MBI10 International Marketing Chapter 1: Globalization

Edwin Suparman NPM: 1006793315

Chapter 1: Globalization
Products have been traded across borders throughout recorded civilization, extending back beyond the Silk Road that once connected East with West from Xian (China) to Rome (Italy) on land, and the recently excavated sea trade route between the Roman Empire and India that existed 2,000 years ago. Total world merchandise trade volume grew from $7.6 trillion in 2000 to $16.3 trillion in 2008. Why Global Marketing is Imperative First and at the most fundamental level, the saturation of domestic markets in the industrialized parts of the world forced many companies to look for marketing opportunities beyond their national boundaries. The economic and population growths in developing countries also gave those companies additional incentive to venture abroad. In the next ten to twenty years, Big Emerging Markets (BEMs) such as the Chinese Economic Area (CEA: including China, Hong Kong Region, and Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, and the Association of Southeast Asian Nations (ASEAN: including Indonesia, Brunei, Malaysia, Thailand, the Philippines, and Vietnam) will provide many opportunities in global business. Global competitions around the world and proliferation of the Internet have been on the rise and are now intensifying. Global competition brings global cooperation. This is most obvious in the information technology industry. The proliferation of the Internet and e-commerce is wide reaching. The Internet and electronic commerce (e-commerce) are bringing major structural changes to the way companies operate worldwide. The internet builds a platform for a two-way dialogue between manufacturers and consumers, allowing consumers to design and order their own products from manufacturers. The fluid nature of global markets and competition makes the study of global marketing not only interesting but also challenging and rewarding. The term global epitomizes both the competitive pressure and expanding market opportunities all over the world. Whether a company operates domestically or across national boundaries, it can no longer avoid competitive pressures from other parts of the world. Globalization of Markets: Convergence and Divergence A countrys per capita income is an important determinant of consumer buying behavior. When a countrys per capita income is less than $10,000, much of the income is spent on food and other necessities, and very little disposable income remains. As a countrys per capita incomes reaches $20,000, the disposable portion of income increases dramatically. This increased disposable income level results in increased convergent pressures on consumer buying behavior. People with higher incomes tend to enjoy similar educational levels, desires for material positions, ways of spending leisure time, and aspirations for the future.

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MBI10 International Marketing Chapter 1: Globalization

Edwin Suparman NPM: 1006793315

The convergence of consumer needs at the macro level may be evident, but it does not necessarily mean that individual consumers will adopt all the products from around the world. Globalization does not suffocate local cultures, but rather liberates them from the ideological conformity of nationalism, with consumers becoming more receptive to new things. Consumers also have a wider, more divergent choice set of goods and services to choose from. In other words, the divergence of consumer needs is taking place at the same time. First of all, we have to understand the distinction between international trade and international business. International trade consists of exports and imports. On the other hand, international business is a broader concept and includes international trade and foreign production. Although it is not widely known, foreign production constitutes a much larger portion of international business than international trade. The extensive international penetration of companies is called global reach. International trade and foreign production activities are managed on a global basis. Growth of Multinational Corporations (MNCs) and intra-firm trade is a major aspect of global markets. International trade and foreign production are increasingly managed on a global basis. In addition to traditional exporting from their home base, companies manufacture their products in various foreign countries both for local sale and for further exporting to the rest of the world, including their respective home countries. In other words, MNCs are increasingly managing the international trade flow from within. This phenomenon is called intrafirm trade and comprises 34 percent of world trade. An additional 33 percent of world trade was exports between MNCs and their affiliates. In other words, two-thirds of world trade is managed one way or another by MNCs. Evolution of Global Marketing Marketing is essentially the activity, set of institutions, and process for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. Not only selling, marketing encompasses the entire companys market orientation toward customer satisfaction in a competitive environment. Marketing involves the planning and execution of the conception, pricing, promotion, and distribution of ideas, products, and services. Companies generally develop different marketing strategies depending on the degree of experience and the nature of operations in international markets. Within marketing strategies, companies are always under competitive pressure to move forward both reactively (responding to the changes in the market and competitive environments) and proactively (anticipating the change). As shown in the graphic in the next page, there are five identifiable stages in the evolution of marketing across national boundaries: 1. Domestic Marketing. The marketing focus is domestic customer needs and wants, industry trends, economic, technological, and political environments at home. Domestic marketers tend to be ethnocentric and pay little attention to changes taking place in the global marketplace, such as changing lifestyles and market segments, emerging competition, and better products that have yet to arrive in their domestic market. 2. Export Marketing. At early export marketing stage, exporters tend to engage in indirect exporting by relying on export management companies or trading

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MBI10 International Marketing Chapter 1: Globalization

Edwin Suparman NPM: 1006793315

companies to handle their export business. Some companies progress to a more involved stage of internalization by direct exporting. External pressures also prod companies into export marketing activities. 3. International Marketing. A unique feature of international marketing is its polycentric orientation with emphasis on product and promotional adaptation in foreign markets, whenever necessary. If international marketing is taken to the extreme, a company may establish an independent foreign subsidiary in each and every foreign market and have each subsidiaries operate independently of each other without any measurable headquarters control. This special case of international marketing is known as multidomestic marketing. 4. Multinational Marketing. At this stage, the company markets its products in many countries around the world. Management of the company comes to realize the benefit of economies of scale in product development, manufacturing, and marketing by consolidating some of its activities on a regional basis. This regiocentric approach suggests that product planning may be standardized within a region. 5. Global Marketing. Global marketing refers to activities by companies that emphasize the following: (1) standardization efforts (particularly with respect of product offering, promotional mix, price, and channel structure), (2) coordination across markets (reducing cost inefficiencies and duplication of efforts among their national and regional subsidiaries), and (3) global integration (by subsidizing operations in some markets with resources generated in others and responding to competitive attacks in one market by counterattacking in others).

Global marketing does not necessarily mean that products can be developed anywhere on a global scale. The economic geography, climate, and culture affect how companies develop certain products. The Internet adds a new dimension to global marketing. E-commerce retailers gain substantial savings by selling online. Appendix: Theories of International Trade & the Multinational Enterprise Comparative Advantage Theory as shown in the illustration below. Absolute Advantage argument suggests both countries cannot engage in trade, while Comparative Advantage shows that one is better than others. The commodity term of trade is a price of one good in terms of another.

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MBI10 International Marketing Chapter 1: Globalization

Edwin Suparman NPM: 1006793315

Principles of international trade states that: countries benefit from international trade, international trade increases worldwide production by specialization, and exchange rates are determined primarily by traded goods. Factor endowment theory of comparative advantage means that a country will specialize depending on the advantage in labor or capital.

International Product Cycle Theory is shown in the table below.

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MBI10 International Marketing Chapter 1: Globalization

Edwin Suparman NPM: 1006793315

The pattern of evolution of the production and marketing process explained in the international product cycle consists of four stages: 1. Growth Stage (Product standards emerge and mass production becomes feasible). 2. Maturity Stage (Many U.S. and foreign companies vie for market share in the international markets). 3. Decline Stage (Companies in the developing countries also begin producing the product and marketing it in the rest of the world). Internalization/Transaction Cost Theory. Any company has some proprietary expertise that makes it different from its competitors. Without such expertise no company can sustain its competitive advantage. Such expertise may be reflected in a new product, unique product design, efficient production technique, or even brand image itself. The resource-based view of the firm suggests that companies can be conceived of as controlling bundles of various resources, also called capabilities. When resources are valuable, rare, difficult to imitate, and non-substitutable, they can lead to sustainable competitive advantage. Appropriability regime refers to aspects of commercial environment that govern a companys ability to retain its technological advantage. Dominant design is a narrow class of product designs that begins to emerge as a standard design. Operational and marketing ability is in almost all cases required for successful commercialization of a product innovation.

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