Marketing management Chapter 21 pptx

To what extent must the company adapt its products and marketing program to each foreign country.. A global industry is an industry in which the strategic positions of competitors in maj

IN THIS CHAPTER, WE WILL ADDRESS THE FOLLOWING QUESTIONS:

1 What factors should a company review before deciding to go

2 How can companies evaluate and select specific foreign markets to enter?

3 What are the major ways of entering a foreign market?

4 To what extent must the

company adapt its products and marketing program to each foreign country?

5 How should the company manage and organize its

international activities?

CHAPTER 21 TAPPING INTO

GLOBAL MARKETS

• • • • • • • • • • • i

W i t h faster communication, t r a n s p o r t a t i o n , a n d financial f l o w s , t h e

w o r l d is r a p i d l y s h r i n k i n g P r o d u c t s d e v e l o p e d in o n e Gucci purses, M o n t Blanc pens, McDonald's hamburgers, Japanese sushi, Chanel suits, German BMWs—are f i n d i n g enthusiastic accep- tance in others A German businessman may w e a r an A r m a n i suit t o

country—-m e e t an English f r i e n d at a Japanese restaurant, w h o later returns home t o d r i n k Russian vodka a n d w a t c h an A m e r i c a n soap o n TV Consider t h e international success o f Red Bull

iillion-dollar brand in less than 15 years, Red Bull has gained 70

>ercent of the worldwide energy drink market by skillfully necting with global youth Founded in Austria by Dietrich Matescnitz, Red Bull was introduced into its first foreign market, Hungary, in

con-1992, and is now sold in over 100 countries Red Bull consists of amino acid

taurine, B-comp/ex vitamins, caffeine, and carbohydrates The drink was sold

Ioriginally in only one size—the silver 250 ml (8.3 oz.) can—and received little

traditional advertising support beyond animated television commercials with

the tagline "Red Bull Gives You Wiiings." Red Bull built buzz about the

prod-uct through its "seeding program": the company microtargets "in" shops,

clubs, bars, and stores, gradually moves from bars and clubs to convenience

stores and restaurants, and finally enters supermarkets It targets "opinion

leaders" by making Red Bull available at sports competitions, in limos before

Red Bull X-Fighters event, 2004

668 PART 8 CREATING SUCCESSFUL LONG-TERM GROWTH •

III Competing on a Global Basis Two hundred giant corporations, most of them larger than many national economies, have sales that in total exceed a quarter of the world's economic activity On that basis, Philip Morris is larger than New Zealand and operates in 170 countries International trade in 2003 accounted for over one-quarter of U.S GDP, up from 11 percent in 1970.2

Many companies have conducted international marketing for decades—Nestle, Shell, Bayer, and Toshiba are familiar to consumers around the world But global competition is intensifying Domestic companies that never thought about foreign competitors suddenly find them in their backyards Newspapers report on the gains of Japanese, German, Swedish, and Korean car imports in the U.S market, and the loss of textile and shoe markets to imports from developing countries in Latin America, Eastern Europe, and Asia Many com-panies that are thought to be American firms are really foreign firms Dannon, Red Roof Inn, Wild Turkey, Interscope, and L'Oreal, for example, are all French-owned.3

Although some U.S 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 global industry is an industry in which the strategic positions of competitors in major geographic or national markets are funda-mentally affected by their overall global positions.4 A global firm is a firm that operates

in more than one country and captures R&D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors

Global firms plan, operate, and coordinate their activities on a worldwide basis Ford's

"world truck" has a European-made cab and a North American-built chassis, is assembled

in Brazil, and is imported into the United States for sale Otis Elevator gets its door systems from France, small geared parts from Spain, electronics from Germany, and special motor drives from Japan; it uses the United States for systems integration One of the most suc-cessful global companies is ABB, formed by a merger between the Swedish company ASEA and the Swiss company Brown Boveri.5

A B B

ABB's products include power transformers, electrical installations, instrumentation, auto components, conditioning equipment, and railroad equipment The company has annual revenues of $32 billion and 200,000 employees Its motto: "ABB is a global company local everywhere." English is its official language (all ABB man-

air-award shows, and at exclusive after-parties Red Bull also built its cool image through sponsorship of extreme sports like its X-Fighters events, and unique grass- roots efforts In cities throughout the world, for example, the company sponsors

an annual Flugtag where contestants build flying machines that they launch off ramps into water, true to the brand's slogan! 1

Although the opportunities for companies t o enter and compete in foreign

markets are significant, the risks can also be high Companies selling in global

industries, however, really have no choice but to internationalize their

opera-tions In this chapter, we review the major decisions in expanding into global

markets

> TAPPING INTO GLOBAL MARKETS CHAPTER 21 669

agers must be conversant in English), and all financial results must be reported in dollars ABB aims to reconcile

three contradictions: to be global and local; to be big and small; and to be radically decentralized with

central-ized reporting and control It has fewer than 200 staff at company headquarters in Switzerland, compared to the

3,000 people who populate the Siemens headquarters The company's many product lines are organized into 8

business segments, 65 business areas, 1,300 companies, and 5,000 profit centers, with the average employee

belonging to a profit center of around 50 employees Managers are regularly rotated among countries and

mixed-nationality teams are encouraged Depending on the type of business, some units are treated as

super-local businesses with lots of autonomy, while others are governed with major central control and are considered

global businesses 6

A company need not be large, however, to sell globally Small and medium-sized firms

can practice global nichemanship The Poilane Bakery sells 15,000 loaves of old-style bread

each day in Paris—2.5 percent of all bread sold in that city—via company-owned delivery

trucks But each day, Poilane-branded bread is also shipped via FedEx to loyal customers in

roughly 20 countries around the world.7

For a company of any size to go global, it must make a series of decisions (see Figure

21.1) We'll examine each of these decisions here

Most companies would prefer to remain domestic if their domestic market were large

enough Managers would not need to learn other languages and laws, deal with volatile

cur-rencies, face political and legal uncertainties, or redesign their products to suit different

cus-tomer needs and expectations Business would be easier and safer Yet several factors are

drawing more and more companies into the international arena:

a The company discovers that some foreign markets present higher profit opportunities

than the domestic market

H The company needs a larger customer base to achieve economies of scale

a The company wants to reduce its dependence on any one market

n Global firms offering better products or lower prices can attack the company's domestic

market The company might want to counterattack these competitors in their home markets

B The company's customers are going abroad and require international servicing

Before making a decision to go abroad, the company must weigh several risks:

n The company might not understand foreign customer preferences and fail to offer a

com-petitively attractive product

a The company might not understand the foreign country's business culture or know how

to deal effectively with foreign nationals

a The company might underestimate foreign regulations and incur unexpected costs

& 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

Because of the conflicting advantages and risks, companies often do not act until some

event thrusts them into the international arena Someone—a domestic exporter, an

interna-tional importer, a foreign government—solicits the company to sell abroad, or the company

is saddled with overcapacity and must find additional markets for its goods

Most countries lament that too few of their companies participate in international trade

This keeps the country from earning foreign exchange to pay for needed imports It also

raises the specter of domestic companies eventually being hurt or taken over by foreign

multinationals These countries are trying to encourage their domestic companies to grow

domestically and expand globally Many countries sponsor aggressive export-promotion

programs to get their companies to export These programs require a deep understanding of

how companies become internationalized

Deciding whether

to go abroad

Deciding which markets to enter

Deciding on the marketing organization

F I G 2 1 1

Major Decisions in International Marketing

670 PART 8 CREATING SUCCESSFUL LONG-TERM GROWTH <

The company logo being carved into a loaf of Poilane bread, which is

shipped daily via FedEx to loyal customers in countries around the world

The internationalization process has four stages:8

1 No regular export activities

2 Export via independent representatives (agents)

3 Establishment of one or more sales subsidiaries

4 Establishment of production facilities abroad

The first task is to get companies to move from stage 1 to stage 2 This move is helped by studying how firms make their first export decisions.9 Most firms work with an independent agent and enter a nearby or similar country A company then engages further agents to enter additional countries Later, it establishes an export depart- ment to manage its agent relationships Still later, the company replaces its agents with its own sales subsidiaries in its larger export markets This increases the company's investment and risk, but also its earning potential

To manage these subsidiaries, the company replaces the export

d e p a r t m e n t with an international d e p a r t m e n t If certain markets continue to be large and stable, or if the host country insists on local production, the company takes the next step of locating production facilities in those markets This means a still larger commitment and still larger potential earnings By this time, the company is operating

as a multinational and is engaged in optimizing its global sourcing, financing, manufacturing, and marketing According to some researchers, top management begins to pay more attention to global opportunities when they find that over 15 percent of revenues comes from foreign markets.1 0

Deciding Which Markets to Enter

In deciding to go abroad, the company needs to define its marketing objectives and policies What proportion of foreign to total sales will it seek? Most companies start small when they venture abroad Some plan to stay small; others have bigger plans Ayal and Zif have argued that a company should enter fewer countries when:

a Market entry and market control costs are high

£3 Product and communication adaptation costs are high

H Population and income size and growth are high in the initial countries chosen

n Dominant foreign firms can establish high barriers to entry.11

The company must decide how many countries to enter and how fast to expand Consider Amway's experience:

A M WAY

Amway Corp., one of the world's largest direct-selling companies, markets its products and services through independent business owners worldwide Amway expanded into Australia in 1971 In the 1980s, it moved into 10 more countries By 2004, Amway had evolved into a multinational juggernaut with a sales force of more than 3.6 million independent distributors hauling in S4.5 billion in sales Established in 1998, Amway India quickly grew to 200,000 active Amway distributors by 2004 Amway currently sells products in 80 countries and territories worldwide The corporate goal is to have overseas markets account for 80 percent

of its sales This is not unrealistic or overly ambitious considering that Amway already gains 70 percent of its

a sales from markets outside North America 12

> TAPPING INTO GLOBAL MARKETS CHAPTER 21 671

A company's entry strategy typically follows one of two possible approaches: a waterfall

approach, in which countries are gradually entered sequentially; or a sprinkler approach, in

which many countries are entered simultaneously within a limited period of time

Increasingly, especially with technology-intensive firms, they are born global and market to

the entire world right from the outset.13

Generally speaking, companies such as Matsushita, BMW, and General Electric, or even

newer companies such as Dell, Benetton, and The Body Shop, follow the waterfall approach

Expansion can be carefully planned and is less likely to strain human and financial

resources When first-mover advantage is crucial and a high degree of competitive intensity

prevails, the sprinkler approach is preferred, as when Microsoft introduces a new form of

Windows software The main risk is the substantial resources involved and the difficulty of

planning entry strategies in so many potentially diverse markets

The company must also decide on the types of countries to consider Attractiveness is

influenced by the product, geography, income and population, political climate, and other

factors Kenichi Ohmae recommends that companies concentrate on selling in the "triad

markets"—the United States, Western Europe, and the Far East—because these markets

account for a large percentage of all international trade.14

Developed versus Developing Markets

Although Ohmae's position makes short-run sense, it can spell disaster for the world

econ-omy in the long run The unmet needs of the emerging or developing world represent huge

potential markets for food, clothing, shelter, consumer electronics, appliances, and other

goods Many market leaders are rushing into Eastern Europe, China, and India Colgate

now draws more personal and household products business from Latin America than

North America.15

The developed nations and the prosperous parts of developing nations account for less

than 15 percent of the world's population Is there a way for marketers to serve the other 85

percent, which has much less purchasing power? Successfully entering developing markets

requires a special set of skills and plans Consider how the following companies are

pioneer-ing ways to serve these invisible consumers:16

s Grameen-Phone markets cell phones to 35,000 villages in Bangladesh by hiring village

women as agents who lease phone time to other villagers, one call at a time

n Colgate-Palmolive rolls into Indian villages with video vans that show the benefits of

toothbrushing; it expects to earn over half of its Indian revenue from rural areas by 2003

H An Indian-Australian car manufacturer created an affordable rural transport vehicle to

compete with bullock carts rather than cars The vehicle functions well at low speeds and

carries up to two tons

n Fiat developed a "third-world car," the Palio, that far outsells the Ford Fiesta in Brazil and

that will be launched in other developing nations

a Corporacion GEO builds low-income housing in Mexico The two-bedroom homes are

modular and can be expanded The company is now moving into Chile and southern U.S

communities

s A Latin American building-supply retailer offers bags of cement in smaller sizes to

cus-tomers building their own homes

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.17 It

cannot be business as usual when selling in developing markets Economic and cultural

dif-ferences abound; a marketing infrastructure may barely exist; and local competition can be

surprisingly stiff In China, PC maker Legend and mobile-phone provider TCL have thrived

despite strong foreign competition Besides their close grasp on Chinese tastes, they also have

their vast distribution networks, especially in rural areas.18

Smaller packaging and lower sales prices are often critical in markets where incomes are

limited Unilever's 4-cent sachets of detergent and shampoo have been a big hit in rural

India, where 70 percent of the country's population still lives When Coke moved to a smaller,

200 ml bottle in India, selling for 10 to 12 cents in small shops, bus-stop stalls, and roadside

672 PART 8 CREATING SUCCESSFUL LONG-TERM GROWTH

eateries, sales jumped.19 A Western image can also be helpful, as Coke discovered in China Part of its success against local cola brand Jianlibao was due to its symbolic values of moder-nity and affluence.20

Recognizing that its cost structure made it difficult to compete effectively in developing markets, Procter & Gamble devised cheaper, clever ways to make the right kinds of prod-ucts to suit consumer demand It now uses contract manufacturers in certain markets and gained eight share points in Russia for Always feminine protection pads by responding to consumer wishes for a thicker pad.21 Due to a boom in consumer spending, Russia has been the fastest-growing market for many major multinationals, including Nestle, L'Oreal, and IKEA.22

The challenge is to think creatively about how marketing can fulfill the dreams of most of the world's population for a better standard of living Many companies are betting that they can do that

i— G E N E R A L M O T O R S

After launching Buick in China in 1999, GM poured more than $2 billion into the region over the next five years, expanding the lineup to 14 models, ranging from the $8,000 Chevrolet Spark mini-car to high-end Cadillacs Although competition in the third-largest car market is fierce, GM was able to secure 11 percent market share in 2004 and reap sizable profits But initial gains in the Chinese market do not necessarily spell long-term success After investing to establish the markets, foreign pioneers in television sets and motorcy- cles saw domestic Chinese firms emerge as rivals In 1995, virtually all mobile phones in China were made

by global giants Nokia, Motorola, and Ericsson Within 10 years, their market share had dropped to 60 cent To secure and build on its gains, General Motors pledged to invest another S3 billion in the region to

per-• boost capacity and build its reputation.

A Russian ad for Nestle s Nescafe As

consumer spending has risen in Russia,

the market for products of major

multinationals like Nestle has boomed

TAPPING INTO GLOBAL MARKETS CHAPTER 21 673

Regional Free Trade Zones

Regional economic integration—trading agreements between blocs of countries—has

inten-sified in recent years This development means that companies are more likely to enter

entire regions at the same time Certain countries bave formed free trade zones or economic

communities—groups of nations organized to work toward common goals in the regulation

of international trade One such community is the European Union (EU)

3 EAN UNION Formed in 1957, the European Union set out to create a single

European market by reducing barriers to the free flow of products, services, finances, and

labor among member countries, and by developing trade policies with nonmember nations

Today, the European Union is one of the world's largest single markets The 15 member

countries making up the EU increased by 10 in May 2004 with the addition of Cyprus, the

Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia

The EU now contains more than 454 million consumers and accounts for 23 percent of the

world's exports It has a common currency, the euro monetary system

European unification offers tremendous trade opportunities for non-European firms

However, it also poses threats European companies will grow bigger and more

competi-tive Witness the competition in the aircraft industry between Europe's Airbus consortium

and Boeing in the United States Perhaps an even bigger concern, however, is that lower

barriers inside Europe will only create thicker outside walls Some observers envision a

"fortress Europe" that heaps favors on firms from EU countries but hinders outsiders by

imposing obstacles such as stiffer import quotas, local content requirements, and other

nontariff (nontax) barriers

Also, companies that plan to create "pan-European" marketing campaigns directed to a

unified Europe should proceed with caution Even as the EU standardizes its general trade

regulations and currency, creating an economic community will not create a homogeneous

market Companies marketing in Europe face 14 different languages, 2,000 years of

histori-cal and cultural differences, and a daunting mass of lohistori-cal rules

NAFTA Closer to home, in North America, the United States and Canada phased out trade

barriers in 1989 In January 1994, the North American Free Trade Agreement (NAFTA)

estab-lished a free trade zone among the United States, Mexico, and Canada The agreement

cre-ated a single market of 360 million people who produce and consume $6.7 trillion worth of

goods and services annually As it is implemented over a 15-year period, NAFTA will

elimi-nate all trade barriers and investment restrictions among the three countries Prior to

NAFTA, tariffs on American products entering Mexico averaged 13 percent, whereas U.S

tariffs on Mexican goods averaged 6 percent

)SUL Other free trade areas are forming in Latin America For example, MERCOSUL

now links Brazil, Argentina, Paraguay, and Uruguay Chile and Mexico have formed a

suc-cessful free trade zone It is likely that NAFTA will eventually merge with this and other

arrangements to form an all-Americas free trade zone

It is the European nations that have tapped Latin America's enormous potential As

Washington's efforts to extend NAFTA to Latin America have stalled, European countries

have moved in with a vengeance When Latin American countries instituted market reforms

and privatized public utilities, European companies rushed in to grab up lucrative contracts

for rebuilding Latin America's infrastructure Spain's Telefonica de Espana spent $5 billion

buying phone companies in Brazil, Chile, Peru, and Argentina In Brazil, seven of the ten

largest private companies are European owned, compared to two controlled by Americans

Among the notable European companies operating in Latin America are automotive giants

Volkswagen and Fiat, the French supermarket chain Carrefours, and the Anglo-Dutch

per-sonal-care products group Gessy-Lever

APEC Twenty-one Pacific Rim countries, including the NAFTA member states, Japan, and

China, are working to create a pan-Pacific free trade area under the auspices of the Asian

Pacific Economic Cooperation forum (APEC) There are also active attempts at regional

eco-nomic integration in the Caribbean, Southeast Asia, and parts of Africa

Evaluating Potential Markets

Yet, however much nations and regions integrate their trading policies and standards, each

nation still has unique features that must be understood A nation's readiness for different

674 PART 8 CREATING SUCCESSFUL LONG-TERM GROWTH

At other times, psychic proximity determines choices Many U.S firms prefer to sell in

Canada, England, and Australia—rather than in larger markets such as Germany and France— because they feel more comfortable with the language, laws, and culture Companies should

be careful, however, in choosing markets according to cultural distance Besides the fact that potentially better markets may be overlooked, it also may result in a superficial analysis of some very real differences among the countries It may also lead to predictable marketing actions that would be a disadvantage from a competitive standpoint.24

Regardless of how chosen, it often makes sense to operate in fewer countries with a deeper commitment and penetration in each In general, a company prefers to enter coun-tries (1) that rank high on market attractiveness, (2) that are low in market risk, and (3) in which it possesses a competitive advantage Here is how Bechtel Corporation, the construc-tion giant, goes about evaluating overseas markets

B E C H T E L C O R P O R A T I O N

Bechtel provides premier technical, management, and directly related services to develop, manage, engineer, build, and operate installations for customers in nearly 60 countries worldwide Before Bechtel ventures into new markets, the company starts with a detailed strategic market analysis It looks at its markets and tries to deter- mine where it should be in four or five years' time A management team does a cost-benefit analysis that fac- tors in the position of competitors, infrastructure, regulatory and trade barriers, and the tax situation (both cor- porate and individual) Ideally, the new market should be a country with an untapped need for its products or services; a quality, skilled labor pool capable of manufacturing the product; and a welcoming environment (gov- ernmental and physical)

Are there countries that meet Bechtel's requirements? Although Singapore has an cated, English-speaking labor force, basks in political stability, and encourages foreign investment, it has a small population Although many countries in central Europe possess

edu-an eager, hungry-to-learn labor pool, their infrastructures create difficulties The team uating a new market must determine whether the company could earn enough on its invest-ment to cover the risk factors or other negatives.25

eval-• eval-• eval-•

• • • 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 indirect exporting, direct exporting, licensing, joint ventures, and

direct investment These five market-entry strategies are shown in Figure 21.2 Each

suc-ceeding strategy involves more commitment, risk, control, and profit potential

Indirect and Direct E x p o r t

The normal way to get involved in an international market is through export Occasional

exportingis a passive level of involvement in which the company exports from time to time,

either on its own initiative or in response to unsolicited orders from abroad Active exporting

takes place when the company makes a commitment to expand into a particular market In either case, the company produces its goods in the home country and might or might not adapt them to the international market

Companies typically start with indirect exporting—that is, they work through dent intermediaries Domestic-based export merchantsbuy the manufacturer's products and then sell them abroad Domestic-based export agents seek and negotiate foreign purchases and are paid a commission Included in this group are trading companies Cooperative orga-

indepen-nizations carry on exporting activities on behalf of several producers and are partly under

their administrative control They are often used by producers of primary products such as

• TAPPING INTO GLOBAL MARKETS CHAPTER 21 675

fruits or nuts Export-management companies agree to manage a company's export activities

for a fee

Indirect export has two advantages First, it involves less investment: The firm does not

have to develop an export department, an overseas sales force, or a set of international

con-tacts Second, it involves less risk: Because international-marketing intermediaries bring

know-how and services to the relationship, the seller will normally make fewer mistakes

Companies eventually may decide to handle their own exports.26 The investment and risk

are somewhat greater, but so is the potential return A company can carry on direct

export-ing in several ways:

• Domestic-based export department or division Might evolve into a self-contained

export department operating as a profit center

u Overseas sales branch or subsidiary The sales branch handles sales and distribution and

might handle warehousing and promotion as well It often serves as a display and customer

service center

o Traveling export sales representatives Home-based sales representatives are sent abroad

to find business

• Foreign-based distributors or agents These distributors and agents might be given

exclusive rights to represent the company in that country, or only limited rights

Whether companies decide to export indirectly or directly, many companies use

export-ing as a way to "test the waters" before buildexport-ing a plant and manufacturexport-ing a product

over-seas University Games of Burlingame, California, maker of education games that encourage

social interaction and imagination, has blossomed into a $50 million-per-year international

company through careful entry into overseas ventures

U N I V E R S I T Y G A M E S

Bob Moog, president and founder of University Games, says his company's international sales strategy relies

heavily on third-party distributors and has a fair degree of flexibility "We identify the international markets we

want to penetrate," says Moog, "and then form a business venture with a local distributor that will give us a

large degree of control In Australia, we expect to run a print of 5,000 board games These we will manufacture

in the United States If we reach a run of 25,000 games, however, we would then establish a sub-contracting

venture with a local manufacturer in Australia or New Zealand to print the games." The company now sells in

a 28 countries 27

Using a Global W e b S t r a t e g y

One of the best ways to initiate or extend export activities used to be to exhibit at an overseas

trade show With the Web, it is not even necessary to attend trade shows to show one's wares:

Electronic communication via the Internet is extending the reach of companies large and

small to worldwide markets

Major marketers doing global e-commerce range from automakers (GM) to direct-mail

companies (L.L Bean and Lands' End) to running-shoe giants (Nike and Reebok) to

Amazon.com Marketers like these are using the Web to reach new customers outside their

home countries, to support existing customers who live abroad, to source from

interna-tional suppliers, and to build global brand awareness

These companies adapt their Web sites to provide country-specific content and services

to their best potential international markets, ideally in the local language The number of

Internet users is rising quickly as access costs decline, local-language content increases, and

infrastructure improves Upscale retailer and cataloger The Sharper Image now gets more

than 25 percent of its online business from overseas customers.28

The Internet has become an effective means of everything from gaining free exporting

information and guidelines to conducting market research and offering customers several

time zones away a secure process for ordering and paying for products "Going abroad" on

the Internet does pose special challenges The global marketer may run up against

govern-mental or cultural restrictions In Germany, a vendor cannot accept payment via credit card

until two weeks after an order has been sent German law also prevents companies from

using certain marketing techniques like unconditional lifetime guarantees On a wider scale,

the issue of who pays sales taxes and duties on global e-commerce is murkier still

676 PART 8 • CREATING SUCCESSFUL LONG-TERM GROWTH

Finding free information about trade and exporting has never been easier Here are some places to start a search:

www.ita.doc.gov U.S Department of Commerce's International Trade Administration

www.exim.gov Export-Import Bank of the United States

www.sba.gov U.S Small Business Administration

www.bxa.doc.gov Bureau of Industry and Security, a branch of the Commerce Department Also, many states' export-promotion offices have online resources and allow businesses to link to their sites

Licensing

Licensing is a simple way to become involved in international marketing The licensor issues

a license to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty The licensor gains entry at little risk; the licensee gains production expertise or a well-known product or brand name

Licensing has potential disadvantages The licensor has less control over the licensee than it does over its own production and sales facilities Furthermore, if the licensee is very successful, the firm has given up profits; and if and when the contract ends, the company might find that it has created a competitor To avoid this, the licensor usually supplies some proprietary ingredients or components needed in the product (as Coca-Cola does) But the best strategy is for the licensor to lead in innovation so that the licensee will continue to depend on the licensor

There are several variations on a licensing arrangement Companies such as Hyatt and

Marriott sell management contracts to owners of foreign hotels to manage these businesses

for a fee The management firm may even be given the option to purchase some share in the managed company within a stated period

In contract manufacturing, the firm hires local manufacturers to produce the product

When Sears opened department stores in Mexico and Spain, it found qualified local facturers to produce many of its products Contract manufacturing gives the company less control over the manufacturing process and the loss of potential profits on manufacturing However, it offers a chance to start faster, with less risk and with the opportunity to form a partnership or buy out the local manufacturer later

manu-Finally, a company can enter a foreign market through franchising, which is a more

com-plete form of licensing The franchiser offers a comcom-plete brand concept and operating tem In return, the franchisee invests in and pays certain fees to the franchiser McDonald's, KFC, and Avis have entered scores of countries by franchising their retail concepts and mak-ing sure their marketing is culturally relevant

sys-r- K F C C O R P O R A T I O N

KFC is the world's largest fast-food chicken chain, owning or franchising 12,800 outlets in about 90 countries—

60 percent of them outside the United States KFC had a number of obstacles to overcome when it entered the Japanese market The Japanese saw fast food as artificial, made by mechanical means, and unhealthy To build trust in the KFC brand, advertising showed scenes depicting Colonel Sanders' beginnings in Kentucky that con- veyed southern hospitality, old American tradition, and authentic home cooking The campaign was hugely suc- cessful, and in less than eight years KFC expanded its presence from 400 locations to more than 1,000 KFC is China's largest, oldest, and most popular quick-service restaurant chain, also with over 1,000 locations KFC is the most popular international brand throughout China, ranking higher than all others, according to a consumer survey conducted by A.C Nielsen China operations offer such fare as an "Old Beijing Twister"—a wrap mod-

• eled after the way Peking duck is served, but with fried chicken inside 29

J o i n t V e n t u r e s

Foreign investors may join with local investors to create a joint venture company in which

they share ownership and control For instance:30

B Coca-Cola and Nestle joined forces to develop the international market for drink" tea and coffee, which currently they sell in significant amounts in Japan

"ready-to-TAPPING INTO GLOBAL MARKETS CHAPTER 21 677

• Procter & Gamble formed a joint venture with its Italian archrival Fater to cover babies'

bottoms in the United Kingdom and Italy

• Whirlpool took a 53 percent stake in the Dutch electronics group Philips's white-goods

business to leapfrog into the European market

A joint venture may be necessary or desirable for economic or political reasons The

for-eign firm might lack the financial, physical, or managerial resources to undertake the

ven-ture alone; or the foreign government might require joint ownership as a condition for entry

Even corporate giants need joint ventures to crack the toughest markets When it wanted to

enter China's ice cream market, Unilever joined forces with Sumstar, a state-owned Chinese

investment company The venture's general manager says Sumstar's help with the

formida-ble Chinese bureaucracy was crucial in getting a high-tech ice cream plant up and running

in just 12 months.31

Joint ownership has certain drawbacks The partners might disagree over investment,

marketing, or other policies One partner might want to reinvest earnings for growth, and

the other partner might want to declare more dividends Joint ownership can also prevent a

multinational company from carrying out specific manufacturing and marketing policies on

a worldwide basis

The ultimate form of foreign involvement is direct ownership of foreign-based assembly or

manufacturing facilities The foreign company can buy part or full interest in a local

com-pany or build its own facilities General Motors has invested billions of dollars in auto

man-ufacturers around the world, such as Shangai GM, Fiat Auto Holdings, Isuzu, Daewoo,

Suzuki, Saab, Fuji Heavy Industries, Jinbei GM Automotive Co., and AvtoVAZ.32

If the market appears large enough, foreign production facilities offer distinct advantages

First, the firm secures cost economies in the form of cheaper labor or raw materials,

foreign-government investment incentives, and freight savings Second, the firm strengthens its image

in the host country because it creates jobs Third, the firm develops a deeper relationship with

government, customers, local suppliers, and distributors, enabling it to adapt its products

better to the local environment Fourth, the firm retains full control over its investment and

therefore can develop manufacturing and marketing policies that serve its long-term

interna-tional objectives Fifth, the firm assures itself access to the market in case the host country

starts insisting that locally purchased goods have domestic content

The main disadvantage of direct investment is that the firm exposes a large investment to

risks such as blocked or devalued currencies, worsening markets, or expropriation The firm

will find it expensive to reduce or close down its operations, because the host country might

require substantial severance pay to the employees

Ill Deciding on the Marketing Program

International companies must decide how much to adapt their marketing strategy to local

conditions.33 At one extreme are companies that use a globally standardized marketing mix

worldwide Standardization of the product, communication, and distribution channels

promises the lowest costs Table 21.1 summarizes some of the pros and cons of

standardiz-ing the marketstandardiz-ing program At the other extreme is an adapted marketstandardiz-ing mix, where the

producer adjusts the marketing program to each target market For a discussion of the main

issues, see "Marketing Insight: Global Standardization or Adaptation?"

Between the two extremes, many possibilities exist Most brands are adapted to some extent

to reflect significant differences in consumer behavior, brand development, competitive

forces, and the legal or political environment Satisfying different consumer needs and wants

can require different marketing programs Cultural differences can often be pronounced across

countries Hofstede identifies four cultural dimensions that can differentiate countries:34

1 Individualism vs collectivism In collectivist societies, such as Japan, the self-worth of

an individual is rooted more in the social system than in individual achievement

2 High vs low power distance HigJi power distance cultures tend to be less egalitarian

3 Masculine vs feminine How much the culture is dominated by assertive males versus

nurturing females

4 Weak vs strong uncertainty avoidance How risk tolerant or aversive people are

678 PART 8 CREATING SUCCESSFUL LONG-TERM GROWTH

| TABLE 2 1 1

Global Marketing Pros and Cons Advantages

Economies of scale in production and distribution Lower marketing costs

Power and scope Consistency in brand image Ability to leverage good ideas quickly and efficiently Uniformity of marketing practices

Disadvantages Differences in consumer needs, wants, and usage patterns for products Differences in consumer response to marketing-mix elements Differences in brand and product development and the competitive environment Differences in the legal environment

Differences in marketing institutions Differences in administrative procedures

Even global brands, such as Pringles, Always, and Toyota, will undergo some changes in product features, packaging, channels, pricing, or communications in different global mar-kets (See "Marketing Memo: The Ten Commandments of Global Branding.") Marketers must make sure that their marketing is relevant to consumers in every market

W A L T D I S N E Y C O

When Walt Disney launched the Euro Disney theme park outside Paris in 1992, it was harshly criticized as being

an example of American cultural imperialism A number of local French customs and values, such as serving wine with meals, were ignored As one Euro Disney executive noted, "When we first launched, there was the belief that it was enough to be Disney Now we realize our guests need to be welcomed on the basis of their own culture and travel habits." Renamed Disneyland Paris, the theme park eventually became Europe's biggest tourist attraction—even more popular than the Eiffel Tower—by making a number of changes and adding more local touches 35

Disneyland Paris, Europe's biggest tourist attraction

Product

Some types of products travel better across ders than others—food and beverage marketers have to contend with widely varying tastes.36

bor-"Marketing Insight: Establishing Global Service Brands" describes some of the special concerns for marketing services globally Warren Keegan has distinguished five adaptation strategies of product and communications to a foreign mar-ket (see Figure 21.3).37

Straight extension means introducing the

product in the foreign market without any change Straight extension has been success-ful with cameras, consumer electronics, and many machine tools In other cases, it has been a disaster General Foods introduced its standard powdered Jell-0 in the British market only to find that British consumers prefer the solid wafer or cake form Campbell Soup Company lost an estimated $30 million in introducing its condensed soups in England;

> TAPPING INTO GLOBAL MARKETS CHAPTER 21 679

GLOBAL STANDARDIZATION OR ADAPTATION?

The marketing concept holds that consumer needs vary and that

marketing programs will be more effective when they are tailored to

each target group This also applies to foreign markets Yet in 1983,

in a groundbreaking article in the Harvard Business Review, Harvard

Professor Theodore Levitt challenged this view and supplied the

intel-lectual rationale for global standardization: "The world is becoming a

common marketplace in which people—no matter where they live—

desire the same products and lifestyles."

The development of the Web, the rapid spread of cable and

satel-lite TV around the world, and the global linking of telecommunications

networks have led to a convergence of lifestyles The convergence of

needs and wants has created global markets for standardized

prod-ucts, particularly among the young middle class

Levitt favors global corporations that try to sell the same product

the same way to all consumers They focus on similarities across

world markets and "sensibly force suitably standardized products and

services on the entire globe." These global marketers achieve

economies through standardization of production, distribution,

mar-keting, and management They translate their efficiency into greater

value for consumers by offering high-quality and more reliable

prod-ucts at lower prices

Coca-Cola, McDonald's, Marlboro, Nike, the NBA, and Gillette are

among the companies that have successfully marketed global

prod-ucts Consider Gillette: Some 1.2 billion people use at least one

Gillette product daily, according to the company's estimates Gillette

enjoys huge economies of scale by selling a few types of razor blades

in every single market

Many companies have tried to launch their version of a world

product Yet, most products require some adaptation Toyota's Corolla

will exhibit some differences in styling McDonald's offers a ham and

cheese "Croque McDo" in France, a variation of the French favorite

croque monsieur Coca-Cola is sweeter or less carbonated in certain

countries Rather than assuming that its domestic product can be

introduced "as is" in another country, the company should review the

following elements and determine which would add more revenue than cost:

Besides demand-side differences, other types of supply-side ferences can also prevail Levitt's critics pointed out that flexible manufacturing techniques made it easier to produce many different product versions, tailored to particular countries One study showed that companies made one or more marketing-mix adaptations in 80 percent of their foreign products and that the average number of adapted elements was four So perhaps Levitt's globalization dictum should be rephrased Global marketing, yes; global standardization, not necessarily

dif-Sources: Theodore Levitt, "The Globalization of Markets," Harvard Business Review (May-June 1983): 92-102; Bernard Wysocki Jr., "The Global Mall: In

Developing Nations, Many Youths Splurge, Mainly on U.S Goods," Wall Street Journal, June 26,1997, p. A1; "What Makes a Company Great?" Fortune,

October 26,1998, pp 218-226; David M Szymanski, Sundar G Bharadwaj, and P Rajan Varadarajan, "Standardization versus Adaptation of International

Marketing Strategy: An Empirical Investigation," Journal of Marketing (October 1993): 1-17; "Burgers and Fries a la Francaise," The Economist, April 17,

2004, pp. 60-61; Johny K Johansson, "Global Marketing: Research on Foreign Entry, Local Marketing, Global Management," in Handbook of Marketing,

edited by Bart Weitz and Robin Wensley (London: Sage Publications, 2002), pp 457-483

consumers saw expensive small-sized cans and did not realize that water needed to

be added Straight extension is tempting because it involves no additional R&D

expense, manufacturing retooling, or promotional modification; but it can be costly in

the long run

Product adaptation involves altering the product to meet local conditions or

prefer-ences There are several levels of adaptation

B A company can produce a regional version of its product, such as a Western European

version Finnish cellular phone superstar Nokia customized its 6100 series phone for

every major market Developers built in rudimentary voice recognition for Asia, where

keyboards are a problem, and raised the ring volume so the phone could be heard on

crowded Asian streets

MARKETING INSIGHT