing mix, selling largely the

same products and using the same marketing approaches world-wide.

2. At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

Use Key Terms Standardized Marketing Mix, Adapted Marketing Mix here.Use Chapter Objective 3 here.

Use Discussing the Issues 4 here.

b. Global standardization is not an all-or-nothing proposition but rather a matter of degree.1. Companies should look for ways to standardize to help keep down

costs and prices and to build greater global brand power.2. However, they must not replace long-run marketing thinking with

short-run financial thinking. Although standardization saves money, marketers must make certain that they offer what consumers in each country want.

3. Many possibilities exist between the extremes of standardization and complete adaptation.

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4. Most international marketers suggest that companies should “think globally but act locally”—that they should seek a balance between standardization and adaptation. These marketers advocate a “glocal” strategy in which the firm standardizes certain core marketing elements and localizes others.

Productc. Five strategies allow for adapting product and promotion to a global

market. See Figure 15-3. Three are product strategies and two are communication strategies.

Use Figure 15-3 here.Use Discussing the Issues 4 here.

1. Straight product extension means marketing a product in a foreign market without any change.i. The first step should be to find out whether foreign

consumers use that product and what form they prefer.2. Product adaptation involves changing the product to meet local

conditions or wants.i. In some instances, products must be adapted to local

customs or spiritual beliefs.3. Product invention consists of creating something new for a specific

country market. This strategy can take two forms.i. It might mean reintroducing earlier product forms that

happen to be well adapted to the needs of a given country.ii. Or a company might create a new product to meet a need in

a given country.

Use Key Terms Straight Product Extension, Product Adaptation, and Product Invention here.

Promotiond. Companies can either adopt the same promotion strategy they used in the

home market or change it for each local market.e. Some global companies use a standardized advertising theme around the

world.f. Colors may need to be changed to avoid taboos in other countries.g. Some companies use communication adaptation, which is fully adapting

their advertising messages to local markets.h. Media also need to be adapted internationally because media availability

varies from country to country.

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Use Key Term Communication Adaptation here.Use Marketing at Work 15-2 here.

Pricei. Companies also face many problems in setting their international prices.j. Foreign prices will be higher than domestic prices.

1. Price escalation occurs because of added costs of transportation, tariffs, importer margin, wholesaler margin, and retailer margin. Depending on these costs, the product may have to sell for two to five times as much in another country to make the same profit.

Let’s Discuss ThisGodiva chocolates began life as a Belgian business, but was acquired by Campbell’s Soup in the 1970s. What factors would affect the difference in price for Godiva between the United States and Europe?

k. Setting prices for goods that a company ships to its foreign subsidiaries can be problematic.1. If a company charges a foreign subsidiary too much, it may end up

paying higher tariff duties even while paying lower income taxes in that country.

2. If the company charges its subsidiary too little, it can be charged with dumping.i. Dumping occurs when a company either charges less than

it costs or less than it charges in its home market.3. Recent economic and technological forces have had an impact on

global pricing. i. In the European Union the transition to the euro is reducing

the amount of price differentiation.ii. When firms sell their wares over the Internet, customers

can see how much products sell for in different countries.iii. People can order directly from the company location or

dealer offering the lowest price. iv. This will force companies toward more standardized

international pricing. Distribution Channelsl. The international company must take a whole-channel view of the problem

of distributing products to final consumers. Figure 15-4 shows the three major links between the seller and the final buyer.1. The seller’s headquarters organization supervises the channels and

is part of the channel itself.

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2. The channels between nations move the products to the borders of the foreign nations.

3. The channels within nations move the products from their foreign entry point to the final consumers.

m. Channels of distribution vary greatly from nation to nation.1. There are large differences in the numbers and types of inter-

mediaries serving each foreign market.2. The size and character of the retail units abroad also differ.

Use Key Term Whole-Channel View here.Use Figure 15-4 here.

Use Linking the Concepts here.

8. Deciding on the Global Marketing Organizationa. Companies manage their international marketing activities in at least three

different ways.

Use Chapter Objective 4 here.

1. A firm normally gets into international marketing by simply shipping out its goods.i. If its international sales expand, the company organizes an

export department with a sales manager and a few assistants.

ii. As sales increase, the export department can expand to include various marketing services so that it can actively go after business.

2. An international division or subsidiary will be formed when companies get involved in several international markets and ventures. They can be organized in several ways.i. A geographic organization has country managers who are

responsible for salespeople, sales branches, distributors, and licensees in their respective countries.

ii. World product groups are each responsible for worldwide sales of different product groups.

iii. International subsidiaries are each responsible for their own sales and profits.

3. In a truly global organization, the company stops thinking of itself as a national marketer who sells abroad and starts thinking of itself as a global marketer.

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i. The top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems.

ii. The global operating units report directly to the chief executive or executive committee of the organization, not to the head of an international division.

Use Discussing the Issues 5 here.

Travel Log

Discussing the Issues1. How do tariffs, quotas, and non-tariff trade barriers restrict international trade?

Why would a government choose to restrict the import of foreign products? How do regional free trade arrangements help to encourage trade between nations?

When selling to another country, a firm may face restrictions on trade between nations. Foreign governments may charge tariffs, taxes on certain imported products designed to raise revenue or to protect domestic firms. Or they may set quotas, limits on the amount of foreign imports that they will accept in certain product categories. The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment. American firms may also face exchange controls, which limit the amount of foreign exchange and the exchange rate against other currencies. The company also may face non-tariff trade barriers, such as biases against U.S. company bids or restrictive product standards. A government may choose to restrict the import of foreign goods to protect domestic firms or slow the flow of illegal or unsafe products into the country. To improve trade, certain countries have formed free trade zones or economic communities. These are groups of nations organized to work toward common goals in the regulation of international trade.

2. What are the advantages and disadvantages of licensing, contract manufacturing, management contracting, and joint ownership?

Licensing is a simple way for a manufacturer to enter international marketing. The company gains entry into the market at little risk; the licensee gains production expertise or a well-known product or name without having to start from scratch. Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own production facilities. Another option is contract manufacturing—the company contracts with manufacturers in the foreign market to produce its product or provide its service. The drawbacks of contract manufacturing are decreased control over the manufacturing process and loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or to buy out the local manufacturer. Under management contracting, the domestic firm supplies management know-how to a foreign company that supplies the capital. Management contracting is a low-risk method of getting into a foreign market,

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and it yields income from the beginning. However, management contracting prevents the company from setting up its own operations for a period of time. Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control. Joint ownership has certain drawbacks. The partners may disagree over investment, marketing, or other policies.

3. Discuss the advantages and disadvantages of direct investment in a foreign market. List two foreign markets where a household appliance manufacturer would be interested in investing, and two foreign markets where it would have little interest in investing.

The biggest involvement in a foreign market comes through direct investment—the development of foreign-based assembly or manufacturing facilities. If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. The firm may have lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings. The firm may improve its image in the host country because it creates jobs. Generally, a firm develops a deeper relationship with government, customers, local suppliers, and distributors, allowing it to adapt its products to the local market better. Finally, the firm keeps full control over the investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes. In some cases, a firm has no choice but to accept these risks if it wants to operate in the host country.

4. Identify the primary differences between a standardized marketing mix and an adapted marketing mix. List a category of goods or services that is well suited for each approach.

Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing strategies and programs to local conditions. At one extreme are global companies that use a standardized marketing mix, selling largely the same products and using the same marketing approaches worldwide. At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

5. What are the five approaches to adapting a marketing offer for international markets?

Straight product extension means marketing a product in a foreign market without any change. Product adaptation involves changing the product to meet local conditions or wants. Product invention consists of creating something new for a specific country market. Companies can either adopt the same communication strategy they used in the home market or change it for each local market, following a strategy of communication adaptation, by fully adapting their advertising messages to local markets.

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6. Explain the difference between organizing the international marketing function as an export department, an international division, and a global organization. What drives the evolution from one organizational form to another?

Companies manage their international marketing activities in at least three different ways. Most companies first organize an export department, then create an international division, and finally become a global organization. A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department with a sales manager and a few assistants. As sales increase, the export department can expand to include various marketing services so that it can actively go after business. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate. Many companies get involved in several international markets and ventures. A company may export to one country, license to another, have a joint ownership venture in a third, and own a subsidiary in a fourth. Sooner or later it will create international divisions or subsidiaries to handle all its international activity. Many firms have passed beyond the international division stage and become truly global organizations. The global operating units report directly to the chief executive or executive committee of the organization, not to the head of an international division.

Application Questions1. Study the indicators of market potential listed in Table 15.1. Find a source of data for at least two indicators in each of the six major categories. Which of the information sources seems most and least reliable? What concerns would you have as a marketing manager evaluating market potential based on these sources?Student responses will vary.

2. Form a small group and suppose that you are members of BlockBuster’s international division, headquartered in Dallas, Texas. Outline the potential cultural, political, and economic issues facing the company if it expands into Lebanon.Student responses will vary.

3. What mode of entry would you recommend for a company introducing sugar-free ice cream in Italy? What information would a company need to have before making this decision? For one of the entry modes you did not select, what would have to change for it to become the recommended choice?Student responses will vary. A company would need to consider what level of risk it can tolerate as well as what level of control it would prefer.

Under the Hood

Communications and distribution technologies are truly making the world a smaller place. Cell phones, the Internet, and jet planes dramatically alter the way marketers reach consumers across the world. A small business anywhere in the world can open up a store front online and receive international business overnight. Advances in distribution technology make it possible for the same small business to deliver goods around the

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world virtually overnight. But how do those companies navigate the regulations and cultural nuances unique to each international market? FedEx Ship Manager allows small business managers to ship with ease. The software enables users to smoothly navigate international shipping, including customs, declarations, and licenses required as well as payment of fees, taxes, and duties.

1. Go to FedEx’s Web site and learn more about FedEx ship manager. How might this technology help marketers reach consumers around the world?

Student responses will vary. FedEx relies on automated processes to make navigating international shipping and importing regulations.

2. What other technologies are helping marketers build relationships with consumers across the globe?

Student responses will vary but may include cellular phones, email, the internet, RFID, or personal digital assistants.

Focus on Ethics

The global marketplace exposes marketing managers to a variety of customs and traditions as companies expand internationally. The cultural and political differences between home and abroad can be difficult to navigate and fraught with ethical dilemmas. As you’ll learn in the next chapter, the question arises as to whether a company must lower its ethical standards to compete effectively in countries with lower standards. For some companies, the answer is clear. “We told our people that we had the same ethical standards, same procedures, and same policies in these countries that we have in the United States, and we do,” says John Hancock Chairman Stephen Brown. “We just felt that things like payoffs were wrong—and if we had to do business that way, we’d rather not do business.”*

1. Do you agree with John Hancock’s approach to international business ethics? Student responses will vary. 2. Is it practical to apply the same standards in countries with vastly different legal and

cultural environments?Student responses will vary.

3. Are there circumstances under which you believe it would be ethical to take a bribe or accept a large gift from a potential business partner?

Student responses will vary.

* See John F. McGee and P. Tanganath Nayak, “Leaders’ Perspectives on Business Ethics,” Prizm, Arthur D. Little, Inc., Cambridge, MA, first quarter 1994, pp. 71-72.

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GREAT IDEAS

Barriers to Effective Learning

1. Many students today have traveled internationally, and perhaps even studied abroad. However, this chapter will introduce concepts that most likely will not have crossed their minds before. Free trade agreements may be known in name, but not in what they actually do. The analytics of deciding whether to go global and if so, which countries to enter, will certainly not have been encountered before. This chapter will serve as an excellent introduction to these notions.

2. The terms involved in the international trade system (tariff, quota, embargo, etc.) are generally unfamiliar to most students. Go through these carefully and use examples from recent press. Ask the students to express their feelings about tariffs, quotas, embargoes, etc. How does government policy affect free trade? Why would these barriers be erected? How do they feel about NAFTA? Do they think that it will be good for trade? When would trade barriers be justified?

3. The economic and political-legal environments will also most likely be unfamiliar to most students. Some students might have done some mission or humanitarian work in foreign countries with economies and political systems vastly different from our own. If you are lucky enough to have them in your class, have them relate their experiences. Economics majors, or those who enjoyed an economics class, may also be able to relate what they have learned about these issues from a different point of view.

4. On deciding whether to go international, many students will believe that it is simply a matter of the company deciding to expand. The concept of being forced to go into other countries because of customers pulling you along, or having to fight a global competitor on your home turf, will surprise some of them. Challenge them to think about how small companies grow, and why they might start selling their goods overseas. Use a local company that sells unique items. How might foreign customers find them? How would they decide that there is a market in another country? You can break the class into teams to work on these types of issues.

5. Countertrade is almost always an issue with undergraduate students. The various types can be very confusing, and so these concepts and terms need to be described very carefully. The examples in the book are quite useful, and you can generally find additional examples in the business press. Joint venturing is slightly easier to understand, but again, using lots of examples will really help the students appreciate the complexities and how these decisions are made.

6. Adaptation versus standardization is generally easy to grasp. Any students who have traveled internationally will probably have eaten in American chain restaurants, such as McDonald’s or the Hard Rock Café. Ask them to relate their experiences, both what was the same and what was different. Also use the example of Coca-Cola in the text as an example of a product that is largely standard around the world, but the marketing mix changes to fit the needs of each region and country.

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7. Finally, the complex nature of managing internationally will also be new to students. Discussing the difference between a very small company that is global only because of a Web site that accepts orders from overseas and a Fortune 500 company that operates in 100 countries, will clearly point out how companies evolve as their globalization progresses.

Student Projects

1. Pick a company that does global marketing and research its efforts. How are they organized? Do they offer different products or services in other countries than they do in their home country?

2. Interview a foreign student about the differences that he or she perceives between his or her country and the United States. Ask him or her about international marketing efforts in his or her country. Based on this interview, suggest some marketing opportunities that might be available in that foreign market.

3. Research the following companies: AstraZeneca (www.astrazeneca.com), American Water (www.amwater.com), and Nestle (www.nestle.com). Where are their corporate headquarters located? Did you know that they were not based in the United States? Would you say they have a standardized or adapted marketing mix?

4. Do research on the WTO (World Trade Organization). Discuss its history. Examine pro and con arguments for its existence. Take a position on the subject yourself and defend your position.

5. Find five examples of international products that you regularly buy. Have these products been customized for you? Is the producing company following standardization or adaptation in each case? Explain.

6. Pick a country, other than your own, and write a report on the economic, political-legal, and cultural environments present in that country. Discuss the differences and the similarities with the United States. What marketing opportunities do you think are present? Which cultural or business traditions are keys to understanding the environment of the country and its consumers?

7. Interview a foreign student about the differences that he or she perceives between his or her country and the United States. Ask the student about international marketing efforts in their country. Based on your research, suggest some marketing opportunities that might be present in his or her market.

8. Do research on NAFTA. Discuss its history. Examine the pro and con arguments. Take a position on the subject yourself and defend your position.

9. Pick a company that does global marketing and research its efforts. This study can be secondary or primary in nature. Briefly summarize your findings and make a judgment about how well you think the company is doing. What needs to be changed, if anything?

10. Write a brief position paper on why you would like to “be in” or “work for” an international firm. What would you see as advantages and disadvantages to working for an international firm? You are free to pick any firm you wish (such as BMW, Sony, Honda, Shell Oil, etc.) to use as an illustration for your comments.

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Interactive Assignments

Small Group Assignment

1. Form students into groups of three to five. Each group should read the opening vignette to the chapter on Coca-Cola. Each group should then answer the following questions:

a. What appears to be Coca-Cola’s primary global strategy?b. Why is Coca-Cola referred to as an “all-world brand”?c. What would be an example of Coca-Cola using a localization strategy?d. What would be an example of Coca-Cola using a standardization strategy?e. How has Coca-Cola used advertising to its advantage in constructing a

global strategy?f. What do you see as the “image” of Coca-Cola worldwide?g. Do you see any dangers or problems with Coca-Cola’s approach to

globalization?

Each group should share its findings with the class.

Individual Assignment

1. Read the opening vignette to the chapter. Think about the answers to the following questions:

a. What appears to be Coca-Cola’s primary global strategy?b. Why is Coca-Cola referred to as an “all-world brand”?c. What would be an example of Coca-Cola using a localization strategy?d. What would be an example of Coca-Cola using a standardization strategy?e. How has Coca-Cola used advertising to its advantage in constructing a

global strategy?f. What do you see as the “image” of Coca-Cola worldwide?g. Do you see any dangers or problems with Coca-Cola’s approach to

globalization?

Share your findings with the class.

Think-Pair-Share

1. Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

a. What is the result of protectionism?b. Why do companies delay pursuing internationalism strategies?c. What is a global industry? What is a global firm?

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d. List and briefly describe the major decisions in international marketing as shown in Figure 15-1.

e. Define the following terms: tariff, quota, embargo, exchange controls, and nontariff trade barriers. Explain the role played by these terms in international trade.

f. What is the purpose of the World Trade Organization and GATT?g. Why does the WTO cause conflict in certain sectors?h. What are regional free trade zones? Economic communities?i. Discuss the brief history of the European Union.j. Discuss the history of NAFTA.k. List and briefly describe the four types of international industrial structure.l. What factors should be considered when making the decision as to

whether to do business in a foreign country? Briefly explain each.m. What is countertrade?n. Give examples of differences in business norms and behavior in different

countries.o. What factors impact a company’s decision on whether to go international?p. How does a company decide which market to enter in the international

marketplace?q. Discuss the three market entry strategies shown in Figure 15-2. Which of

these strategies is the riskiest? Why?r. Compare and contrast the strategies of adaptation versus standardization

the international marketplace.s. List and briefly discuss each of the five international product and

promotion strategies shown in Figure 15-3.t. What is dumping? Is it a sound strategy?u. Discuss the whole-channel concept for international marketing.v. Discuss the various options open to a company when forming an

international organization structure. Examine the merits of each form.

Outside Example

NAFTA has been a boon for many companies, allowing the free trade of goods and services across borders in North America. Although trade has blossomed among the three countries, the agreement is still, as the textbook says, being phased in over 15 years. And there are still barriers that exist.

Trade in food is a good example. The United States is among the world’s toughest in food safety regulations. But as it turns out, not all of our food products are welcomed by our neighbors to the north. Many poultry processors, for example, ignore the Canadian market because “it’s not worth the trouble” according to one major U.S. poultry company. The USDA Web site, www.usda.gov, provides detailed information on export requirements for food processors.

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1. What aspects of the global marketing environment would a food processor need to be aware of? Would it be different for a company that produces a meat product versus one that deals in fruits and vegetables? Why or why not?

2. What decisions might a food processor need to make in deciding whether to go international?

3. Outline a plan for how a food processor might want to select countries to enter.4. Develop a global marketing plan for a pork processor (one who produces such

items as bacon, hams, pork roasts, ribs, and the like). Would you take a standardized or adaptive approach? What would your product strategy be? Your promotion strategy?

Classroom Exercise/Homework Assignment

Jaguar is the quintessential English touring sedan. As it turns out, however, it is owned by the quintessentially American auto manufacturer Ford Motor Company. Jaguar remains a separate legal entity, but it still reports to Detroit. Go to www.jaguar.com and review the various country Web sites available.

1. Comment on the marketing mix elements you can see on the different Web sites.The students will notice immediately that the product appears to be the same on most country pages. The U.S., Canadian, and U.K. pages show a beautiful woman standing near the car with the tag line "Gorgeous deserves your immediate attention." The Italian and French pages show a video of the different models and then a candlelight dinner with a beautiful woman with no tag line. The starting prices for the various models are listed on some but not all of the sites, which suggests that consumers in most countries focus on price in their decision making. Or, perhaps it might be a regulation in those countries that prices are easily obtainable. Promotion is also basically the same, although a few photos are different from site to site. The vast majority of them, however, are the same, as is the look and feel of each country's site. It is difficult to comment on the distribution aspects in the different countries, because each country's Web site is in the native language of the country.

2. How easy is it to find out that Jaguar is owned by Ford? Do you think this is on purpose, or just an oversight?

Student responses will vary. The answer is unknowable, but a very good educated guess is that Jaguar and Ford both want to focus on the branding and positioning of the vehicle. Jaguar has been noted as a prestige brand for generations, while Ford has more of a family-type positioning, along with being known for their durable light trucks. Ford’s positioning would not help sell more Jaguars, while maintaining the Jaguar mystique and improving their quality, will.

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Classroom Management Strategies

This chapter contains a lot of information that will be brand new to all students. Each section should be reviewed carefully.

1. The introduction and first section can be covered in 10 minutes. They provide a basis for the remaining content, and the Coca-Cola example in the opening vignette is excellent for setting the stage for the decision to standardize or adapt the marketing mix to each region or country.

2. The next section, Looking at the Global Marketing Environment, has key information in it that the students must understand. Take 10 minutes with this section, paying particular attention to the international trade system and the economic environment. These two subsections cover very important material and new terminology that the students should understand before moving on.

3. Deciding whether to go global and into which markets to move can be covered together in 10 minutes. Table 15-1 should figure prominently in this discussion.

4. How to enter the market is also very important and, again, there are important Key Terms in this section. Spend 10 minutes here and use as many examples as you can for each of the ways to go international.

5. The global marketing program introduces for the first time the marketing mix element decisions that must be made. This should also be discussed for at least 10 minutes, and again, examples are very important here. If you choose to use the Classroom Exercise in this manual, this is a good place to introduce it to the class. Linking the Concepts at the conclusion of this section is also very helpful.

6. The various ways to organize the company for global marketing can be covered in 5 to 10 minutes. Again, examples of various firms and how they are organized will be very helpful here. If any students have parents who work in global firms they can be called on to discuss how those companies are organized; visit their Web sites to gain a clearer understanding. The Classroom Exercise might also be utilized here, as it addresses both marketing mix and organizational issues.

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