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CHAPTER

20

TAPPING INTO GLOBAL MARKETS

LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. What factors should a company review before deciding to go abroad? 2. How can companies evaluate and select specific foreign markets to enter? 3. What are the differences between marketing in a developing and a developed market? 4. What are the major ways of entering a foreign market? 5. To what extent must the company adapt its products and marketing program to each foreign country? 6. How do marketers influence country-of-origin effects? 7. How should the company manage and organize its international activities? SUMMARY 1. Despite shifting borders, unstable governments, foreign-exchange problems, corruption, and technological pirating, companies selling in global industries need to internationalize their operations. 2. Upon deciding to go abroad, a company needs to define its international marketing objectives and policies. It must determine whether to market in a few or many countries and rate candidate countries on three criteria: market attractiveness, risk, and competitive advantage. 3. Developing countries offer a unique set of opportunities and risks. The BRIC countriesBrazil, Russia, India, and Chinaplus other significant markets such as Indonesia and South Africa are a top priority for many firms. 4. Modes of entry are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Each succeeding strategy entails more commitment, risk, control, and profit potential. 5. In deciding how much to adapt their marketing programs at the product level, firms can pursue a strategy of straight extension, product adaptation, or product invention. At the communication level, they may choose communication adaptation or dual adaptation. At the price level, firms may encounter price escalation, dumping, gray markets, and discounted counterfeit products. At the distribution level, firms need to take a wholechannel view of distributing products to the final users. Firms must always consider the Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

cultural, social, political, technological, environmental, and legal limitations they face in other countries. 6. Country-of-origin perceptions can affect consumers and businesses alike. Managing those perceptions to the best advantage is a marketing priority. 7. Depending on their level of international involvement, companies manage international marketing activity in three ways: through export departments, international divisions, or a global organization. OPENING THOUGHT In todays multicultural world, students will have been exposed to products marketed across geographic or national boundaries, so the students ability to grasp this concept should be straightforward. What could present a challenge is the extent of marketing planning and detail needed by the firm in making their marketing decisions nationally and internationally. The instructor is encouraged to open up the class discussions to students from other nations present in the class, and to ask these students to describe the shopping experiences in their homeland. Students with international business or international marketing experiences should be especially encouraged to present to the class descriptions of what marketing is like outside of their country. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS 1. If the product is to be exported to another country, then students submissions regarding how the product is to be distributed should be included here, otherwise this begins the presentation phase of the project, and student groups should begin their presentations to the class. 2. The instructor is encouraged to challenge the students by assigning students to find their favorite products corporate office. Examples may include Nestle, Nike, Suzuki, Nokia, and others. Beyond just discovering examples of global or international firms, students should uncover via financial information, the origin of sales by country. Such an exercise will provoke interesting classroom discussions as the students begin to realize the global nature of business in todays international marketplace. 3. Sonic Smartphone Marketing Plan: Global marketing offers a way for companies to grow by expanding the customer base beyond the domestic market. However, the complexities of global marketing demand careful planning and implementation. As Ashwani Kumars assistant, you are researching markets outside the country for Sonics first Smartphone product. Review the recommendations you have made for Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Sonics marketing plan. Then answer these questions about how Sonic can approach global marketing: Should Sonic use licensing, joint ventures, direct investment, or exporting to enter other South Asian markets? To enter more markets? If Sonic wants to start marketing a Smartphone in other countries, which of the five international product strategies (straight extension, communication adaptation, product adaptation, dual adaptation, product/forward invention) is most appropriate and why? Identify one international market that seems most promising for Sonic. Why did you select this international market as most promising?

Summarize your answers in a written marketing plan. ASSIGNMENTS Have the students look at Table 20.1, which lists regional trade areas and agreements. Companies are more likely to enter entire regions at the same time. Certain countries have formed free trade zones or economic communitiesgroups of nations organized to work toward common goals in the regulation of international trade. Let students find suitable examples of companies entering to an entire region at the same time and discuss the same in class. Major marketers are using the power of the Internet to engage in global e-commerce. Visit a foreign Web site for an Asian company and evaluate the similarities and differences between the Asian. Web site and its foreign Web site. What differences/similarities strike you as significant? Could the differences be readily adapted to other foreign countries? Finding free information about trade and exporting has never been easier. Web sites such as www.cia.gov.; www.ita.doc.gov, www.exim.gov, www.sba.gov, and www.bxa.doc.gov provide valuable information for marketers. Visit each site and compile a list of information that you, as a marketer, might find valuable in deciding how to market internationally. Table 20.3 shows some famous blunders in international marketing. Students should research these examples (and find others) and provide insight into why they think such blunders were allowed to occur. This can lead to a classroom discussion into the complexity facing many firms in international and multi-cultural marketing. Have the students prepare an international campaign and marketing plan for one consumer product. Ask them to refer to Global Marketing Pros and Cons (Table 20.2) and being cognizant of these international companies, decide on how much to adapt their marketing strategy to local conditions. Students should pick an international corporation and in researching the products sold by the firm overseas, see if there are some significant differences in brand characteristics for each country. For example, Pringles and Toyota Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

have made some changes in product features, packaging, channels, and pricing, in different global markets. The assignment is for the students to provide additional examples of products changed to suit the countrys consumers while at the same time, maintaining the international brand name. END-OF-CHAPTER SUPPORT MARKETING DEBATEIs the World Coming Closer Together? Many social commentators maintain that youth and teens are becoming more and more alike as time goes on. Others, while not disputing that fact, point out that the differences between cultures at even younger ages by far exceed the similarities. Take a position: People are becoming more and more similar versus the differences between people of different cultures far outweigh their advantages. Pro: The world is becoming homogeneous. At least the world of consumers, that is. The growth of the Internet, the speed of communication, and travel has succeeded in exposing people to differing lifestyles and preferences that they are finding appealing and desirable. Consumer preferences for products tend to become similar as the economic conditions of the target markets achieve certain levels. Economic affluence and political stability foster increases in consumer affluence and product attractiveness. In marketing, we target marketsdefined as groups of people who share similar characteristics, wants, needs, and ability to pay. These target markets exist in the aggregate not as belonging to one country or another. There exist numerous examples of products first produced for a national market finding it fully adaptable to foreign sales and vice-versa because consumers in those target markets have similar characteristics, needs, and wants that the product meets. The youth and teen markets of the world share almost instant communication of ideas and products from around the world while at the same time, share similar learning and growing experiences, feelings, and concerns. The audience does not change, we are still human beings after all, and as such the message can connect to the audience or audiences around the world. The difference in marketing is neither the message nor the messenger that influences these similarities; it is the economic situations facing the people involved. Con: Cultural differences, in language, environment, physical, economic, and geographical areas contain key differences that will never be overcome by marketing. Marketers should be very aware of these differences and excellent marketers will capitalize on these differences in their marketing messages. These differences especially apply to the second and third world markets. Countries are communities and people in their particular country will always insist on their individual identification and nationality. Nationalism is a strong motivator for product purchase and/or how a product is used. Some products extend national boundariesthis is a fact that no marketer can ignore. However, products that extend past national boundaries are just a small part of a persons total product consumption or usage on a daily basis. Niche marketing and nationally produced products will continue to exist at the local and national level. Some of these products are due to consumer eating, sleeping, cultural, and religious differences that will remain specific to that country or culture. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

MARKETING DISCUSSION Think of some of your favorite brands. Do you know where they come from? Where and how they are made or provided? Do you think it would affect your perceptions of quality or satisfaction? Student answers will differ depending upon their favorite brands. Marketing Excellence: NOKIA 1) What have been the keys to Nokias global strength? Suggested Answer: Student answers will vary but good students will note that Nokia started its success with its strategic decision to divest its product portfolio and focus entirely on telecommunications. Nokias success also derives from its broad strategic view of how to build a global brand and international consumer base. The company sells a wide range of products and services in all price ranges to different types of consumers all over the world. With the bulk of industry growth coming from developing markets, Nokia has made sure its cheapest handsets are appealingand profitablein markets such as China, India, and Latin America. As a global leader, Nokia understands how critical it is to have a finger on the pulse of countries and cultures all over the world. 2) What can Nokia do to gain market share in the United States and Europe where its presence is not as strong? Suggested Answer: Student answers will vary but good students will note that Nokia needs to re-emphasize its global successes in North America, most specifically: broad strategic view, wide range of products, handsets that are affordable, pulse on the countries of North America. 3) In the ever-changing world of mobile technology, what are the greatest threats to Nokias global presence? Suggested Answer: Student answers will vary but good students will note/cite Michael Porters 5 Forces Model for threats to Nokias business model. Marketing Excellence: LOREAL 1) Review LOreals brand portfolio. What role have target marketing, smart acquisitions, and R&D played in growing those brands? Suggested Answer: Student answers will vary but good students will note that today, the company has evolved into the worlds largest beauty and cosmetics company, with distribution in 130 countries, 23 global brands, and over 17.5 billion in sales. Owen-Jones transformed LOreal from a small French business to an international cosmetics phenomenon with strategic vision and precise brand management. Owen-Jones divested weak brands, invested heavily in product innovation, acquired ethnically diverse brands, and expanded into markets no one had dreamed of. LOreal instantly became a player (with 20 percent market share) in the growing ethnic hair care industry when it purchased and merged the U.S. companies Soft Sheen Products in 1998 and Carson Products in 2000. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

2) Who are LOreals greatest competitors? Local, global, or both? Why? Suggested Answer: With sales in 130 countries and 23 global brands, LOreals greatest competitors are local, global, and glocal! 3) What has been the key to successful local product launches such as Maybellines Wondercurl in Japan? Suggested Answer: Student answers will vary but good students will note that LOreal invests money and time in innovating at 14 research centers around the world, spending 3 percent of annual sales on R&D, more than one percentage point above the industry average. Understanding the unique beauty routines and needs of different cultures, countries, and consumers is critical to LOreals global success. 4) Whats next for LOreal on a global level? If you were CEO, how would you sustain the companys global leadership. Suggested Answer: Student answers will vary but Gilles Weils comment answers this question quite well: You have to be local and as strong as the best locals, but backed by an international image and strategy. DETAILED CHAPTER OUTLINE With ever-faster communication, transportation, and financial flows, the world is rapidly shrinking. Countries are increasingly multicultural, and products and services developed in one country are finding enthusiastic acceptance in others. A German businessman may wear an Italian suit to meet an English friend at a Japanese restaurant, who later returns home to drink Russian vodka and watch a U.S. movie on a Korean TV. Emerging markets that embrace capitalism and consumerism are especially attractive targets. They are also creating marketing powerhouses all their own. Companies need to be able to cross boundaries within and outside their country. Although opportunities to enter and compete in international markets are significant, the risks can also be high. Companies selling in global industries, however, have no choice but to internationalize their operations. COMPETING ON A GLOBAL BASIS Although some businesses may want to eliminate foreign competition through protective legislation, the better way to compete is to continuously improve products at home and expand into foreign markets. A) In a global industry, competitors strategic positions in major geographic or national markets are affected by their overall global positions. B) A global firm operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages not available to purely domestic competitors. C) Global firms plan, operate, and coordinate their activities on a worldwide basis. D) A company doesnt need to be large to sell globally. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Marketing Insight: Indian Globalizers Globalization is not new to India. Bharti Airtel and Lupin Pharmaceuticals are two of the 23 new entrants to BCGs list of 100 global challengers from 16 rapidly developing economies. DECIDING WHETHER TO GO ABROAD Most companies would prefer to remain domestic if their domestic market were large enough. Yet several factors are drawing more and more companies into the international arena: A) Some international markets present higher profit opportunities than the domestic market. B) The company needs a larger customer base to achieve economies of scale. C) The company wants to reduce its dependence on any one market. D) The company may want to counterattack these competitors in their home markets. E) Customers are going abroad and require international servicing. F) Government policies encourage and incentivize globalization. Before making a decision to go abroad the company must weigh several risks: A) The company might not understand foreign customer preferences and fail to offer a competitively attractive product. B) The company might not understand the foreign countrys business culture or know how to deal effectively with foreign nationals. C) The company might underestimate foreign regulations and incur unexpected costs. D) The company might realize that it lacks managers with international experience. E) The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property. Some companies dont act until events thrust them into the international arena. The internationalization process typically has four stages: A) No regular export activities B) Export via independent representatives (agents) C) Establishment of one or more sales subsidiaries D) Establishment of production facilities aboard The first task is to get companies to move from stage 1 to stage 2. A) This move is helped by studying how firms make their first export decisions (hire agents) and enter a nearby or similar country. B) A company then engages further agents to enter additional countries. C) Later it establishes an export department to manage its agent relationships. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

D) Still later, the company replaces its agents with its own sales subsidiaries in its larger export markets. E) To manage these subsidiaries the company replaces the export department with an international department. F) If certain markets continue to be larger and stable, the company takes the next step in locating production facilities in those markets. DECIDING WHICH MARKETS TO ENTER In deciding to go abroad, the company needs to define its marketing objectives and policies. What proportion of international to total sales will it seek? Most companies start small when they venture abroad. Some plan to stay small; others have bigger plans. How Many Markets to Enter The company must decide how many countries to enter and how fast to expand. A) Companies entry strategy typically follows one of two possible approaches: 1) A waterfall approachcountries are gradually entered sequentially. 2) A sprinkler approachmany countries are entered simultaneously within a limited period of time. B) Increasingly companies are born global and market to the entire world right from the outset. C) When first mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is preferred. 1) The main risk is the substantial resources involved and the difficulty of planning entry strategies in so many potentially diverse markets. D) The company must also decide on the types of countries to consider. Developed Versus Developing Markets One of the sharpest distinctions in global marketing is between developed and developing or emerging markets. The unmet needs of the developing world represent huge potential markets for food, clothing, shelter, consumer electronics, appliances, and many other goods. Market leaders rely on developing markets to fuel their growth. The developed nations and the prosperous parts of developing nations account for less than 20 percent of the worlds population. Is there a way for marketers to serve the other 80 percent? A) Successfully entering developing markets requires a special set of skills and plans. B) These marketers are able to capitalize on the potential of developing markets by changing their conventional marketing practices to sell their products and services more effectively. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

C) Smaller packaging and lower sales prices are often critical in markets where incomes are limited. D) Competition is also growing from companies based in developing markets. E) Many firms are using lessons gleaned from marketing in developing markets to better compete in their developed markets. F) Product innovation has become a two-way street between developing and developed markets. Marketing Insight: Spotlight on Key Developing Markets Shows spotlight on key developing markets: Brazil, Russia, China, Indonesia, and South Africa. Regional economic integration-trading agreements between blocs of countries has intensified in recent years. This development means that companies are more likely to enter entire regions at the same time. )A Certain countries have formed free trade zones or economic communities groups of nations organized to work toward common goals in the regulation of international trade. Evaluating Potential Markets However much nations and regions integrate their trading policies and standards, each still has unique features. Its readiness for different products and services and its attractiveness as a market to foreign firms depend upon certain environments: 1) Economic 2) Political-legal 3) Cultural A) Many companies choose to sell to neighboring countries because they understand these countries better and can control their costs more effectively. B) At other times, psychic proximity determines choices: 1) Companies should be careful in choosing markets according to cultural distance. C) In general, a company prefers to enter countries: 1) That rank high on market attractiveness. 2) That are low in market risk. 3) In which it possesses a competitive advantage. DECIDING HOW TO ENTER THE MARKET Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad choices are: 1) indirect exporting, 2) direct exporting, 3) licensing, joint ventures, Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

4) and direct investment. Each succeeding strategy involves more commitment, risk, control, and profit potential. Indirect and Direct Export A) Companies typically start with export, specifically indirect exportingthat is, they work through independent intermediaries. B) Domestic-based export merchants buy the manufacturers products and then sell them abroad. C) Domestic-based export agents, including trading companies, seek and negotiate foreign purchases for a commission. D) Cooperative organizations conduct exporting activities for several producers often of primary products such as fruits or nutsand are partly under their administrative control. E) Export-management companies agree to manage a companys export activities for a fee. F) The normal way to get involved in an international market is through export. G) Indirect export has two advantages. 1) It involves less investment. 2) It involves less risk. H) Companies may eventually decide to handle their own exports, the investment and risk are greater, but so is the potential return. I) A company can carry on direct exporting in several ways: 1) Domestic-based export department or division 2) Overseas sales branch or subsidiary 3) Traveling export sales representatives 4) Foreign-based distributors or agents J) Whether companies decided to export indirectly or directly, many companies use exporting as a way to test the waters before further investments. Internet A company does not necessarily have to attend international trade shows if it can effectively use the Internet to attract new customers overseas, support existing customers who live abroad, source from international suppliers, and build global brand awareness. Successful companies adapt their Web sites to provide country-specific content and services to their highest-potential international markets, ideally in the local language. Licensing Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Licensing is a simple way to engage in international marketing. A) The licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. B) The licensor gains entry at little risk. C) The licensee gains production expertise or a well-known product or brand name. D) The licensor has less control over the licensee than it does over its own production and sales facilities. E) Licensing arrangements vary. F) If the licensee is very successful, the firm has given up profits. G) In contract manufacturing, the firm hires local manufacturers to produce the product. H) Contract manufacturing reduces the companys control over the process and risks loss of potential profits. However, it offers a chance to start faster, with the opportunity to partner with or buy out the local manufacturer later. I) Finally, a company can enter a foreign market through franchising, a more complete form of licensing. The franchisor offers a complete brand concept and operating system. In return, the franchisee invests in and pays certain fees to the franchisor. Joint Ventures Foreign investors may join with local investors to create a joint venture company in which they share ownership and control. A) A joint venture may be necessary or desirable for economic or political reasons. B) The foreign firm might lack the: 1) Financial resources 2) Physical resources 3) Managerial resources needed to undertake the venture alone 4) Foreign governments might require joint ownership for entry 5) The value of a partnership can extend far beyond increased sales or access to distribution. Good partners share brand values that help maintain brand consistency across markets. C) Joint ownership has certain drawbacks: 1) The partners might disagree over investment 2) The partners might disagree over marketing 3) The partners might disagree over other policies 4) Can prevent a multinational company from carrying out specific manufacturing and marketing policies on a worldwide basis Direct Investment The ultimate form of foreign involvement is direct ownership of foreign-based assembly or manufacturing facilities. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

A) The foreign company can buy part or full interest in a local company or build its own facilities. B) If the market appears large enough, foreign production facilities offer distinct advantages: 1) The firm secures cost economies in the form of cheaper labor or raw materials; foreign-government investment incentives and/or freight savings. 2) The firm strengthens its image in the host country because it creates jobs. 3) The firm develops a deeper relationship with government, customers, local suppliers, and distributors. 4) The firm retains full control over its investment. 5) The firm assures itself access to the market. C) The main disadvantage of direct investment is: 1) The firm exposes a large investment to risks such as blocked or devalued currencies 2) Worsening markets 3) Expropriation DECIDING ON THE MARKETING PROGRAM International companies must decide how much to adapt their marketing strategy to local conditions. A) At one extreme is a standardized marketing program worldwide. 1) Standardization of the product, communications, and distribution channels promises the lowest costs. B) At the other extreme is an adapted marketing program, consistent with the marketing concept, believes consumer needs vary and tailors marketing to each target group. Global Similarities and Differences The development of the Web, the spread of cable and satellite TV, and the global linking of telecommunications networks have led to a convergence of lifestyles. Increasingly common needs and wants have created global markets for more standardized products, particularly among the young middle class. At the same time, consumers still vary across markets in significant ways. Consumer behavior may reflect cultural differences that can be pronounced across countries. Hofstede identifies four cultural dimensions that can differentiate countries: 1) Individualism versus collectivism 2) High versus low power distance 3) Masculine versus feminine 4) Weak versus strong uncertainty avoidance Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Consumer behavior differences as well as historical market factors lead marketers to position brands differently in different markets. Marketing Adaptation Because of all these differences, most products require at least some adaptation. A) The best global brands are consistent in theme but reflect significant differences in consumer behavior, brand development, competitive forces, and the legal or political environment. Marketing Memo: The ten commandments of global branding Suggestions for global branding: Understand similarities and differences in the global branding landscape; A) B) C) D) E) F) G) H) I) Do not take shortcuts in brand-building; Establish a marketing infrastructure; Embrace integrated marketing communication; Establish brand partnerships; Balance standardization and customization; Balance global and local control; Establish operable guidelines; Implement a global brand equity measurement system; Leverage brand elements.

Global Product Strategies Developing global product strategies requires knowing what types of products or services are easily standardized and appropriate adaptation strategies. Product Standardization Some types of products cross borders without adaptation better than others. A) While mature products have separate histories or positions in different markets, consumer knowledge about new products is generally the same everywhere because perceptions have yet to be formed. Many leading Internet brands Google, eBay, Amazonmade quick progress in overseas markets. B) High-end products also benefit from standardization, because quality and prestige often can be marketed similarly across countries. C) Food and beverage marketers find it more challenging to standardize given widely varying tastes and cultural habits. D) Culture and wealth factors influence how quickly a new product takes off in a country, although adoption and diffusion rates are becoming more alike across countries over time. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Product Adaptation Strategies Warren Keegan has distinguished five adaptation strategies of product and communications to a foreign market. The product adaptation strategies are: A) Straight extension means introducing the product in the foreign market without any change. B) Product adaptation involves altering the product to meet local conditions or preferences. 1) A company can produce a regional version of its product. 2) A company can produce a country version of its product. 3) A company can produce a city version of its product. 4) A company can produce different retailer versions of its product. C) Product invention consists of creating something new 1) Backward invention is reintroducing earlier product forms that are well adapted to a foreign countrys needs. 2) Forward invention is creating a new product to meet a need in another country. D) Product invention is a costly strategy, but the payoffs can be great, particularly if a company can parlay a product innovation into other countries. Brand Element Adaptation In launching products and services globally, certain brand elements may have to be changed. Even a brand name may require a choice between phonetic and semantic translations. Global Communication Strategies Changing marketing communications for each local market is a process called communication adaptation. A) If it adapts both the product and the communication, the company engages in dual adaptation. B) The company can use one message everywhere, varying only the language, name, and colors. C) The second possibility is to use the same theme globally but adapt the copy to each local market. 1) The positioning stays the same, but the creative execution reflects local sensibilities. D) The third approach consists of developing a global pool of ads from which each country selects the most appropriate ones. Global Adaptations A) Companies that adapt their communications wrestle with a number of challenges. They first must ensure their communications are legally and culturally acceptable. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

B) Next firms must check their creative strategies and communication approaches for appropriateness. C) Companies also must be prepared to vary their messages appeal. D) Many messages need adjustment because the brand is at an earlier stage of development in its new market. E) Consumer education about the product itself may then need to accompany brand development efforts. Global Pricing Strategies Multinationals face several pricing problems when selling abroad. They must deal with: A) Price escalation B) Transfer prices C) Dumping charges D) Gray markets Price Escalation When companies sell their goods abroad, they face a price escalation problem. A) Depending on the added costs of transportation, tariffs, importer margins, and currency fluctuations, the product might have to sell for two to five times as much in another country to make the same profit for the manufacturer. B) Because cost escalation varies from country to country, companies have three choices: )1 Set a uniform price everywhere. 2) Set a market-based price in each country. 3) Set a cost-based price in each country. C) When companies sell their wares over the Internet, price becomes transparent and price differentiation between countries declines. D) In another new global pricing challenge, countries with overcapacity, cheap currencies, and the need to export aggressively have pushed prices down and devalued their currencies. Gray Markets A) Multinationals are plagued by the gray-market problem. B) The gray market consists of branded products diverted from normal or authorized distribution channels in the country of products origin or across international borders. C) Dealers in the low-price country find ways to sell some of their products in higherprice countries, thus earning more. D) Often a company finds some enterprising distributors buying more than they can sell in their own country and reshipping the goods to another country to take advantage of price differences.

Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

E) Gray markets create a free-rider problem, making legitimate distributors investments in supporting a manufacturers product less productive and selective distribution systems more intensive. F) They harm distributor relations, tarnish the manufacturers brand equity, and undermine the integrity of the distribution channel. G) They can even pose risks to consumers if the seemingly brand-new product they think they are buying is damaged, remarked, obsolete, without warranty or support, or just counterfeit. H) Multinationals try to prevent gray markets by policing the distributors, raising their prices to lower-cost distributors, or altering product characteristics or service warranties for different countries. I) One research study found that gray market activity was most effectively deterred when penalties were severe, manufacturers were able to detect violations or mete out punishments in a timely fashion, or both. Counterfeit Products A) Name a popular brand, and chances are a counterfeit version of it exist somewhere in the world. B) Fakes take a big bite of the profits of luxury brands. C) Manufacturers are fighting back online with Web-crawling software that detects fraud and automatically warns apparent violaters without the need for any human intervention. D) Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands and unauthorized Web sites that plaster brand trademarks and logos on their homepage. Global Distribution Channels Too many manufacturers think their job is done once the product leaves the factory. They should pay attention to how the product moves within the foreign country. They should take a whole-channel view of the problem of distributing products to the final users. Channel Entry In the first link, sellers international marketing headquarters, the export department, or international division makes decisions on channels and other marketing-mix elements. A) In the second link, channels between nations, gets the products to the borders of the foreign nations. The decisions made in this link include: 1) Types of intermediaries (agents, trading companies) 2) Type of transportation 3) Financing and risk arrangements B) The third link, channels within foreign nations, gets the products from their entry point to the final buyers and users. Channel Differences Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

Distribution channels within countries vary considerably. A) In the first, sellers international marketing headquarters, the export department or international division makes decisions about channels and other marketing activities. B) The second link, channels between nations, gets the products to the borders of the foreign nation. C) Decisions made in this link include the types of intermediaries (agents, trading companies), type of transportation (air, sea), and financing and risk management. D) The third link, channels within foreign nations, gets products from their entry point to final buyers and users. E) Another difference lies in the size and character of retail units abroad. 1) Larger-scale retail chains dominate the United States but much foreign retailing is in the hands of small, independent retailers. Millions of Indian retailers operate tiny shops or sell in open markets. 2) Breaking bulk remains an important function of intermediaries and helps perpetuate the long channels of distribution that are a major obstacle to the expansion of large-scale retailing in developing countries. F) Sometimes companies mistakenly adapt infrastructure strategies that were critical success factors, only to discover that these changes eroded the brands competitive advantage. G) Increasingly, retailers are moving into new global markets, offering firms the opportunity to sell across more countries and creating a challenge to local distributors and retailers. H) Some of the worlds most successful retailers have had mixed success meeting the challenges of going abroad. COUNTRY-OF-ORIGIN EFFECTS Country-of-origin perceptions are the mental associations and beliefs triggered by a country. A) Government officials want to strengthen their countrys image to help domestic marketers who export and to attract foreign firms and investors. B) Marketers want to use country-of-origin perceptions in the most advantageous way possible to sell their products and services. Building Country Images Governments now recognize that the image of their cities and countries affects more than tourism and has important value in commerce. A) Attracting foreign business can improve the local economy, provide jobs, and improve infrastructure. B) Countries all over the world are being marketed like any other brand. 1) In some cases, negative perceptions must be overcome. C) Attitudes toward country-of-origin can change over time. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

D) Current events can also shape the image of a country. Consumer Perceptions of Country-of-Origin Global marketers know that buyers hold distinct attitudes and beliefs about brands or products from different countries. A) These country-of-origin perceptions can affect consumer decision-making directly or indirectly. B) The perceptions may be included as an attribute in decision-making or influence other attributes in the process. C) The mere fact that a brand is perceived as being successful on a global stage may lend credibility and respect. D) Several studies have shown the following: 1) People are often ethnocentric and favorably predisposed to their own countrys products, unless they come from a less developed country. 2) The more favorable a countrys image, the more prominently the Made in label should be displayed. 3) The impact of country-of-origin varies with the type of product. 4) Certain countries enjoy a reputation for certain goods. 5) Sometimes country-of-origin perception can encompass an entire countrys products. E) Marketers must look at country-of-origin perceptions from both a domestic and a foreign perspective. In the domestic market, these perceptions may stir consumers patriotic notions or remind them of their past. As international trade grows, consumers may view certain brands as symbolically important in their own cultural heritage and identity. F) Many small businesses tap into community pride to emphasize their local roots. G) Many brands have gone to great lengths to weave themselves into the cultural fabric of their foreign markets DECIDING ON THE MARKETING ORGANIZATION Companies manage their international marketing activities in three ways: through export departments, international divisions, or a global organization. Export Department A) A firm normally gets into international marketing by simply shipping out its goods. B) As sales increase, the export department is expanded to include various marketing services. C) If the firm moves into joint ventures or direct investment, the export department will no longer be adequate. Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e

International Division Sooner or later, companies that engage in several international markets and ventures create an international division to handle all of this activity. The international divisions staff consists of functional specialists who provide services to the various operating units. A) Operational units can be organized in several ways: 1) Geographic organizations 2) World product groups 3) International subsidiaries Global Organization Several firms have become truly global organizations. Their top corporate management and staff plans worldwide manufacturing, marketing policies, financial flows, and logistical systems. A) The global operating units report directly to the chief executive or executive committee. B) Executives are trained in worldwide operations. C) Management is recruited from many countries. D) These companies face several organizational complexities. E) What forces favor global integration? a. Capital-intensive production b. Homogeneous demand 1) Versus national responsiveness .a Local standards and barriers b. Strong local preferences 2) They distinguish three organizational strategies: a. A global strategy treats the world as a single market b. A multinational strategy treats the world as a portfolio of national opportunities c. A glocal strategy standardizes certain core elements and localizes other elements F) Many firms seek a blend of centralized global control from corporate headquarters with input from local and regional marketers. G) Effectively transferring successful marketing ideas from one region to another is a key priority for many firms.

Copyright 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from the United States edition of Marketing Management, 14e