International marketing management lesson 01

UNIT I LESSON INTRODUCTION TO INTERNATIONAL MARKETING MANAGEMENT CONTENTS 1.0 Aims and Objectives 1.1 Introduction 1.1.1 Scope 1.1.2 National and International Marketing 1.2 Benefits of International Marketing 1.2.1 Endurance 1.2.2 Progress of Overseas Markets 1.2.3 Sales Promotion 1.2.4 Diversification 1.2.5 Inflation and Wholesale Price Index 1.2.6 Employment and Placements 1.2.7 Standard of Living/Style 1.2.8 Marketing Process 1.3 Transnational Corporations 1.4 Global Marketing 1.5 Global Segment 1.6 International Management Orientations 1.6.1 Ethnocentric 1.6.2 Polycentric 1.6.3 Regiocentric and Geocentric Orientations 1.7 Ps of International Marketing 1.7.1 Product 1.7.2 Price 1.7.3 Placement 1.7.4 Promotion 1.7.5 People 1.8 Let us Sum up 1.9 Lesson End Activity 1.10 Keywords 1.11 Questions for Discussion 1.12 Suggested Readings International Marketing Management 1.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: Define International Marketing Distinguish between international and domestic marketing Describe various marketing orientations in the context of international marketing 1.1 INTRODUCTION The study of international marketing will not be complete unless we have an understanding of what marketing is and how it operates in an international context There have been large numbers of definitions of marketing which are currently in use But most of these definitions are convergent because all of them define marketing in almost the same way Hence, any definition of marketing should be acceptable as long as it captures the essential idea and as long as the strength and the weaknesses of the definition are acknowledged Marketing can be conceived as an integral part of two processes, viz., technical and social So far as the technical process is concerned, domestic and international marketing are identical The technical process includes non-human factors such as produce, price, cost, brand, etc The basic principles regarding these variables are of universal applicability But the social aspect of marketing is unique in any given stratum, because it involves human elements, namely, the behaviour pattern of consumers and the given characteristics of human society such as customs, attitudes, values, etc It is obvious from this that marketing, as a social process, will be different in varying environments and international marketing, to the extent that it is visualised as a social process, will be different from domestic marketing According to Phillip Kotler, marketing is “analysing, organising, planning and controlling of the firm’s customers – impinging resources, policies, activities with a view to satisfying the needs and wants of a chosen customer group at a profit” Thus, it differs from trading which includes the activities of merchandising (buying and selling), physical distribution (transportation and warehousing) and facilitation (financing, risk bearing, standardisation, pricing, advertising and sales promotion and marketing research) In other words, marketing is an act or operation or service by which the original product and final consumer are linked together In between these two points — producer and consumer — every activity facilitating the movement of goods and services, including market and market research, may be covered under this term We are more concerned here with international marketing, which means marketing activity carried on across national boundaries Thus, international marketing includes activities that direct the flow of goods from one country to the users of another country A definition adopted by the American Marketing Association (AMA) is more appropriate to define international marketing According to AMA, ‘international marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideal goods and services to create exchanges that satisfy individual and organisational objectives’ In this definition, the word multinational has been added to the definition of marketing given by other experts This word implies that marketing activities are undertaken in several countries and that such activities should somehow be coordinated across the nations This definition is not completely free of limitations By placing individual objectives at one end of the definition and organisational objectives at the other, the definition stresses a relationship between a consumer and an organisation It excludes industrial marketing, which involves a transaction between two organisations In the world of international marketing, governments, quasi-government agencies and profit seeking and non-profit entities are frequently buyers Companies such as Boeing, BHEL and Hindustan Earth Movers, for example, have nothing to with consumer products The definition thus fails to justice to the significance of industrial purchases The definition of international marketing has various connotations Firstly, it makes it clear that what is to be exchanged is not restricted to tangible products but can include concepts and services as well When the United Nations promotes such concepts as birth control and breast-feeding, this should be viewed as international marketing Figure 1.1 shows an international effort to fight AIDS Likewise services or intangible products are just as relevant to the definition as airline flights, financial services, advertising services, management consulting services, marketing research and so on as they play a very significant role in affecting trade balance Safe Sex World AIDS Day, Birth Control, Breast-feeding, No-smoking, etc Concepts and Services Figure 1.1: Safe Sex Concept and Services Secondly, the definition removes the implication that international marketing applies only to market or business transactions International non-profit marketing, which has received only scant attention, should not be overlooked The marketing of governments and religions underscores this point The governments are very active in marketing in order to attract foreign investments The US is using a variety of local and international media (including CNN International and BBC World Television Network) to announce the arrival of newly designed $100 bills which would not involve any devaluation and that there would never be any recall of the old bills Religion is also a big business, though most people prefer not to view it that way Religion has been marketed internationally for centuries Tercentenary of the birth of Khalsa (300 years of Sikh religion) was celebrated at Anandpur Sahib in 1999 where a large number of NRIs and foreigners contributed to its success The religious messages were flashed on the Internet all over the world Thirdly, the definition recognises that it is improper for a firm to create a product first and then look for a place to sell it Actually the needs and the wants of the consumers should first be ascertained through market research and then the new product should be produced accordingly Suzuki-Maruti has understood the needs of the Indian consumers for a small car; hence it has become the leader in the car industry though other car manufacturers are also following a similar international marketing strategy Fourthly, the definition acknowledges that “place” (distribution) is just part of the marketing mix and that the distance between the markets makes it neither more nor less important than the other parts of the mix Thus, it is improper for any firm to regard their international function as simply as export available products from one country to another Introduction to International Marketing Management 10 International Marketing Management Finally, the “multinational process” implies that the international marketing process is not a mere repetition of using identical strategies abroad The Ps of marketing (product, place, promotion and price) must be integrated and coordinated across countries in order to bring about the most effective marketing mix In some cases, the mix may have to be adjusted for a particular market for a better impact For example, Coca Cola and Pepsi Cola Inc have created new slogans for marketing in India and new chips that differ both in taste and texture from their American version The Whirlpool Corporation has been able to use more standardised models of washing machines and refrigerators to break down national traditions 1.1.1 Scope The foundation for a successful international marketing programme is a sound understanding of the marketing discipline Marketing is the process of focusing the resources and objectives of an organisation on environmental needs and opportunities The first and the most fundamental fact about marketing is that it is a universal discipline The marketing discipline is equally applicable from China to India, United States to Japan and Australia to Zanzibar Marketing is a set of concepts, tools, theories, practices and procedures and experience Although the marketing discipline is universal markets and customers are quite differentiative This means that marketing practices must vary from country to country Each person is unique and each country is unique This reality of differences means that we cannot always directly apply experience from one country to another If the customers, competitors, channels of distribution and available media are different, it may be necessary to change our marketing plan The scope of international marketing is to have a borderless world like the multinational companies — Coca Cola, Pepsi, MacDonald, Gillette and so on Their products and body marketing mix elements are both international and local in nature A central issue in international marketing is how to tailor the international marketing concept to fit a particular product or business 1.1.2 National and International Marketing The striking difference between international and domestic marketing lies in the environment in which the two take place The important points of difference between the two are: Sovereign Political Entities: Each country is a sovereign political entity and, therefore, they impose several restrictions for import and export of goods and services in order to safeguard their national interests The traders, in international marketing, have to observe such restrictions These restrictions may fall in any of the following categories i Tariffs and customs duties are imposed on import and export of goods and services in order to make them costly in the importing country and not to ban their entry into the country completely In the post-war period, because of the efforts of General Agreement on Tariffs and Trade (GATT), there has been a significant reduction in tariffs globally and on a regional basis due to the emergence of regional economic groupings ii Quantitative restrictions are also imposed with an intention to restrict trade in some specific commodities The major objective behind the restriction is the protection of home industries from competition with foreign commodities iii Exchange control is another restriction imposed by almost every sovereign state The government, in some cases, does not ban the entry of goods in the country but the importer is not allowed the necessary foreign exchange to make payment for goods imported But, in some cases, exchange control and quantitative controls are put together along with the grant of import licence iv Imposition of more local taxes on imported goods with an object to make the imported goods costly is one of the restrictions in international marketing Different Legal System: Different countries operate under different legal systems and they all differ from each other Most countries follow the English Common Law as modified from time to time Japan and Latin American countries are important exceptions to this rule The existence of different legal systems makes the task of businessmen more difficult as they are not sure as to which particular system will apply to their transactions This difficulty does not arise in domestic trade, as laws are the same for the whole country Different Monetary Systems: Each country has its own monetary system and the exchange rates for each country’s currency are fixed under the rules framed by the International Monetary Fund (IMF) and, therefore, they are more or less fixed However, in recent years, the exchange rates have been fluctuating and are being determined by demand and supply forces Some countries operate multiple rates i.e different rates are applicable to different transactions Lower Mobility of Factors of Production: Mobility of different factors of production is less between nations than in the country itself However, with the advent of air transport, the mobility of labour has increased manifold Similarly, the development of international banking has increased the mobility of capital and labour In spite of these developments, the mobility of labour and capital is not as much as it is within the country itself Differences in Market Characteristics: Market characteristics in each segment are different, i.e demand pattern, channels of distribution, methods of promotion, etc are quite different from market to market If we treat each country as a separate market, we can assume different market characteristics there These differences are accentuated due to the existence of government controls and regulations However, this is a difference of degree only Even in one single country, for example India and America, these differences in market patterns may be found from state to state Differences in Procedure and Documentation: The laws of countries and customs of trade in each country demand different procedures and documentary requirements for the import and export of the goods and services Traders residing in the territory have to comply with these regulations and customs if they want to import and export goods and services As there are differences in legal and monetary systems, in government regulations and controls, in market characteristics, in mobility of factors of production and in procedures, practices and documentation in foreign trade, the two marketing systems – international and domestic – are quite different As each country has to protect its own interests – political, financial and social – it has to put certain restrictions on foreign trade Restrictions are also there in domestic marketing, but the procedures, systems and the rules and regulations are applicable equally in all parts of the country and these are well known to the traders concerned 11 Introduction to International Marketing Management 12 International Marketing Management 1.2 BENEFITS OF INTERNATIONAL MARKETING The importance of international marketing is neither understood nor appreciated by consumers though they are carrying out international marketing daily Government officials, especially bureaucrats, seem to always point a negative aspect of international business Many of their charges on international marketing are imaginary than real Hence, it is essential that the benefits of international marketing be explicitly discussed These benefits are: i Endurance ii Progress of overseas markets iii Sales promotion iv Diversification v Inflation and wholesale price index vi Employment and placement vii Standard of living/style viii Understanding marketing process 1.2.1 Endurance Every country is not as fortunate as America in terms of infrastructure, size, resources and opportunities Hence, they must trade with other countries to survive Similarly, every country is not as fortunate as India, which has abundant natural resources and a treasure of bio-diversity that it can survive within its resources even if there is a resource crunch Even then it has to carry out trading with other countries to get oil and armaments for its own survival Hong-Kong cannot survive without food and water from China The countries of Europe have had similar experience since most European nations are relatively small in size Without a foreign market, European firms would not have sufficient economies of scale to allow them to be competitive with US firms Switzerland lacks natural resources, forcing it to depend on trade and adopt the geocentric perspective Similarly, Japanese firms are dependent on raw material from other countries but they have better technical know-how as a result of which they are the world leaders in electronics and software industry 1.2.2 Progress of Overseas Markets Developing countries, in spite of a poor economy with serious marketing problems, are excellent markets The US has found that India is the biggest market in the world for consumer and engineering products According to a report prepared by the US Trade Representative US Congress, Latin America and Asia are experiencing the worst economic recession though they have potential in the world market The Conference Board’s study of some 1500 companies found that US manufacturers, with factories or sales subsidiaries overseas, outperformed their counterparts during 1980s in terms of growth in 19 out of 20 major industrial groups and higher earnings in 17 out of 20 groups American market cannot ignore the vast potential of the international market The world market is four times larger than US market In the case of Amway Corporation, a privately held US manufacturer of cosmetics, soaps, and vitamins, Japan represents a larger market than the US 1.2.3 Sales Promotion Foreign markets constitute a large share of total business of many firms that have cultivated markets abroad Many large US companies have done very well because of their overseas customers IBM and Compaq sell more computers abroad than at home The case of Coca-Cola clearly emphasises the importance of overseas markets (Box 1.1) Coca Cola is coming up with milk-based products as majority of Indians and Asians not relish the taste of aerated drinks which are supposed to have caffeine which is addictive 1.2.4 Diversification In the international market, cyclical factors such as recession and seasonal factors such as climate affect the demand for most products Due to these variables, there are sales fluctuations, which frequently be substantial enough to cause lay-off of personnel One way of diversifying a company’s risk is to consider foreign markets as a solution for variable demands For example, cold weather may depress demand for cold drink consumption All countries not enter the winter season at the same time and some of the countries are warm round the year Refer Box 1.1 and 1.2 Box 1.1: Coke Coming up With Milk-based Drink The fragmented, but high potential, packaged flavoured milk market, which has names such as Amul, Nestle and Britannia vying for the consumer’s attention, will witness a big-ticket entry shortly In line with its intended ‘beverage revolution’, soft drink major, Coca-Cola, India (CCI), is mulling the introduction of flavoured, milk-based beverages “A milk-based product is in the offing We are currently exploring the viability of introducing such a product in the domestic market,” a Coke official said The development assumes importance in the domestic market, considering that only last week, Coke’s Atlanta headquartered parent company had announced its decision to introduce a dairy drink called Swerve in the US this season, to boost its share of the nutritional beverage market The company had been testing the chocolate-flavoured dairy drink, Choglit, through an existing joint venture with Swiss food giant, Nestle SA, as well as another dairy drink called Slap Swerve will replace both products in the US Globally, Coca-Cola also sells the Planet Java line of bottled coffee drinks, which contain dairy products The past few months have been witnessing heightened activity in the flavoured milk market Late last year, foods major, Nestle, had staged an entry in this market with its Fruit’s milk brand, in 200 ml tetrapaks, manufactured by Dynamix Dairy This market saw another major development early this year, with Gujarat Cooperative Milk Marketing Federation (GCMMF) rolling out Amul Shakti, its flavoured milk brand, in disposable bottles Amul Shakti had been under development for over six years, and GCMMF has begun its flavoured milk project with an installed capacity of three lakh bottles per day Explaining the high interest in the category, Mr RS Sodhi, General Manager, Marketing, GCMMF, said, “Research studies show that there is a steady consumer movement towards healthy beverages such as milk and juices Naturally, corporates are looking at tapping the opportunity the segment presents.” While other significant players in this market include Britannia, Mother Dairy and Parle Agro’s N-joi, smaller, regional level players include Vijaya and Energee The Delhi based Paras group, too, has been working on a flavoured milk project The milkbased drink market is put as Rs 100 crore Another beverage Coca-Cola is considering bringing into India next year is its global juice brand Minute Maid Ethnic beverages such as ‘nimbu pani’ and tender coconut water, too, are in the offing Meanwhile, Coke’s energy drink, Shock, continues to be a small brand Source: The Hindu Business Line, dated: May 29, 2003 13 Introduction to International Marketing Management 14 International Marketing Management Box 1.2: Cola Drinks on the Move With net profitability and a 40 per cent surge in volumes under its belt, Coca-Cola India (CCI) is now undertaking its fastest capacity expansion yet in the domestic market The soft drink major is in the process of setting into operation 30 new lines for its Carbonated Soft Drink (CSD) business Mr Sanjiv Gupta, the company’s deputy division president, said that the capacity expansion was being done for both glass and PET bottles “Of the 30 new lines, six are new plants in Tamil Nadu, Andhra Pradesh and Karnataka, while 27 lines have been added in existing plants,” he said These are a combination of company-owned and franchisee-owned operations A significant portion of the $100 million investment allocated for the current year has been ploughed into this capacity expansion exercise, Mr Gupta said The company’s rural penetration has increased by 40,000 villages this year, and nine million cases of glass bottles have been added in the first five months of the year, he added While CCI’s 200-ml bottles, priced at Rs 5, continue to be the mainstay of the season, the company will continue with its variable pricing strategy (between Rs and 8) for its 300 ml bottles While the month of April saw the soft drinks industry hit by the transporters strike, the current month has seen recovery “The highlights of the year so far have been lower fixed asset costs, price compliance, costs efficiencies and packaging innovation Till one-year back, CSDs was a highly seasonal market with over 45 per cent volumes being generated from the peak season, which lasted about three months The industry dynamics are changing now.” A global market can balance good markets with bad ones While there is no question that the US cola market is the biggest in the world, it is a highly mature market, and the profit potential is limited Cola has shrunk from 63.3 per cent of soft drink sales in the United States in 1984 to 58.8 per cent in 1993 – a loss of $2.4 billion in potential retail sales The United States leads the world in Cola-Cola consumption, averaging 296 eight-ounce servings per person per year The comparable figures for other markets are Mexico (275 servings), Germany (189), Canada (169), Japan (124), Great Britain (89), France (56), Egypt (18), Russia (2) and China (1) In the case of India’s 890 million people, each person only consumes an average of three servings in a year, well below the levels found in Pakistan (9) and Thailand (75) In addition to being the world’s most populous nations, China and India are two of the world’s fastest growing economies, and Japanese, European and American firms are all quite excited about doing business with and in China and India Undoubtedly, China and India have plenty of room to grow as a market If the Chinese and Indians can be persuaded to drink just one more serving per person a year, Coca-Cola and Pepsi can derive additional sales of more than two billion cans Coca-Cola has been particularly aggressive in East Europe, Asia and South America It has opened plants in Romania, Norway, Fiji and India while planning several more in China, Hungary, Lithuania, Russia and Thailand When the Soviet Union collapsed, Pepsi Co held on to its network of state-run bottlers so as to utilize their ties to old-line management Coca-Cola, on the other hand, quickly got rid of the government link and spent more than $ 1.5 billion in former East bloc countries to build a new business from scratch As a result, Pepsi’s lead due to its early distribution deals evaporated Coke now leads in market share in every Eastern European country In addition it also has a wide lead in Latin America Source: “Pepsi Fights for India’s Beverage Business”, The Wall Street Journal, June 1994; “In Business This Week,” Business Week, 27 July, 1992, 40; “Coke Makes China Foray with Accelerated Fizz Sales”, Bangkok Post, 16 November 1993; “Behemoth On a Tear,” Business Week, October 1994, 54-55; “Adding Some Fizz,” The Wall Street Journal, 22 August 1995; and “Companies That Live Alone—and Like it”, Business Week, 30 October 1995, 136,138 1.2.5 Inflation and Wholesale Price Index The best way to control inflation is to earn foreign exchange through exports Imports can also be highly beneficial to a country because they constitute reserve capacity of the local economy Without imports, there is no incentive for domestic firms to moderate their prices The lack of imported product alternatives forces consumers to pay more, resulting in inflation and excessive profits for local firms This development usually acts as a prelude to workers to demand higher wages, further exacerbating the problem of inflation Import quotas imposed on Japanese automobiles in 1980s saved 46,200 US production jobs but at a cost of $ 160 thousand per job per year This huge cost was a result of the addition of $ 400 to the prices of US cars and $1000 to the prices of Japanese imports This windfall for Detroit resulted in record high profits for US automobiles 1.2.6 Employment and Placements Tariff barriers and trade restrictions in certain countries had contributed significantly to the great depression of 1930 and have the potential to cause widespread unemployment again Unrestricted trade, on the other hand, improves the world’s GNP and enhances employment generally for all nations With the liberalisation of economic policy, 1991, India has gained tremendously with the inflow of foreign direct investment as a result of which employment in the country has tremendously improved 1.2.7 Standard of Living/Style Trade affords countries and their citizen’s a higher standard of living than is otherwise possible Without trade, product shortages force people to pay more for less Products taken for granted such as coffee and bananas may become unavailable overnight Life in most of the countries will be more difficult were it not for the many strategic metals that must be imported Trade also makes it easier for industries to specialise and gain access to raw materials, while at the same time fostering competition and efficiency 1.2.8 Marketing Process International marketing should be considered a special case of domestic marketing It has earlier been explained that there is very little difference between domestic and international marketing Only thing is that the word multinational has been added in the international marketing process Otherwise, the marketing mix is the same for both With improvements in information technology, the international markets have become easily accessible and the whole world has become a small global village Transnational Corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owing a certain equity capital stake An equity capital stake of 10% or more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally considered as the threshold for the control of assets A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is a resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10% for an incorporated enterprise, or its equivalent for an unincorporated enterprise) In WIR, subsidiary enterprises, associate enterprises and branches - defined below - are all referred to as foreign affiliate or affiliates A subsidiary is an incorporated enterprise in the host country in which another entity directly owns more than a half of the shareholder's voting power, and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body 15 Introduction to International Marketing Management An associate is an incorporated enterprise in the host country in which an investor owns a total of at least 10%, but not more than half, of the shareholders' voting power 16 International Marketing Management A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one of the following: (i) a permanent establishment or office of the foreign investor; (ii) an unincorporated partnership or joint venture between the foreign direct investor and one or more third parties; (iii) land, structures (except structures owned by government entities), and/or immovable equipment and objects directly owned by a foreign resident; or (iv) mobile equipment (such as ships, aircraft, gas or oil-drilling rigs) operating within a country, other than that of the foreign investor, for at least one year Check Your Progress Fill in the Blanks: The striking difference between the international and domestic marketing lies in the in which the two take place Developing countries, in spite of a poor economy with serious marketing problems are In the international market the cyclical factors such as recession and seasonal factors such as climate the demand for most products International marketing should be considered as a special case of market 1.3 TRANSNATIONAL CORPORATIONS The largest national market in the world, the United States, today represents roughly 25 per cent of the total world market for all products and services Thus, US companies, wishing to achieve maximum growth potential, must “go global” because 75 per cent of world market potential is outside their home country Coca-Cola is one American-based company that understands this; 82 per cent of its 1995 operating income and 71 per cent of revenues were generated by its soft drink business outside the United States Non US companies have an even greater motivation to seek market opportunities beyond their own borders; their opportunities include the 260 million people in the United States For example, even though the dollar value of the home market for Japanese companies is the second largest in the free world (after the United States), the market outside Japan is 85 per cent of the world potential for Japanese companies For European countries, the picture is even more dramatic Even though Germany is the largest single country market in Europe, 94 per cent of the world market potential for German companies is outside of Germany Many companies have recognised the importance of conducting business activities outside the home country Industries that were strictly national in scope only a few years ago are dominated today by a handful of global companies The rise of the global corporation closely parallels the rise of the national corporation, which emerged from the local and regional corporation in the 1880s and the 1890s In the first quarter of the 20th century, there were thousands of auto companies in the world, and more than 500 in the United States alone Today, fewer than 20 companies remain worldwide, and only two of them are American In most industries, the companies that will survive and prosper in the next century will be global enterprises Some companies that not respond to the challenges and opportunities of globalisation will be absorbed by more dynamic enterprises; others will simply disappear This fact is illustrated by the stunning announcement of a merger between DaimlerBenz and Chrysler in 1998 This $36 billion dollar deal, the largest industrial takeover in history as of May 1998, underlined the importance of scale and size and scope in the global auto industry The combined companies moved from 6th and 15th in the world to a combined 5th place ranking after GM, Ford, Toyota and Volkswagen When you look at the list of companies in Table 1.1, you can see that the pressure for further combinations and mergers in this industry will build As Thomas Middelhoff, the newly appointed chairman of Bertelsmann AG; said recently, “There are no German and American companies There are only successful and unsuccessful companies.” Table 1.1 shows 25 of The Wall Street Journal’s top 100 company rankings in terms of market capitalisation — that is, the market value of all shares of stock outstanding Website fortune.com provides a different perspective The top 25 of Fortune magazine’s 1997 ranking of the 500 largest services and manufacturing companies by revenues Comparing the two tables, it is striking to note that although General Electric has the highest market value, it is ranked 12th in revenues and 3rd in profits One company that makes a strong showing in both rankings is Nippon Telegraph & Telephone (NTT): it is 4th in market capitalisation and 14th in revenues, but 100th in profits Table 1.1 also highlights some of the problems Japanese companies have experienced in the mid-1990s Japan’s Nissan Motor, for example, ranks stemmed in part from the Yen’s strength compared to currencies of major trading partners such as the United States Table 1.1: Total Vehicle Sales Worldwide 1997 Sales (Millions) 6.8 1997 Market Share 16.2% Ford 6.9 12.0 Toyota 4.8 9.0 General Motors Volkswagen 4.6 7.9 Chrysler/Daimler-Benz 4.0 7.4 Fiat 2.9 5.3 Chrysler 2.9 5.3 Nissan 2.8 5.2 Peugeot Citrogen 2.1 3.9 Honda 2.0 3.8 Mitsubishi 1.9 3.6 Renault 1.9 3.5 Suzuki 1.8 3.4 Hyundai 1.2 2.3 BMW 1.2 2.2 Daimler-Benz 1.1 2.1 Source: “Atomotive News,” The New York Times, May 1998, P.D.-5 1.4 GLOBAL MARKETING Companies sometimes assume that what works in their home country will work in another country They take the same product, same advertising campaign, even the same brand names and packaging, and with virtually no chance to try to market it the same way in another country The result in many cases is failure Why? Well, the assumption that one approach works everywhere fails to consider differences that exist between countries and cultures While many companies who sell internationally are successful following a standardized marketing strategy it is a mistake to assume this approach will work without sufficient research that addresses this question 17 Introduction to International Marketing Management 18 International Marketing Management Possibly the most challenging concept in marketing deals with understanding why buyers what they (or don't do) But such knowledge is critical for marketers since having a strong understanding of buyer behaviour will help shed light on what is important to the customer and also suggest the important influences on customer decision-making Using this information, marketers can create marketing programs that they believe will be of interest to customers 1.5 GLOBAL SEGMENT The global segment includes relevant new global markets and existing ones that are changing, important international political events, and critical cultural and institutional characteristics of relevant global markets Although the previous segments should be analyzed in terms of their domestic and global implications, some additional specific global factors should be analyzed as well Firms must also attempt to identify critical new global markets and/or those that are changing It is clear that many global markets are fast becoming borderless and integrated For example, firms may examine emerging markets such as those in South American countries or markets in newly industrialized countries such as in Asia (e.g., South Korea, Taiwan) for new opportunities They should also be cognizant of the potential threats from these countries Newly industrialized countries, such as South Korea, have significant buying power but also have globally competitive firms Based on significance support and economic planning from the government, the predominant goal of major South Korean firms is growth Thus, many South Korean firms place less emphasis on earning net profits and more on attaining major growth goals through their strategic actions An example of this is shown by Samsung's new venture into passenger-car production, partially because of executives' concerns at being ranked number two in size to Hyundai Although Samsung is predicted to invest approximately upto $150 million in the development of a 100 seat jetliner, $3 billion to build semiconductor manufacturing plants in North America, Europe, and Southeast Asia, and $2 to $3 billion to establish a hypermedia city of offices, shops, entertainment centers, and housing in downtown Seoul by 2000 Recently, Samsung invested approximately $9.92 billion in expansion opportunities Firms must also have a reasonable understanding of the different cultural and institutional attributes of global markets in which they operate or hope to operate For example, a firms operating in South Korea must understand the value placed on hierarchical order, formality, self-control, and on duty rather than rights Furthermore, Korean ideology places emphasis on communitarians, a characteristic if many Asian country, Korea approach differs from that of Japan and China with its focus on Inhwa or harmony Inhwa is based on a respect of hierarchical relationships and obedience to authority Alternatively, the approach in China is focussed on Guanxi or personal relationships and in Japan on Wa or group harmony and social cohesion The institutional context of Korea suggests a major emphasis on centralized planning by the government The emphasis placed on growth by many South Korean firms is the result of a government policy to promote economic growth in South Korea The cultural and institutional contexts in which firms must operate in global markets can be critical For example, in India there is a current nationalist campaign led to the recent closing of a statement was the KFC outlet was closed for health reasons after an inspection, executives of several U.S food companies blamed political posturing related to an upcoming election Also, those who oppose KFC’s opening are often those who lobby against meat eating KFC was one of the first major fast food giants to open a facility in India Furthermore, it has been quite successful in Asia with more than 2,200 restaurants operating in that region of the world Still, even a firm that has been as successful as KFC must carefully and thoroughly analyze the institutional and cultural environments of its global markets The takeover of Hong Kong, China offers potential opportunities but also threats to a number of firms with domestic headquarters outside its borders Even more so with Hong Kong now a part of China, its growing economic prowess makes its firms potentially significant competitors, particularly in labour-intensive industries As a result, firms operating in such industries worldwide must view the development of Chinese entrepreneurial operations as an environmental threat P&G owes its success to being an early mover in China, and its aggressiveness has paid dividends It has been successful even though its prices are sometimes 300 percent greater than local brands The development of the Chinese economy is one that must be analyzed carefully by firms operating in many industries regardless of their home country A key objective of analyzing the general environment is identification of anticipated significant changes and trends among external elements With a focus on the future, the analysis of the general environment allows firms to identify opportunities and threats Also critical to a firm's future operations in an understanding of its industry environment and its competitors, which are considered next 1.6 INTERNATIONAL MANAGEMENT ORIENTATIONS The form and substance of a company’s response to global market opportunities depend greatly on the management’s assumptions or beliefs – both conscious and unconscious – about the nature of the world The worldview of a company’s personnel can be described as ethnocentric, polycentric, regiocentric and geocentric Management of a company with a prevailing ethnocentric orientation may consciously make a decision to move in the direction of geocentricism The orientations — collectively known as the EPRG framework – are summarised in Table 1.2 Table 1.2: The Largest Corporations by Market Value (US $ Millions) Rank 1997 1996 Company (Country) Market Value 1 General Electric (US) $214,454 2 Royal Dutch/Shell (Netherlands/UK) 177,537 3 Coca-Cola (US) 167,334 4 Nippon Telegraph & Telephone (Japan) 152,784 5 Exxon (US) 152,706 12 Microsoft (US) 151,438 10 Merck (US) 124,936 14 Intel (US) 116,144 Toyota Motor (Japan) 111,924 10 Philip Morris (US) 107,778 11 34/52 Novartis (Switzerland) 99,031 12 15 Procter & Gamble (US) 95,677 13 Bank of Tokyo-Mitsubishi (Japan) 93,712 14 16 International Business Machines (US) 89,570 15 13 Johnson & Johnson (US) 85,740 16 11 Roche-Holding (Switzerland) 85,403 Contd 19 Introduction to International Marketing Management 20 International Marketing Management 17 31 Bristol-Myers Squibb (US) 80,989 18 29 Pfizer (US) 77,152 76,603 19 19 Wal-Mart Stores (US) 20 25 Glaxo Wellcome (UK) 73,574 21 26 DuPont (US) 70,983 22 22 British Petroleum (UK) 70,710 23 30 American International Group (US) 70,139 24 - Deutsche Telekom (Germany) 66,041 25 59 Eli Lilly (US) 60,710 Source: “The World’s 100 Largest Public Companies,” The Wall Street Journal, 18 September 1997, p R25 Data reflects market value on December 31,1996 1.6.1 Ethnocentric A person who assumes that his or her home country is superior compared to the rest of the world is said to have an ethnocentric orientation The personnel of such a company see only similarities in markets and assume that the products and practices that succeed in the home country will, due to their demonstrated superiority, be successful anywhere At some companies, the ethnocentric orientation means that opportunities outside the home country are ignored Such companies are sometimes called domestic companies Ethnocentric companies that conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior and, therefore, can be sold everywhere without adaptation Table 1.3: The Fortune Global Corporations by Revenues (US $ Millions) Rank 1996 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1995 10 12 20 11 15 18 13 16 14 22 17 27 19 24 34 25 Company General Motors Ford Motors Mitsui Mitsubishi Itochu Royal Dutch/Shell Group Maruben Exxon Sumitomo Toyota Motor Wal-Mart Stores General Electric Nissho Iwai Nippon Telegraph & Telephone Intl Business Machines Hitachi AT & T Nippon Life Insurance Mobil Daimler-Benz British Petroleum Matsushita Electric Industrial Volkswagen Daewoo Siemens Source: Fortune Magazine 1997 Revenues Country ($Million) US 168,369.0 US 146,991.0 Japan 144,942.8 Japan 140,203.7 Japan 135,542.1 Brit./Beth 128,174.5 Japan 124,026.9 US 119,434.0 Japan 119,281.3 Japan 10,702.0 US 106,147.0 US 79,179.0 Japan 78,921.2 Japan 78,320.7 US 75,947.0 Japan 75,669.0 US 74,525.0 Japan 72,575.0 US 72,267.0 Germany 71,589.3 Britain 69,851.9 Japan 68,147.5 Germany 66,527.5 South Korea 65,160.2 Germany 63,704.7 Profits ($Million) 4,963.0 4,446.0 321.9 394.1 110.9 8,887.1 178.6 7,510.0 (1,292.8) 3.426.2 3,056.0 7,280.0 136.9 1,330.3 5,429.0 784.2 5,908.0 2,799.1 2,964.0 1,776.1 3,985.2 1,223.9 437.9 468.3 1,877.1 Rank 11 292 271 411 370 491 18 22 395 100 186 33 24 73 12 112 257 250 66 In the ethnocentric international company, foreign operations are viewed as being secondary or subordinate to domestic ones An ethnocentric company operates under the assumption that “tried and true” headquarters knowledge and organisational capabilities can be applied in other parts of the world This can sometimes work to a company’s advantage For a manufacturing firm, ethonocentrism means that foreign markets are viewed as a means of disposing off surplus domestic production Plans for overseas markets are developed utilising policies and procedures identical to those employed at home No systematic marketing research is conducted outside the home country, and no major modifications are made to products Even if consumer needs or wants, in international markets, differ from those in the home country, those differences are ignored at headquarters Ethnocentricity Home country is superior; sees similarities in foreign countries Regiocentric Sees similarities and differences in a world region; is ethnocentric or polycentric in its view of the rest of the world Polycentric Each host country is unique; sees differences in foreign countries Geocentric World view; sees similarities and differences in home and host countries Figure 1.2: Orientations of Management and Companies Nissan’s ethnocentric orientation was quite apparent during its first few years of exporting cars and trucks to the United States Designed for mild Japanese winters, the vehicles were difficult to start in many parts of the United States during the cold winter months In northern Japan, many car owners would put blankets over the hoods of their cars Tokyo’s assumption was that Americans would the same thing Until the 1980s, Eli Lilly and Company operated as an ethonocentric company in which activity outside the United States was tightly controlled by headquarters and focused on selling products originally developed for the US market Fifty years ago, most business enterprises — and especially those located in a large country like the United States — could operate quite successfully with an ethnocentric orientation Today, however, ethnocentrism is one of the biggest internal threats a company faces 1.6.2 Polycentric The polycentric orientation is the opposite of ethnocentrism The term polycentric describes management’s often unconscious belief or assumption that each country in which a company does business is unique This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed; the term multinational company is often used to describe such a structure Until recently, Citicorp’s executives offered this description of the company: “We were like a medieval state There was the king and his court and they were in charge, right? No It was the land barons who were in charge The king and his court might declare this or that, but the 21 Introduction to International Marketing Management 22 International Marketing Management land barons went and did their thing.” Realising that the financial services industry is globalising, CEO John Reed is attempting to achieve a higher degree of integration between Citicorp’s operating units Like Jack Welch at GE, Reed is moving to instil a geocentric orientation throughout his company 1.6.3 Regiocentric and Geocentric Orientations In a company with a regiocentric orientation, management views regions as unique and seeks to develop an integrated regional strategy For example, a US company that focuses on the countries included in the North American Free Trade Agreement (NAFTA) — the United States, Canada, and Mexico — has a regiocentric orientation Similarly, a European companies that focuses its attention on Europe is regiocentric A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated world market strategies A company whose management has a regioncentric or geocentric orientation is sometimes known as a global or transnational company The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a “world view” that sees similarities and differences in markets and countries, and seeks to create a global strategy that is fully responsive to local needs and wants A regiocentric manager might be said to have a world view on a regional scale; the world outside the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a combination of the two Jack Welch’s quote at the beginning of this chapter that “globalisation must be taken for granted” implies that at least some company managers must have geocentric orientation However, recent research suggests that many companies are seeking to strengthen their regional competitiveness rather than moving directly to develop global responses to changes in the competitive environment The ethnocentric company is centralised in its marketing management, the polycentric company is decentralised, and the regiocentric and geocentric companies are integrated on a regional and global scale, respectively A crucial difference between the orientations is the underlying assumption for each The ethnocentric orientation is based on a belief in home country superiority The underlying assumption of the polycentric approach is that there are so many differences in cultural, economic, and marketing conditions in the world that it is impossible and futile to attempt to transfer experience across national boundaries There is a likelihood that the geocentric company does not identify itself with any particular country Therefore, it is difficult to determine the firm’s home country except the location of its headquarter and its corporate registration The case of European Silicon Structures illustrates the practice of geocentric marketing In order to attract customers around the continent, the company has decided to become a company without a country Although incorporated in Luxembourg, the firm’s headquarter is in Munich The company has its research facilities in England and a factory in Southern France and its board of directors, eight of them, come from seven different countries There is evidence that geocentricity and a companies’ international practices are related There is a study by Stephen J Kobrien who employed the geocentric scale to measure the human resources managers’ mind-set concerning the impact of nationality on the selection of career managers The index of a geocentric mind-set was found to be significantly related to the per cent of sales and employee’s abroad as well as the number of countries with manufacturing operations The study of ethnocentrism, polycentrism, regiocentrism and geocentrism (EPRG) framework found that firms exhibiting an ethnocentric orientation emphasize the home market and export to psychologically close markets In addition, these firms believe that marketing adaptation is not necessary In contrast, polycentric, regionocentric and geocentric firms export to psychologically distant markets Check Your Porgress Define International Marketing What are the various management orientations for International Marketing? 1.7 5Ps OF INTERNATIONAL MARKETING We will study the international 4P's concept and the marketing plan The correct definition of the marketing mix or 4P's (Product, Price, Promotion and Place) will be fundamental to successfully enter the target markets we identify Some commentators will increase the mix to the '5 Ps', to include people Others will increase the mix to '7 Ps', to include physical evidence (such as uniforms, facilities, or livery) and process (i.e the whole customer experience) In any case the design of an international marketing plan will also be one of the pillars of our export activity 1.7.1 Product A global company is one that can create a single product and only have to tweak elements for different markets For example, Coca-Cola uses two formulas (one with sugar, one with corn syrup) for all markets The product packaging in every country incorporates the contour bottle design and the dynamic ribbon in some way, shape, or form However, the bottle or can also includes the country's native language and is the same size as other beverage bottles or cans in that country 1.7.2 Price Price will always vary from market to market Price is affected by many variables: cost of product development (produced locally or imported), cost of ingredients, cost of delivery (transportation, tariffs, etc.), and much more Additionally, the product's position in relation to the competition influences the ultimate profit margin Whether this product is considered the high-end, expensive choice, the economical, low-cost choice, or something in-between helps determine the price point 1.7.3 Placement How the product is distributed is also a country-by-country decision influenced by how the competition is being offered to the target market Using Coca-Cola as an example again, not all cultures use vending machines In the United States, beverages are sold by the pallet via warehouse stores In India, this is not an option Placement decisions must also consider the product's position in the market place For example, a high-end product would not want to be distributed via a "dollar store" in the United States Conversely, a 23 Introduction to International Marketing Management 24 International Marketing Management product promoted as the low-cost option in France would find limited success in a pricey boutique 1.7.4 Promotion After product research, development and creation, promotion (specifically advertising) is generally the largest line item in a global company's marketing budget At this stage of a company's development, integrated marketing is the goal The global corporation seeks to reduce costs, minimize redundancies in personnel and work, maximize speed of implementation, and to speak with one voice If the goal of a global company is to send the same message worldwide, then delivering that message in a relevant, engaging, and cost-effective way is the challenge Effective global advertising techniques exist The key is testing advertising ideas using a marketing research system proven to provide results that can be compared across countries The ability to identify which elements or moments of an ad are contributing to that success is how economies of scale are maximized Market research measures such as Flow of Attention, Flow of Emotion and branding moments provide insights into what is working in an ad in any country because the measures are based on visual, not verbal, elements of the ad 1.7.5 People Jude, in 1887, came out with yet another ‘P’, People Jude is argument was that it is the employees of an organisation which represent the organisation to the consumers If these employees are not given training in how to go about face-to-face customer contact, the entire marketing effort may not prove to be effective He even went further by recommending that people power should be formalised, institutionalised and managed like the other 4Ps as a distinctive component of the marketing mix and, consequently, as an element of the organisation marketing or business plan 1.7 LET US SUM UP International marketing is the process of focusing the resources and objectives of a company on marketing opportunities at international level Companies are engaged in international marketing for two reasons: firstly, to take advantage of opportunities of growth and expansion, and secondly, to eventually lose their domestic markets because they will be pushed aside by stronger and more competitive international competitors This lesson presents the theory and practice of applying the universal discipline of marketing to the international opportunities found in the world markets One way to understand the concept of international marketing is to examine how international marketing differs from such similar concepts as domestic marketing, foreign marketing, comparative marketing, international trade, international business and multinational marketing The basic goals of marketing are to create customer value and competitive advantage by maintaining focus Company management can be classified in terms of its orientation towards the world: ethnocentric, polycentric, regiocentric, and geocentric An ethnocentric orientation characterises domestic and international companies that pursue marketing opportunities outside the home market by extending various elements of the marketing mix A polycentric world view predominates at a multinational company, where country managers operating autonomously adapt the marketing mix Managers at international and transnational companies are regiocentric or geocentric in their orientation and pursue both extension and adaptation strategies in international markets International marketing importance today is shaped by the dynamic interplay of several driving and restraining forces The former include market needs and wants, technology, transportation improvements, costs, quality, international peace, world economic growth, and recognition of opportunities to develop leverage by operating internationally Restraining forces include market differences, management myopia, organisational culture and national controls 1.8 LESSON END ACTIVITY What are ‘Dos’ and ‘Don’t’s’ for success in International Marketing? How should the firm execute the dos and don’ts in the context of marketing? 1.9 KEYWORDS Marketing: It is the performance of business activity, directing the flow of products from producer to consumer International Marketing: It is the performance of marketing across two different countries Domestic Marketing: It is the form of marketing in which the firm faces only one set of competitive, economic and market issues Global Marketing: The performance of business activities that direct the flow of goods and services to consumers or users in more than one nation 1.10 QUESTIONS FOR DISCUSSION Define International Marketing How does it differ from domestic marketing? a What are the various points that you would consider before entering the foreign market? b What are the various methods that will be considered after entering the foreign market? What are the basic economic reasons which might influence a firm’s decision or motivate a firm to plunge into international marketing? “International Marketing has become indispensable in the economic development of a developing country” Comment with respect to the Indian situation Why is the task of the international marketer more complex and difficult than that of the domestic marketer? Distinguish among (a) domestic marketing (b) foreign marketing (c) comparative marketing (d) international trade (e) international marketing (f) multinational marketing (g) global marketing and (h) world marketing Distinguish among (a) ethnocentricity (b) polycentricity and (c) geocentricity 25 Introduction to International Marketing Management 26 International Marketing Management Check Your Progress: Model Answers CYP 1 Environment, Excellent markets, Affect, Domestic CYP International Marketing: It refers to the marketing of goods and services in more than one nation It may consist of exporting goods from one country to another or it may refer to a firm that both produces and markets in more than one country Management Orientations (i) Ethnocentric Orientation (ii) Polycentric Orientation (iii) Regiocentric Orientation (iv) Geocentric Orientation 1.11 SUGGESTED READINGS PKVasudeva, International Marketing, Excel Books, New Delhi, 2006 Shyam Shukla, International Business, Excel Books, New Delhi, 2008 Philip R Catero, International Marketing Keegan, Global Marketing Management ... Introduction to International Marketing Management 12 International Marketing Management 1.2 BENEFITS OF INTERNATIONAL MARKETING The importance of international marketing is neither understood... of international marketing is to examine how international marketing differs from such similar concepts as domestic marketing, foreign marketing, comparative marketing, international trade, international. .. Readings International Marketing Management 1.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: Define International Marketing Distinguish between international and domestic marketing