PART SIX MANAGING INTERNATIONAL OPERATIONS International Business

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PART SIXMANAGING INTERNATIONAL
OPERATIONSInternational Business

• Chapter Sixteen
• Marketing Globally

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Chapter Objectives

• To understand a range of product policies and the
  circumstances in which they are appropriate
  internationally
• To grasp the reasons for product alternations
  when deciding between standardized versus
  differentiated marketing programs among countries
  
• To appreciate the pricing complexities when
  selling in foreign markets
• To interpret country differences that may
  necessitate alterations in promotional practices
• To comprehend the different branding strategies
  companies may employ internationally
• To discern complications of international
  distribution and practices of effective
  distribution
• To perceive why and how emphasis in the marketing
  mix may vary among countries

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Marketing Strategies

• Marketing the performance of a wide range of
  business activities directed at satisfying needs
  and wants through the exchange process
• Marketing strategies depend upon a firms
• marketing orientation
• target market(s)
• When firms select target markets, they may choose
  market segments that exist in more than one
  country.
• Ways of identifying consumer market segments
  within and across countries include demographics
  (income, age, gender, religion) and
  psychographics (attitudes, values, lifestyles).

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Marketing Orientations

• production orientation emphasizes production
  variables such as efficiency, quality, and/or
  capacity used internationally for selling
  commodities and passive exports and for serving
  foreign market segments that resemble domestic
  markets
• sales orientation assumes that global customers
  are reason-ably similar and that the same product
  can be sold at home and abroad
• customer orientation stresses sensitivity to
  customer needs, i.e., identifying and serving the
  needs of the customer
• strategic marketing orientation commits to
  continuously serving foreign markets and to
  making incremental adapta-tions to satisfy local
  customers draws upon elements of the
  production, sales, and customer orientations, as
  appropriate
• societal marketing orientation requires that
  activities be con-ducted in a way that preserves
  or enhances the well-being of all stakeholders
  addresses the environmental, health, social, and
  work-related problems that arise in foreign
  operations

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Fig. 16.1 Marketing in International Business
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Product Policy Reasons for
Making Alterations

• Legal reasons explicit product-related legal
  requirements vary widely by country but are
  usually meant to protect customers, the
  environment, or both. Protective packaging laws
  and product standards are very complicated legal
  issues.
• Cultural reasons cultural factors affecting
  product demand may or may not be easily discerned
  While religious beliefs offer clear guidelines
  regarding product acceptability, other factors
  such as color, design, and artistic preferences
  are more subtle.
• Economic reasons levels of income,
  differences in income distri-bution, and the
  extent and condition of available infrastructure
  can all affect demand for a given product
  Price-reducing alterations may be required if a
  firm expects to enter an emerging market.
• Firms usually prefer to standardize basic
  components while
  altering critical end-use characteristics.

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Product Policy Other
Considerations

• Extent and Mix of the Product Line
• Whereas narrowing a product line allows for the
  concentration of effort and resources, the
  broadening of a product line may capture
  distribution economies.
• Product Life-cycle Considerations
• A product facing declining sales in one country
  may have growing or sustained sales in another
  such country differences can lead to an extended
  life for a specific product.
• Differences will likely exist across countries
  in both the shape
  and the length of a products life cycle.

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Pricing

• Price the value asked for a product
• Although usually expressed as a monetary value,
  in countertrade
  transactions, it might not be.
• The complexities of pricing are exacerbated in
  the international arena.
• Pricing decisions must assure the firm of
  sufficient funds to replenish inventory.
• In the long-run, price must be low
  enough to generate sufficient demand
  but high enough to yield a profit.
• The Internet is causing more firms to compete
  for the same business as customers gain
  increasing access to global products and global
  prices.

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Pricing Complexities

• Government Intervention
• Every country has laws that either directly or
  indirectly affect prices to the final customer.
• Price controls may set either maximum or minimum
  prices for designated products.
• The WTO permits a government to establish
  restric-tions against any imports that enter the
  country at a price below the price charged to
  customers in the exporting country (dumping).
• A firm may charge different prices in different
  regions or countries because of differing
  competitive and demand factors.

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Pricing Complexities

• Market diversity, i.e., country variation,
  leads to many ways of segmenting the market for a
  given product. Depending upon market conditions,
  a firm may adopt any of the following pricing
  strategies
• skimming price sets a high price for a new
  product aimed at market innovators Over time,
  the price will be progressively lowered in
  response to demand and supply conditions, i.e.,
  the presence of additional competitors.
• penetration price sets an aggressively low
  price (i) to discourage competition and (ii) to
  attract a maximum number of customers (some of
  whom will hopefully switch from competitors
  brands)
• cost-plus price sets the price at a desired
  margin over cost

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Pricing Complexities

• Price Escalation in Exporting
• Common reasons for price escalation in export
  sales are (i) tariffs and (ii) the often greater
  distance to the market.
• If standard markups occur within a distribution
  channel, either lengthening the channel or adding
  expenses at additional points within the network
  will increase the delivered cost of a product.
• To compete in export markets, a firm may have to
  sell its products to intermediaries at
  reduced prices in order to lessen the amount
  of price escalation.
• A firm may choose to exclude fixed costs in the
  price calculation of products
  exported to developing countries
  in order to be price competitive in those
  markets.

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Fig. 16.3 Price Escalation in Exporting if
Companies Use Cost-plus Pricing
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Pricing Complexities

• Currency Values and Inflation Rates
• Currency fluctuations affect a firms
  competitiveness and, ultimately, its
  profitability
• Sales contracts may specify that payment
  be made in a given currency.
• High inflation in a host country negatively
  affects the value of a firms foreign receipts
• A firm may need to adjust
  its margins
  downward in order to remain competitive.
• ? High inflation in a home country negatively
  af- fects the costs of a firms foreign-sourced
  inputs
• A firm may need to source locally in order
  to remain competitive.

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Effect of Taxes and Inflation on Pricing An
Example

• Assumptions beginning cost 1,000 inflation
  36 tax rate 40
  after-tax profit goal on replacement cost 30
• IF STOCK IS SOLD AND FUNDS IF STOCK IS SOLD AND
  FUNDS ARE COLLECTED WHEN STOCK ARE COLLECTED ONE
  YEAR IS PURCHASED AFTER STOCK IS PURCHASED
• Cost 1,000 Replacement cost 1,360
• Mark-up 500 Replacement mark-up
  320
• Sales price 1,500 Sales price 1,680
• - Cost 1,000 - Original cost 1,000
• Taxable income 500 Taxable income
  680
• - Tax _at_40 200 - Tax _at_ 40 272
• After-tax income 300 After-tax
  income 408

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Pricing Complexities

• Fixed-cost vs. Variable-cost Pricing
• The extent to which producers can set prices at
  the retail level varies substantially by country.
• There is substantial variation in whether, where,
  and for which products customers expect to be
  able to negotiate a price.
• Local laws and customs may limits firms
  abilities to set optimal prices.
• In many cultures prices are simply the starting
  point in the bargaining process.

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Import-Export Price Negotiations An Example

• Goal to delay a pricing commitment
  while discussing a whole
  package of other commitments
• IMPORTERS REACTION EXPORTERS RESPONSE
• 1. Offer is too expensive What is meant by
  expensive?
• Determine what price is acceptable.
• 2. Budget is insufficient How large is the
  importers budget?
• Determine the time frame and explore
  payment alternatives.
• 3. Offer does not fit needs Insist on specific
  details of real needs.
• Repackage offer in light of new info.
• 4. Offer is not competitive Determine details of
  competitors offers.
• Reformulate offer in non-comparative
  ways stress uniqueness of offer.

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Promotion

• Promotion the presentation of messages intended
  to help sell a product
• direct and indirect forms of communication
  designed to inform, persuade, and/or remind a
  target audience about an organization, its
  products, and/or its positions
• Promotion Mix the particular combination
  of elements used in a promotion strategy
• ? personal selling
• ? advertising
• ? sales promotion activities
• ? publicity/public relations activities

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Promotion The Push-Pull Mix

• Push strategy direct marketing techniques
  designed to create immediate demand, i.e.,
  personal selling
• primarily used when a product is relatively
  expensive and distribution is
  tightly controlled
• Pull strategy indirect marketing techniques
  designed to create final demand, i.e.,
  advertising, sales promotion, and
  publicity/public relations
• The cross country push-pull mix is determined by
• types of distribution systems
• the cost and availability of media
• customer attitudes toward sources of information
• the relative price (affordability) of a product

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Promotion The Standardization of Advertising
Programs

• Advertising any paid form of
  media (nonpersonal) presentation
• The advantages of standardized advertising
  include
• substantial cost savings
• improved quality (effectiveness) at the local
  level
• rapid entry into new country markets
• The challenges of standardized advertising
  include
• translation content, meaning, images
• legality differing views on consumer protection,
  compe- titive protection, standards of
  morality, and nationalism
• message needs national differences in
  perceptions and product demand

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Branding

• Brand a name, term, symbol, and/or design
  intended to identify a product or product line
  and differentiate it in the marketplace
• Trademark a brand, or part of a brand, i.e., a
  mark, that is granted legal protection because it
  is capable of legal appropriation
• MNEs must consider the following branding
  options
• brand vs. no brand
• manufacturers brand vs. private brand
• one brand vs. multiple brands
• worldwide brands vs. local brands
• Overall, the portion of local brands to
  international (regional or global) brands
  is decreasing.
• continued

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• Challenges to regional and global brands include
• language factors the translation and
  pronunciation of brand names the cultural
  sensitivity of shapes, symbols, and colors
• brand acquisitions local brands may be
  well-known but expensive and strategically
  difficult to maintain
• country-of-origin images products from
  particular countries may be perceived as being
  particularly desirable and of relatively high
  quality
• generic and near-generic names generic names may
  either stimulate or frustrate the sales of the
  firm from whom a name is expropriated

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Distribution

• Distribution the physical and legal path that
  products follow from the point of production to
  the point of consumption
• Distribution channel the set of interdependent
  individuals and organizations that take title to
  or assist in the transfer of a title to a product
  from producer to final customer banks
  --- transportation companies
• producers --- wholesalers --- retailers
• agents brokers
• Often, geographic barriers and poor transport
  infrastructure divide a country into distinctly
  viable and non-viable markets.
• The selling of goods through unauthorized
  distributors, i.e., the gray
  market, causes a firms operations in different
  countries to complete with one another, thus
  preventing them from pricing according
  to local market conditions.

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Distribution The
Difficulty of Standardization

• Each country has its own national distribution
  system that is historically intertwined with its
  cultural, economic, and legal environments.
• Factors that influence the distribution of
  consumer products within a country include
• citizens attitudes towards their own retailers
• the ability (or inability) to pay retail workers
• retailers trust in their employees
• legislation affecting chain and
  individually-owned stores
• restrictions on the size of stores and their
  hours of operation
• the financial ability of retailers to carry large
  inventories
• the efficacy of the national postal system

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Distribution Distributor and
Channel Selection

• Firms should handle the distribution function
  internally if
• sales volume is high
• human, capital, and financial resources are
  sufficient
• the nature of the product demands that the
  producer deal directly with customers
• customers are global
• it is possible to gain a competitive advantage
• The more complex and expensive a product, the
  greater the importance of after-sales service.
• Firms may need to invest in service centers,
  which in turn can become important sources of
  revenues and profits.
• continued

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• Criteria for the selection of potential
  distributors include
• financial strength
• quality of connections
• the extent of a distributors other commitments
  regarding both complementary and competitive
  products
• the state of a distributors equipment,
  facilities, and personnel
• trustworthiness and contract enforcement issues
• A new client must convince a desired distributor
  of the viability of its firm and its products.
• A new client may need to offer distributors extra
  incentives or be willing to enter into exclusive
  arrangements.
• Firms may choose a combination of internal
  distribution and outsourced distribution
  services.

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Distribution Hidden Costs

• Differences in national distribution systems that
  may contribute to increased costs include
• poor infrastructure port, roads, warehouse
  facilities
• levels within a distribution system multi-tiered
  wholesale systems
• retail inefficiencies an insistence upon counter
  service
• government restrictions laws protecting small
  retailers or limiting hours of operation
• lack of retail storage space more frequent,
  smaller deliveries required to prevent
  stock-outs

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The Internet and Electronic Commerce

• Opportunities
• E-commerce offers firms a unique opportunity
  to market their products worldwide.
• The Internet permits suppliers to deal
  more quickly with their customers.
• Challenges
• ? Customers worldwide can quickly compare prices
  from different distributors, thus intensifying
  price competition.
• ? Differentiation is difficult because the same
  web ads and prices reach customers
  everywhere.
• ? Internet ads and prices must comply with the
  laws of each country where a firm
  markets its products.

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Internet Usage by Region, 2005

• WORLD OF WORLD INTERNET OF POP.
  OF WORLD
• REGIONS POPULATION USAGE USAGE RATE
  USERS
• Africa 900,465,411 13,468,600 1.5
  1.5
• Asia 3,612,363,165 302,257,003
  8.4 34.0
• Europe 730,991,138 259,653,144 35.5
  29.2
• Middle East 259,499,772 19,370,700 7.5
  2.2
• North Amer. 328,387,059 221,437,647 67.4
  24.9
• Latin Amer. 546,917,192 56,224,957 10.3
  6.3
• Oceania 33,443,448 16,269,080 46.6
  1.8
• WORLD 6,412,067,185
  888,681,131 13.9 100.0
• Source Miniwatts International, Ltd.

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Managing the Marketing Mix Gap Analysis

• Gap analysis a method for estimating a firms
  potential sales of a given product by
  determining the difference between the total
  market potential and gaps in usage, competition,
  product line offers, and distribution
• Total market potential the total potential
  sales of all competitors within a given product
  market (category)
• The difference between total market potential and
  current sales, i.e., the gap, is due to
• usage patterns
• product line characteristics
• distribution coverage strategies
• the effect(s) of competitors strategies
• Gap analysis helps managers determine both the
  size of and the reasons for the differences
  between market potential and actual sales.

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Fig. 16.4 Gap Analysis
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Implications/Conclusions

• Marketing is a social and managerial process
  through which individuals and organizations
  satisfy their needs and objectives through the
  exchange process.
• A standardized approached to worldwide mar-keting
  means maximum uniformity in products and programs
  amongst countries in which sales occur.

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• A variety of legal, cultural, and economic
  con-ditions may cause firms to alter their
  marketing strategies, but the cost of adaptation
  must be measured against the potential gain in
  sales.
• Gap analysis is a tool that help firms deter-
  mine (i) why they have not yet maximized their
  market potential in given countries and (ii)
  what parts of the marketing mix to empha-size in
  which countries and regions.