Global marketing management

Tài liệu môn Marketing toàn cầu bằng tiếng anh dành cho cao học chuyên ngành quản trị kinh doanh. Hệ thống kiến thức marketing nâng cao, giúp học viên có thể hoạch định một chiến lược marketing hoàn chỉnh

Hong Kong University of Science and Technology

JOHNWILEY& SONS,INC

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—M.K.

To my mother and A.V.

—K.H.

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Masaaki ‘‘Mike’’ Kotabe holds the Washburn Chair Professorship in International

Business and Marketing, and is Director of Research at the Institute of Global

Management Studies at the Fox School of Business at Temple University Prior to

joining Temple University in 1998, he was Ambassador Edward Clark Centennial

Endowed Fellow and Professor of Marketing and International Business at the

University of Texas at Austin Dr Kotabe also served as Vice President of the

Academy of International Business in the 1997–1998 term He received his Ph.D in

Marketing and International Business at Michigan State University Dr Kotabe

teaches international marketing, global sourcing strategy (R&D, manufacturing,

and marketing interfaces) and Asian business practices at the undergraduate and

MBA levels, and teaches theories of international business at the Ph.D level He has

lectured widely at various business schools around the world, including Austria, Brazil,

China, Colombia, Finland, Germany, Indonesia, Japan, Korea, Mexico, Norway,

Sweden, and Turkey For his research, he has worked closely with leading companies

such as AT&T, Kohler, NEC, Nissan, Philips, Sony, and Seven & I Holdings (parent of

7-Eleven stores), and served as advisor to the United Nations’ and World Trade

Organization’s Executive Forum on National Export Strategies

Dr Kotabe has written many scholarly publications His numerous research papers

have appeared in such journals as Journal of Marketing, Journal of International

Business Studies, Strategic Management Journal, and Academy of Management Journal

His books include Global Sourcing Strategy: R&D, Manufacturing, Marketing

Inter-faces (1992), Japanese Distribution System (1993), Anticompetitive Practices in Japan

(1996), MERCOSUR and Beyond (1997), Marketing Management (2001), Market

Revolution in Latin America: Beyond Mexico (2001), Emerging Issues in International

Business Research (2002), and Global Supply Chain Management (2006)

He currently serves as Editor of the Journal of International Management, and also

serves and/or has served on the editorial boards of Journal of Marketing, Journal of

International Business Studies, Journal of International Marketing, Journal of World

Business, Journal of the Academy of Marketing Science, Advances in International

Management, Journal of Business Research, and Thunderbird International Business

Review, among others He also serves as Advisor to the Institute of Industrial Policy

Studies (IPS) National Competitiveness Report Dr Kotabe has been elected a Fellow

of the Academy of International Business for his significant contribution to

interna-tional business research and education

Kristiaan Helsen has been an associate professor of marketing at the Hong Kong

University of Science and Technology (HKUST) since 1995 Prior to joining HKUST,

he was on the faculty of the University of Chicago for five years He has lectured at

Nijenrode University (Netherlands), the International University of Japan, Purdue

University, the Catholic University of Lisbon, and China Europe International

Busi-ness School (CEIBS) in Shanghai, China Dr Helsen received his Ph.D in Marketing at

the Wharton School of the University of Pennsylvania

His research areas include promotional strategy, competitive strategy, and

hazard-rate modeling His articles have appeared in journals such as Marketing Science, Journal

of Marketing, Journal of Marketing Research, and European Journal of Operations

Research, among others Dr Helsen is on the editorial board of the International

Journal of Research in Marketing

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Professors Kotabe and Helsen recently published the SAGE Handbook of national Marketing (2009), an authoritative collection of chapters written by expertresearchers from around the world that provides an in-depth analysis of internationalmarketing issues that must be understood and addressed in today’s global andinterdependent markets The Handbook brings together the fundamental questionsand themes that have surfaced, and promises to be an essential addition to the study ofinternational marketing.

We have continued to receive many letters and e-mail messages as well as comments on

Amazon.com from instructors and business executives around the world who used the

previous editions of Global Marketing Management Their comments have been

unanimously favorable Thanks to the increased desire in many parts of the world

for access to our book in their own languages, our book has been translated into

Chinese, Japanese, Portuguese, and Spanish However, we just cannot be sitting on our

laurels As the world around us has been constantly changing, the contents and context

of our book also must change to reflect the climate of the time Today, the worst global

financial crisis since the Great Depression of 1929 has changed the global marketing

environment completely A continued global economic growth has proved to be a false

assumption Now there are even political tides against freer trading environments

Although we currently live in a very unfortunate global economic environment, we are

fortunate enough to capture various changes in the marketplace and describe them in

this fifth edition of our book

In our mind, the role of a textbook is not only to describe today’s realities but also

to extrapolate logically from them how the future will unfold After all, that is how

marketing executives have to act and make correct decisions based on the facts they

have gathered Today’s realities are a product of past realities, and the future will be an

uncharted course of events lying ahead of us We constantly strive to help you better

understand state-of-the-art marketing practices on a global basis with relevant

histori-cal background, current marketing environments, and logihistori-cal explanations based on a

massive amount of knowledge generated by marketing executives as well as by

academic researchers from around the world

Therefore, the fifth edition of our book builds on three major changes that have

taken place in the last decade or so First, the landscape of the global economy has

changed drastically, particularly as a result of the global financial crisis and ensuing

global recession The emergence of Brazil, Russia, India, and China, among others, as

economic superpowers has occurred during the same period For example, China’s role

as the world’s factory is well established; India’s increased role in information

technology development is obvious; and Brazil and Russia are still rich in mineral

resources that are becoming scarce around the world

Second, the explosive growth of information technology tools, including the

internet and electronic commerce (e-commerce), has had a significant effect on the

way we do business internationally This still continues to be an evolving phenomenon

that we need to take a careful look at On one hand, everyone seems to agree that

business transactions will be faster and more global early on And it is very true As a

result, marketing management techniques, such as customer relationship management

and global account management, have become increasingly feasible However, on the

other hand, the more deeply we have examined this issue, the more convinced we have

become that certain things will not change, or might even become more local as a result

of globalization that the internet and e-commerce bestow on us

Third, it is an underlying human tendency to desire to be different when there are

economic and political forces of convergence (often referred to as globalization) When

vii

the globalization argument (and movement) became fashionable in the 1980s and1990s, many of us believed that globalization would make global marketing easier As

we explain later in the text, marketing beyond national borders, indeed, has becomeeasier, but it does not necessarily mean that customers want the same products incountries around the world For example, many more peoples around the world try toemphasize cultural and ethnic differences and accept those differences than everbefore Just think about many new countries being born around the world as well

as regional unifications taking place at the same time Another example is that while commerce promotion on the internet goes global, product delivery may need to befairly local in order to address local competition and exchange-rate fluctuations as well

e-as the complexities of international physical distribution (export declarations, tariffs,and non-tariff barriers) From a supply-side point of view, globalization has brought usmore products from all corners of the world However, from a demand-side (market-ing-side) point of view, customers have a much broader set of goods and services tochoose from In other words, marketers now face all the more divergent customers withdivergent preferences—far from a homogeneous group of customers

Indeed, these changes we have observed in the last decade or so are more thanextraordinary In this fifth edition, we have expanded on these issues in all the chapterswherever relevant We have added many new examples that have occurred in thisperiod However, we do not sacrifice logical depth in favor of brand-new examples Thisrevision required a lot of work, as did previous editions in the past But it was well worththe effort because we are confident that enlightened readers like you will be verysatisfied with the results

We strongly believe that cases provide students not only with lively discussions ofwhat goes on with many companies but also an in-depth understanding of manymarketing-related concepts and tools as used by those companies In this revision, weadded many new cases and retained and updated several cases from earlier editionsthat our textbook users and their students voted as favorites We have more than 40cases in this edition The cases represent many products and services and many regionsand countries as well as many nationalities Six cases are included in the textbook itself,and the rest are placed on the textbook website for easy download www.wiley.com/college/kotabe

Many users of the previous editions continue to commend our book as probably themost academically rigorous and conceptually sound, and yet full of lively examples withwhich students can easily identify in order to drive across important points Wecombine the academic rigor and relevance (fun of reading) of materials to meetboth undergraduate and MBA educational requirements We keep this tradition in ourfifth edition

Marketing in the global arena is indeed a very dynamic discipline Today, there aremany international or global marketing management books vying for their respectiveniches in the market It is a mature market As you will learn in our book, in a maturemarket, firms tend to focus closely—or maybe, too closely—on immediate productfeatures for sources of differentiation and may inadvertently ignore the fundamentalchanges that may be re-shaping the industry Often those fundamental changes comefrom outside the industry The same logic applies to the textbook market Whetherexisting textbooks are titled international marketing or global marketing, theycontinue to be bound by the traditional bilateral (inter-national) view of competition.While any new textbook has to embrace the traditional coverage of existing text-books, we intend to emphasize the multilateral (global) nature of marketingthroughout our book

Some textbooks have replaced the word, ‘‘international,’’ with ‘‘global.’’ Such achange amounts to a repackaging of an existing product we often see in a mature

product market, and it does not necessarily make a textbook globally oriented We

need a paradigm shift to accomplish the task of adding truly global dimensions and

complex realities to a textbook You might ask, ‘‘What fundamental changes are

needed for a paradigm shift?’’ and then, ‘‘Why do we need fundamental changes to

begin with?’’

Our answer is straightforward Our ultimate objective is to help you prepare for

this new century and become an effective manager overseeing global marketing

activities in an increasingly competitive environment You may or may not choose

marketing for your career If you pursue a marketing career, what you will learn in our

book will not only have direct relevance but also help you understand how you, as a

marketing manager, can affect other business functions for effective corporate

per-formance on a global basis If you choose other functional areas of business for your

career, then our book will help you understand how you could work effectively with

marketing people for the same corporate goal Our book is organized as shown in the

flowchart

We believe that our pedagogical orientation not only embraces the existing stock of

useful marketing knowledge and methods but also sets itself apart from the competition

in a number of fundamental ways, as follows:

As we indicated at the outset, the term‘‘global’’ epitomizes the competitive pressure

and market opportunities from around the world and the firm’s need to optimize its

market performance on a global basis Whether a company operates domestically or

across national boundaries, it can no longer avoid the competitive pressure and market

opportunities For optimal market performance, the firm should also be ready and

willing to take advantage of resources on a global basis, and at the same time respond to

different needs and wants of consumers In a way, global marketing is a constant

struggle with economies of scale and scope needs of the firm and its responsiveness and

sensitivity to different market conditions While some people call it a ‘‘glocal’’

orientation, we stay with the term, ‘‘global,’’ to emphasize marketing flexibility on

a global basis

Let us take a look at a hypothetical U.S company exporting finished products to

Europe and Japan Traditionally, this export phenomenon has been treated as a

bilateral business transaction between a U.S company and foreign customers

How-ever, in reality, to the executives of the U.S company, this export transaction may be

nothing more than the last phase of the company’s activities they manage Indeed, this

company procures certain components from long-term suppliers in Japan and Mexico,

other components in a business-to-business (B2B) transaction on the internet with a

supplier in Korea and from its domestic sources in the United States, and then

assembles a finished product in its Singapore plant for export to Europe and Japan

as well as back to the United States Indeed, a Japanese supplier of critical components

is a joint venture, majority-owned by this American company, while a Mexican supplier

has a licensing agreement with the U.S company that provides most of technical

know-how A domestic supplier in the United States is in fact a subsidiary of a German

company In other words, this particular export transaction by the U.S company

involves a joint venture, a licensing agreement, a B2B transaction, subsidiary operation,

local assembly, and R&D, all managed directly or indirectly by the U.S company—and

add the realities of market complexities arising from diverse customer preferences in

European, Japanese, and North American markets Now think about how these

arrangements could affect the company’s decisions over product policy, pricing,

promotion, and distribution channels

Many existing textbooks have focused on each of these value-adding activities as if

they could be investigated independently Obviously, in reality they are not

indepen-dent of each other and cannot be We emphasize this multilateral realism by examining

these value-adding activities as holistically as possible

At the same time, we are fully aware of the increased importance of the roles that

emerging markets and competitive firms from those markets play in fundamentally

Global Orientation

Our Pedagogical Orientation  ix

Global Marketing Management

5th Edition

1 Globalization Imperative

Globalization

Global Marketing Environment

2 Global Economic Environment 4 Global Cultural Environment and Buying Behavior

5 Political / Legal Environment

3 Financial Environment

Development of Competitive Strategy

6 Global Marketing Research

7 Global Segmentation and Positioning

8 Global Marketing Strategies

9 Global Market Entry Strategies

Global Marketing Strategy Development

10 Global Product Policy Decisions 1

11 Global Product Policy Decisions 2

13 Communicating with the World Consumer

14 Sales and Cross-Cultural Management

15 Global Logistics and Distribution

16 Export/Import Management

12 Global Pricing

Managing Global Operations

17 Planning, Organization and Control of Global Marketing Operations

19 Global Marketing and the Internet

18 Marketing in Emerging Markets

reshaping the nature of global competition In this fifth edition, we have added Chapter

18 to highlight various marketing issues related to the emerging markets

To complement our global orientation, we offer an interdisciplinary perspective in all

relevant chapters We are of the strong belief that you cannot become a seasoned

marketing executive without understanding how other functional areas interface with

marketing The reverse is also true for non-marketing managers Some of the

exem-plary areas in which such a broad understanding of the interface issues is needed are

product innovation, designing for manufacturability, product/components

standard-ization, and product positioning In particular, Japanese competition has made us

aware of the importance of these issues, and leading-edge business schools have

increasingly adopted such an integrated approach to business education Our book

strongly reflects this state-of-the-art orientation

Market orientation is a fundamental philosophy of marketing It is an organizational

culture that puts customers’ interests first in order to develop a long-term profitable

enterprise In essence, market orientation symbolizes the market-driven firm that is

willing to constantly update its strategies using signals from the marketplace Thus,

marketing managers take market cues from the expressed needs and wants of

customers Consequently, the dominant orientation is that of a firm reacting to forces

in the marketplace in order to differentiate itself from its competitors This reactive

‘‘outside-in’’ perspective is reflected in the typical marketing manager’s reliance on

marketing intelligence, forecasting, and market research

While not denying this traditional market orientation, we also believe that

market-ing managers should adopt an‘‘inside-out’’ perspective and capabilities to shape or

drive markets This aspect of the link between strategic planning and marketing

implementation has not been sufficiently treated in existing textbooks For example,

recent trends in technology licensing indicate that it is increasingly used as a conscious,

proactive component of a firm’s global product strategy We believe that it is important

for marketers to influence those actions of the firm that are some distance away from

the customer in the value chain, because such actions have considerable influence on

the size of the market and customer choice in intermediate and end product markets

A book cannot be written devoid of its authors’ background, expertise, and experience

Our book represents an amalgam of our truly diverse background, expertise, and

experiences across North and South America, Asia, and Western and Eastern Europe

Given our upbringing and work experience in Asia, Western Europe, and Latin

America, as well as our educational background in the United States, we have been

sensitive not only to cultural differences and diversities but also to similarities

Realistically speaking, there are more similarities than differences across many

countries In many cases, most of us tend to focus too much on cultural differences

rather than similarities; or else, completely ignore differences or similarities If you look

only at cultural differences, you will be led to believe that country markets are uniquely

different, thus requiring marketing strategy adaptations If, on the other hand, you do

not care about, or care to know about, cultural differences, you may be extending a

culture-blind, ethnocentric view of the world Either way, you may not benefit from the

economies of scale and scope accruing from exploiting cultural similarities—and

differences

Over the years, two fundamental counteracting forces have shaped the nature of

marketing in the international arena The same counteracting forces have been

revisited by many authors in such terms as ‘‘standardization vs adaptation’’

(1960s),‘‘globalization vs localization’’ (1970s), ‘‘global integration vs local

respon-siveness’’ (1980s), ‘‘scale vs sensitivity’’ (1990s), and more recently—let us add our

own—‘‘online scale vs offline market sensitivity.’’ Terms have changed, but the

quintessence of the strategic dilemma that multinational companies (MNCs) face

today has not changed and will probably remain unchanged for years to come

Interdisciplinary Perspective

Proactive Orientation

Cultural Sensitivity

Our Pedagogical Orientation  xi

However, the terminology no longer expresses an either/or issue Forward-looking,proactive firms have the ability and willingness to accomplish both tasks simulta-neously As we explain later in the text, Honda, for example, developed its Accord car

to satisfy the universal customer needs for reliability, drivability, and comfort, butmarketed it as a family sedan in Japan, as a commuter car in the United States, and as aninexpensive sports car in Germany, thereby addressing cultural differences in the waypeople of different nationalities perceive and drive what is essentially the same car.With our emphasis on global and proactive orientations, however, we will sharewith you how to hone your expertise, be culturally sensitive, and be able to see how tobenefit from cultural similarities and differences

We strongly believe that theory is useful to the extent that it helps in practice Andthere are many useful theories for international marketing practices Some of thepractical theories are a logical extension of generic marketing theories you may haveencountered in a marketing course Others are, however, very much unique to theinternational environment

Many people believe—rather erroneously—that international or global ing is just a logical extension of domestic marketing, and that if you have taken ageneric marketing course, you would not need to learn anything international Theinternational arena is just like a Pandora’s box Once you move into the internationalarena, there are many more facts, concepts, and frameworks you need to learn thanyou ever thought necessary in order to become a seasoned marketing managerworking globally To assist you in acquiring this new knowledge, various theoriesprovide you with the conceptual tools that enable you to abstract, analyze, under-stand, and predict phenomena, and formulate effective decisions Theories alsoprovide you with an effective means to convey your logic to your peers and bosseswith a strong, convincing power

market-We also apply those theories in our own extensive international work advisingcorporate executives, helping them design effective global strategies, and teaching ourstudents at various business schools around the world Our role as educators is toconvey sometimes-complex theories in everyday language Our effort is reflected well

in our textbook This leads to our next orientation

Not only is this book designed to be user-friendly, but it also emphasizes practice Webelieve in experiential learning and practical applications Rote learning of facts,concepts, and theories is not sufficient A good marketing manager should be able toput these to practice We use many examples and anecdotes, as well as our ownobservations and experiences, to vividly portray practical applications This book alsocontains real-life, lively cases so you can further apply your newly acquired knowledge

in practice, and experience for yourself what it takes to be an effective internationalmarketing manager

Therefore, this book has been written for both upper-level undergraduate andMBA students who wish to learn practical applications of marketing and related logic,and subsequently work internationally Although we overview foundation materials inthis book, we expect that students have completed a basic marketing course

To further enhance your learning experience, Professor Syed Anwar of West TexasA&M University kindly shares his excellent international marketing one-stop searchwebsite, Marketing & International Links1with you

As we stated earlier, we extensively address the implications of the internet and commerce in global marketing activities E-commerce is very promising, but variousenvironmental differences—particularly cultural and legal as well as consumer-needsdifferences—are bound to prevent it from becoming an instantaneous freewheelingtool for global marketing What we need to learn is how to manage online scale and

e-1 http://wtfaculty.wtamu.edu/sanwar.bus/otherlinks.htm#Marketing_&_International_Business_Links

scope economies and offline sensitivities to different market requirements We try our

best to help you become internet-savvy The internet is addressed in all the chapters

where relevant In particular, Chapter 19 provides an in-depth analysis of global

marketing issues in the age of the internet We admit that there are many more

unknowns than knowns about the impact of the internet on global marketing activities

That is why we point out areas in which the internet is likely to affect the way we do

business and have you think seriously about the imminent managerial issues that you

will be dealing with upon graduation Chapter 19 serves not as an epilogue to the fifth

edition but as a prologue to your exciting career ahead of you

While this book is designed to be user-friendly, it also emphasizes practice We

believe in Instructor Support Materials To accomplish our stated goals and

orienta-tions, we have made a major effort to provide the instructor and the student with

practical theories and their explanations using examples, anecdotes, and cases to

maximize the student’s learning experience Some of the specific teaching features are:

 Global Perspectives—Included in every chapter, Global Perspectives provide

con-crete examples from the global marketing environment into the classroom They are

designed to highlight some of the hottest global topics that students should be aware

of and may actually act on in their careers The instructor can use these inserts to

exemplify theory or use them as mini-cases for class discussion

 Long Cases—Long Cases are designed to challenge students with real and current

business problems and issues They require in-depth analysis and discussion of

various topics covered in the chapters, and help students to experience how the

knowledge they have gained can be applied in real-life situations There are more

than 40 cases covering various aspects of marketing situations as well as products,

regions, and nationalities of firms Six of them are included at the end of the text and

the rest are placed on the textbook website for easy download

 Short Cases—Short Cases are included at the end of each chapter and designed to

address various specific issues explained in the chapters These cases are useful in

demonstrating to students the relevance of newly learned subject matters and are

useful for open class discussions

 Maps—The maps provided show the economic geography of the world Students

should be knowledgeable about where various economic resources are available and

how they shape the nature of trade and investment and thus the nature of global

competition Global marketing cannot be appreciated without an understanding

economic geography

 Review Questions—Students may use the review questions to test themselves on and

summarize the facts, concepts, theories, and other chapter materials in their own

words We strongly believe that by doing so, students will gain active working

knowledge, rather than passive knowledge acquired by rote learning

 Discussion Questions—These questions facilitate discussions that can help students

apply the specific knowledge they learned in each chapter to actual business

situa-tions They are designed to serve as mini-cases Most of the issues presented in these

questions are acute problems multinational marketing managers are facing, and have

been adapted from recent issues of leading business newspapers and magazines

 The Instructor’s Manual—The Instructor’s Manual is designed to provide major

assistance to the instructor while allowing flexibility in course scheduling and

teaching emphasis The materials in the manual include the following:

a Teaching Plans—Alternative teaching plans and syllabi are included to

accom-modate the instructor’s preferred course structure and teaching schedules

Alter-native teaching schedules are developed for the course to be taught in a semester

format, on a quarter bases, or as an executive seminar

b Discussion Guidelines—For each chapter, specific teaching objectives and

guide-lines are developed to help stimulate classroom discussion

Our Pedagogical Orientation  xiii

c Test Bank—A test bank consists of short essay questions and multiple-choicequestions This test bank is also computerized and available to adopters on IBMcompatible computer diskettes.

d PowerPoint Slides—These are available on the web to assist the instructor inpreparing presentation materials

e Home Page on the Web—Make sure to visit our website http://www.wiley.com/college/kotabe/ for useful instructional information

f Global Marketing Management System Online, 3.0 (GMMS03)—developed by

Dr Basil J Janavaras, professor of International Business at Minnesota StateUniversity, is a Web-based global marketing management research and planningprogram As a bonus, each student who purchases the fifth edition of GlobalMarketing Management will receive a complimentary registration code that willprovide access to the software This practical, realistic program guides studentsthrough the systematic and integrative process of gathering, evaluating, and usingcertain types of information to help them to determine which markets to enter with

a particular product or service and to create a marketing plan for the country withthe optimal market environment for penetration It is both interactive andexperiential More specifically, the program enables students to do the following:

 Perform a situation analysis of a company in a global context

 Research global markets

 Identify high potential country markets for selected products or services

 Conduct in-depth market and competitive analysis

 Determine the best entry mode strategies

 Develop international marketing plans and strategies

A Student Guide, Glossary, and targeted Web-based resources are provided insample student projects as models to guide first-time users through the GMMSO process

An Instructor’s Manual is also available to those who use the GMMSO It includes thefollowing:

 Frequently asked questions/answers/suggestions

 Schedules for quarters and semester modules

 Table that correlates the software content with the content in the text

 Outlines for the presentation and the final paper.

 PowerPoint presentation of the entire GMMSO for instructional purposes.Additional benefits for Instructors:

 Monitor both individual & group-progress and review completed projects online

 Integrate knowledge from this and other courses

 Bridge the gap between theory and the real world of business

 Obtain technical support

If you are interested in using the GMMSO class project, register online at www.gmmso3.com or contact your local Wiley representative for details at: www.wiley.com/college/rep

Finally, we are delighted to share our teaching experience with you through thisbook Our teaching experience is an amalgam of our own learning and knowledgegained through continued discussion with our colleagues, our students, and ourexecutive friends We would also like to learn from you, instructor and students,who use our book Not only do we wish for you to learn from our book but we alsobelieve that there are many more things that we can also learn from you We welcomeyour sincere comments and questions Our contact addresses are as follows:

Masaaki Kotabe

Ph (215) 204-7704e-mail: mkotabe@temple.edu

Kristiaan Helsen

Ph (852) 2358-7720e-mail: mkhel@ust.hk

r r r r r r r r r r r r r r r r r r

This book would have never materialized without the guidance, assistance, and agement of many of our mentors, colleagues, students, and executives with and fromwhom we have worked and learned over the years We are truly indebted to each one ofthem We also thank the many reviewers for their constructive comments and suggestionsthat helped us improve our argument and clarity, and raise the quality of our book

encour-The first co-author would like to extend thanks to his colleagues around the world AtTemple University, Dean Moshe Porat at the Fox School of Business, for emphasizinginternational business education and research as the school’s primary focus of excellence,and providing plentiful opportunities for this co-author to meet with and discuss withleading practitioners/executives of international business those emerging issues that areshaping and re-shaping the way business is conducted around the world A good deal ofcredit also goes to Dan Zhang for having educated me with so many fascinating businessexamples and cases from around the world throughout the revision process

Various colleagues outside Temple University have helped the first co-author inthe writing process Tim Wilkinson (Montana State University) offered an interestinginsight into the workings of the European Union and its marketing peculiarities AmalKarunaratna (University of Adelaide, Australia) assisted in providing interestingexamples from ‘‘Down Under.’’ Taro Yaguchi (Omori & Yaguchi Law Firm, Phila-delphia) offered an update on ever-changing laws and treaties that affect firmsmarketing internationally Sae-Woon Park (Changwon National University, Korea),who has many years of export management and export financing practices, assisted indocumenting the most up-to-date and state-of-the-art export practices in use today

The second co-author would like to extend his thanks to MBA students at theUniversity of Chicago, Nijenrode University, Hong Kong University of Science andTechnology, and MIM students at Thammasat University (Bangkok) He also acknowl-edges the valuable comments on Chapter 13 from Chris Beaumont and John Mackay,both with McCann-Erickson, Japan Professor Niraj Dawar (University of WesternOntario, Canada) offered helpful insights on marketing in emerging markets A word

of gratitude for their feedback and encouragement is given to two colleagues who spenttheir sabbatical at HKUST: Jerry Albaum (University of Oregon) and Al Shocker(University of Minnesota); and special thanks to Romualdo Leones for some of thephoto materials used in the new edition

The textbook becomes ever more useful when accompanied by good resources forinstructors and students Preparing good resources is no small task Chip Miller ofDrake University deserves a special credit not only for preparing the excellentResource Guide and Test Bank to go with the book but also for providing usefulexamples and insights throughout the revision process

A very special word of appreciation goes to the staff of John Wiley & Sons, Inc.,particularly, Franny Kelly and Maria Guarascio, and Cynthia Mondgock of iD8Publishing Services, for their continued enthusiasm and support throughout the course

of this project

Finally and most importantly, we are deeply grateful to you, the professors,students, and professionals, for using this book We stand by our book, and sincerelyhope that our book adds to your knowledge and expertise We would also like tocontinuously improve our product in the future

As we indicated in the Preface, we would like to hear from you, our valuedcustomers Thank you!

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9rGLOBALMARKETENTRYSTRATEGIES 290

10rGLOBALPRODUCTPOLICYDECISIONSI:DEVELOPINGNEWPRODUCTS FORGLOBALMARKETS 330

11rGLOBALPRODUCTPOLICYDECISIONSII: MARKETINGPRODUCTS ANDSERVICES 360

15rGLOBALLOGISTICS ANDDISTRIBUTION 498

17rPLANNING,ORGANIZATION, ANDCONTROL OFGLOBALMARKETINGOPERATIONS 575

C ONTENTS

1^GLOBALIZATIONIMPERATIVE 1

Why Global Marketing is Imperative 2

Globalization of Markets: Convergence and

Divergence 8

International Trade versus International Business 11

Who Manages International Trade? 12

Evolution of Global Marketing 13

Intertwined World Economy 34

Foreign Direct Investment 36

Portfolio Investment 38

Country Competitiveness 39

Changing Country Competitiveness 39

Human Resources and Technology 40

Emerging Economies 42

Evolution of Cooperative Global Trade

Agreements 45

General Agreements on Tariffs and Trade 45

World Trade Organization 46

Information Technology and the Changing Nature of

Competition 51

Value of Intellectual Property in Information Age 52

Proliferation of E-Commerce and Regulations 53

Regional Economic Arrangements 54

Free Trade Area 55

The Bretton Woods Conference 68The International Monetary Fund 69The International Bank for Reconstruction andDevelopment 71

Fixed versus Floating Exchange Rates 71Currency Blocs 72

Foreign Exchange and Foreign Exchange Rates 74Purchasing Power Parity 74

Forecasting Exchange Rate Fluctuation 75Coping with Exchange Rate Fluctuations 75Spot versus Forward Foreign Exchange 78Exchange Rate Pass-Through 79

Balance of Payments 81The Internal and External Adjustments 84Economic and Financial Turmoil Around theWorld 85

Asian Financial Crisis and Its Aftermath 85The South American Financial Crisis and ItsAftermath 86

The U.S Subprime Mortgage Loan Crisis and theSubsequent Global Financial Crisis 87Financial Crises in Perspective 88

Responses to the Regional Financial Crises 88Marketing in the Euro Area 92

Historical Background 92Ramifications of the Euro for Marketers 95Short Cases 100

Definition of Culture 105Elements of Culture 106Material Life 106Language 108Social Interactions 111Aesthetics 112Religion 114Education 115Value Systems 117

xviii

Cross-Cultural Comparisons 118

High- versus Low-Context Cultures 118

Hofstede’s Classification Scheme 119

Global Account Management (GAM) 132

Global Accounts’ Requirements 133

Managing Global Account Relationships 133

Global Customer Relationship Management

5^POLITICAL ANDLEGALENVIRONMENT 141

Political Environment—Individual Governments 142

Home Country versus Host Country 142

Structure of Government 144

Government Policies and Regulations 146

Political Environment—Social Pressures and Political

Risk 155

Social Pressures and Special Interests 155

Managing the Political Environment 158

Terrorism and the World Economy International

Agreements 162

International Agreements 163

Group of Seven (G7), Group of Eight (G8), and

Group of Eight plus Five (G8+5) 164

Intellectual Property Protection 172

International Treaties for Intellectual Property

Protection 176

Antitrust Laws of the United States 180

Antitrust Laws of the European Union 182

U.S Foreign Corrupt Practices Act of 1977 182

Short Cases 188

Research Problem Formulation 195Secondary Global Marketing Research 197Secondary Data Sources 197

Problems with Secondary Data Research 199Primary Global Marketing Research 200Focus Groups 200

Survey Methods for Cross-Cultural MarketingResearch 202

Observational Research 206Leveraging the Internet for Global Market ResearchStudies 206

Market Size Assessment 209Method of Analogy 209Trade Audit 210Chain Ratio Method 211Cross-Sectional Regression Analysis 212New Market Information Technologies 213Managing Global Marketing Research 215Selecting a Research Agency 215Coordination of Multicountry Research 216

7^GLOBALSEGMENTATION ANDPOSITIONING 221

Reasons for International Market Segmentation 222Country Screening 222

Global Marketing Research 223Entry Decisions 223

Positioning Strategy 223Resource Allocation 224Marketing Mix Policy 224International Market Segmentation Approaches 225Segmentation Scenarios 227

Bases for International Market Segmentation 229Demographics 230

Socioeconomic Variables 231Behavior-Based Segmentation 234Lifestyle 235

International Positioning Strategies 236Uniform versus Localized PositioningStrategies 236

Universal Positioning Appeals 239Global, Foreign, and Local Consumer CulturePositioning 240

Short Cases 244Appendix: Segmentation Tools 247

Information Technology and GlobalCompetition 250

Real-Time Management 250Online Communication 251Electronic Commerce (E-Commerce) 251

Contents  xix

Global Marketing Strategy 265

Benefits of Global Marketing 266

Limits to Global Marketing 268

R&D, Operations, and Marketing Interfaces 270

Use of the‘‘Lead Market’’ Concept 279

Marketing Strategies for Emerging Markets 280

Competitive Analysis 283

Short Cases 286

9^GLOBALMARKETENTRYSTRATEGIES 290

Target Market Selection 291

Choosing the Mode of Entry 294

Decision Criteria for Mode of Entry 294

Mode-of-Entry Choice—Two Opposing Paradigms:

A Transaction Costs versus Resource-Based

Exit Strategies 319Reasons for Exit 319Risks of Exit 321Guidelines 322Short Cases 326Appendix: Alternative Country ScreeningProcedure 329

10^GLOBALPRODUCTPOLICYDECISIONSI:

Global Product Strategies 332Strategic Option 1: Product and CommunicationExtension—Dual Extension 332

Strategic Option 2: Product Extension—

Communications Adaptation 333Strategic Option 3: Product Adaptation—Communications Extension 333Strategic Option 4: Product and CommunicationsAdaptation—Dual Adaptation 333Strategic Option 5: Product Invention 333Standardization versus Customization 334Drivers Toward Standardization 334Two Alternatives—Modular and Core ProductApproach 338

Back-of-the-envelope Calculations—IncrementalBreak-even Analysis (IBEA) 339

Multinational Diffusion 342Developing New Products for Global Markets 344Identifying New Product Ideas 344

Screening 346Concept Testing 347Test Marketing 347Timing of Entry: Waterfall versus SprinklerStrategies 348

Truly Global Product Development 351Short Cases 355

Appendix: Using Conjoint Analysis for concepttesting in Global New Product

Development 357

11^GLOBALPRODUCTPOLICYDECISIONSII:

Global Branding Strategies 362Global Branding 362Local Branding 366Global or Local Branding? 367Brand-Name Changeover Strategies 371

Management of Multinational Product Lines 374

Product Piracy 378

Strategic Options against Product Piracy 380

Country-of-Origin (COO) Effects 382

Country-of-Origin (COO) Influences on

Consumers 383

Strategies to Cope with COO Stereotypes 385

Global Marketing of Services 386

Challenges in Marketing Services

Internationally 386

Opportunities in the Global Service Industries 387

Global Service Marketing Strategies 388

Managing Price Escalation 402

Pricing in Inflationary Environments 403

Global Pricing and Currency Fluctuations 405

Currency Gain/Loss Pass Through 406

Currency Quotation 409

Transfer Pricing 409

Determinants of Transfer Prices 409

Setting Transfer Prices 410

Minimizing the Risk of Transfer Pricing Tax

Audits 411

Global Pricing and Anti-dumping Regulation 412

Price Coordination 413

Global-Pricing Contracts (GPCs) 415

Aligning Pan-Regional Prices 415

Implementing Price Coordination 417

Other Cultural Barriers 429

Communication and Cultural Values 430

Setting the Global Advertising Budget 430

Budgeting Rules 431

Resource Allocation 433

Creative Strategy 434The‘‘Standardization’’ versus ‘‘Adaptation’’Debate 434

Merits of Standardization 435Barriers to Standardization 437Approaches to Creating Advertising Copy 438Global Media Decisions 440

Media Infrastructure 440Media Limitations 441Recent Trends in the Global MediaLandscape 442

Advertising Regulations 444Choosing an Advertising Agency 447Other Means of Communication 449Sales Promotions 449

Direct Marketing 451Global Sponsorships 451Mobile (Brand-in-the-Hand) Marketing 443Trade Shows 443

Product Placement 454Viral Marketing 455Global Public Relations (PR) and Publicity 456Globally Integrated Marketing Communications

Short Cases 461

14^SALES ANDCROSS-CULTURALMANAGEMENT 465

Market Entry Options and Salesforce Strategy 467Role of Foreign Governments 470

Cultural Considerations 471Personal Selling 471Cultural Generalization 472Corporate (Organizational) Culture 473Relationship Marketing 473

Myers–Briggs Type Indicator 474Impact of Culture on Sales Management and PersonalSelling Process 475

Salesforce Objectives 476Salesforce Strategy 477Recruitment and Selection 478Training 479

Supervision 480Evaluation 482Cross-Cultural Negotiations 482Stages of Negotiation Process 482Cross-Cultural Negotiation Strategies 483Expatriates 486

Advantages of Expatriates 487The Return of the Expatriate—Repatriation 492Generalizations about When Using Expatriates IsPositive/Negative 493

Short Cases 495

Contents  xxi

15^GLOBALLOGISTICS ANDDISTRIBUTION 498

Definition of Global Logistics 500

Managing Physical Distribution 502

Modes of Transportation 503

Warehousing and Inventory Management 505

Third-Party Logistic (3PL) Management 509

Logistical Revolution with the Internet 510

Managing Sourcing Strategy 511

Procurement: Types of Sourcing Strategy 512

Outsourcing of Service Activities 518

Free Trade Zones 520

International Distribution Channel 523

Channel Configurations 523

Channel Management 524

International Retailing 525

Private-Label Branding (Store Brands) 527

‘‘Push’’ versus ‘‘Pull’’ 528

On-Time Retail Information Management 529

Retailing Differences across the World 530

Short Cases 536

Appendix: Maquiladora Operation 539

Organizing for Exports 543

Research for Exports 543

Export Market Segments 544

Global Strategic Marketing Planning 576

Bottom-Up versus Top-Down Strategic

Matrix Structure 583The Global Network Solution 585Organizing for Global Brand Management 587Global Branding Committee 587

Brand Champion 587Global Brand Manager 587Informal, Ad Hoc Branding Meetings 587Life Cycle of Organization Structures 588Control of Global Marketing Efforts 590Formal (‘‘Bureaucratic’’) Control Systems 590Informal Control Methods 591

‘‘Soft’’ versus ‘‘Hard’’ Levers 592Short Cases 595

18^MARKETINGSTRATEGIES FOREMERGING

Emerging Markets 598Definition 598Characteristics of Emerging Markets 599Competing with the New Champions 603The New Champions 603

Computing Against the Newcomers 607Targeting/Positioning Strategies in Emerging

Entry Strategies for Emerging Markets 611Timing of Entry 611

Entry Mode 612Product Policy 612Product Design 612Branding 613Packaging 614Pricing Strategy 615The Distribution Challenge 616Creating Distribution Systems 617Managing Distributor Relationships 618Communication Strategies for Emerging Markets 619Push versus Pull Activities 619

Mass Media versus Non-Traditional MarketingApproaches 619

Short Cases 623

Barriers to Global Internet Marketing 627Language Barriers 627

Competitive Advantage and Cyberspace 633

Global Internet Consumers 634

Globally Integrated versus Locally Responsive

Internet Marketing Strategies 637

The Internet and Global Product Policy 641

Global Branding and the Internet 641

Web-based Global New Product

Development 642

Web-based Marketing of Services 643

Global Pricing and the Web 644

Global Distribution Strategies and the

CASES 659

Carrefour: Entry into India 660Wal-Mart’s Rising Sun? A Case on Wal-Mart’sEntry into Japan 665

Arla Foods and the Mohammed CartoonControversy 671

Club Med: Going Upscale 674Honda in Europe 679

SUBJECTINDEX 691

The following additional cases appear on the textbook’s website:

Volkswagen AG Navigates China

The Coca-Cola Company in Japan

Wal-Mart Operations in Brazil

Sony PS3 on the Run

Nintendo: Expanding the Gaming

Population through Innovation

Subway Restaurant Entry in Japan

Virgin America Lands in the United States

Kirin in Search of Growth Strategy

Louis Vuitton in Japan: The Magic Touch

Starbucks Coffee: Expansion in Asia

Gap Inc

Motorola: China Experience

iPod in Japan: Can Apple Sustain Japan’s

iPod Craze?

NTT DoCoMo: Can i-Mode Go Global?

The Future of Nokia

Maybelline’s Entry into India

Yahoo! Japan

AOL Goes Far East

Danone: Marketing the Glacier in the U.S

BMW Marketing InnovationHerman Miller, Inc vs ASAL GmbHNova Incorporated

Ceras Dese´rticas and Mitsuba Trading CompanyThe Headaches of GlaxoWelcome

BenettonTwo Dogs Bites into the World Market: Focus onJapan

ABC Chemical Company Goes GlobalDaimlerChrysler for East AsiaShiseido, Ltd.: Facing Global CompetitionSMS Pacs

Daimler-Benz Ag: The A-Class and the

“Moose-Test”

Pepsi OneUnisysFord Motor Company and Die DevelopmentCitibank in Japan

Kao Corporation: Direction for the 21st CenturyPlanet Hollywood: The Plate is Empty

Hoechst Marion Roussel: Rabipur Rabies Vaccine

Contents  xxiii

MULTI-NATIONAL ENTERPRISE

Marketing products and services around the world, transcending national and political

boundaries, is a fascinating phenomenon The phenomenon, however, is not entirely

new Products have been traded across borders throughout recorded civilization,

extending back beyond the Silk Road that once connected East with West from

Xian to Rome on land, and the recently excavated sea trade route between the Roman

Empire and India that existed 2,000 years ago However, since the end of World War II,

the world economy has experienced a spectacular growth rate never witnessed before

in human history, primarily led by large U.S companies in the 1950s and 1960s, then by

European and Japanese companies in the 1970s and 1980s, and most recently by new

emerging market firms, such as Lenovo, Mittal Steel, and Cemex In particular,

competition coming recently from the so-called BRIC countries (Brazil, Russia, India,

China) has given the notion of global competition a touch of extra urgency and

significance that you see almost daily in print media such as the Wall Street Journal,

Financial Times, Nikkei Shimbun, and Folha de S~ao Paulo, as well as in TV media such

as BBC, NBC, and CNN With a few exceptions, such as Korea’s Samsung Electronics

(consumer electronics) and China’s Haier (home appliances), most emerging-market

multinational companies are not yet household names in the industrialized world, but

from India’s Infosys Technologies (IT services) to Brazil’s Embraer (light jet aircrafts),

and from Taiwan’s Acer (computers) to Mexico’s Cemex (building materials), a new

class of formidable competitors is rising.1

1

‘‘A New Threat to America Inc.’’ Business Week, July 25, 2005, p 114; and also read Martin Roll, Asian Brand

Strategy: How Asia Builds Strong Brands, New York: Palgrave Macmillan, 2006.

1

In this chapter, we will introduce to you the complex and constantly evolvingrealities of global marketing Global marketing refers to a strategy for achieving one ormore of four major categories of potential globalization benefits: cost reduction,improved quality of products and programs, enhanced customer preference, andincreased competitive advantage on a global basis The objective is to make you thinkbeyond exporting and importing As you will learn shortly, despite wide media attention

to them, exporting and importing constitute a relatively small portion of internationalbusiness We are not saying, however, that exporting and importing are not important In

2006, the volume of world merchandise trade grew by 8 percent, while world grossdomestic product recorded a 3.5 percent increase, which confirms that the trend in worldmerchandise trade grows by twice the annual growth rate of output since 2000 Totalmerchandise trade volume reached $16.3 trillion in 2008, compared to $6 trillion in

2000.2In recent years, improved market conditions in the United States and Europe, aswell as strong growth in the Emerging Markets, such as China and India, steadilyimproved the world economy after the devastating terrorist attacks in the United States

on September 11, 2001 However, the aftermath of the U.S.-led war against Iraq, the highoil prices, and most recently, the unprecedented global recession triggered by thesubprime mortgage crisis in the United States in 2008, among other things, continue

to curb a full-fledged recovery in the world economy Indeed, at the time of this writing

in early 2009, as the global economy is currently experiencing the worst recession sincethe Great Depression of 1929–1932, World Bank predicts that the world trade volumewill shrink in 2009 for the first time in over 25 years,3and the specter of economicnationalism—the country’s urge to protect domestic jobs and keep capital at homeinstead of promoting freer international trade—is hampering further globalization.4Although sometimes bumpy, it is expected that the drive for globalization will continue

to be promoted through more free trade, more Internet commerce, more networking ofbusinesses, schools and communities, and more advanced technologies.5

We frequently hear terms such as global markets, global competition, global technology,and global competitiveness In the past, we heard similar words with international ormultinational instead of global attached to them What has happened since the 1980s?Are these terms just fashionable concepts of the time without some deep meanings? Orhas something inherently changed in our society?

Saturation of Domestic Markets. First, and at the most fundamental level, thesaturation of domestic markets in the industrialized parts of the world forced manycompanies to look for marketing opportunities beyond their national boundaries.The economic and population growths in developing countries also gave thosecompanies an additional incentive to venture abroad Now companies fromemerging economies, such as Korea’s Samsung and Hyundai and Mexico’s Cemexand Grupo Modelo, have made inroads into the developed markets around the

2 The World Factbook 2009, https://www.cia.gov/library/publications/the-world-factbook/index.html.

3 World Bank, Global Economic Prospect 2009, www.worldbank.org/gep2009.

4

‘‘The Return of Economic Nationalism,’’ Economist, February 7, 2009, pp 9–10.

5 The reader needs to be cautioned that there may be limits to the benefit of globalization for two primary reasons First, firms in poor countries with very weak economic and financial infrastructures may not be able to (afford to) adjust fast enough to the forces of globalization Second, poor countries could be made worse off by trade liberalization because trade tends to be opened for high-tech goods and services exported by rich countries – such as computers and financial services – but remains protected in areas where those poor countries could compete, such as agricultural goods, textiles or construction See, for example, Joseph E Stiglitz, Globalization and Its Discontents, New York: W.W Norton & Co., 2003 For an excellent treatise on various paradoxes of globalization, refer to Terry Clark, Monica Hodis, and Paul D’Angelo, ‘‘The Ancient Road: An Overview of Globalization,’’ in Masaaki Kotabe and Kristiaan Helsen, ed., The SAGE Handbook of International Marketing, London: Sage Publications, 2009, pp 15–35.

world The same logic applies equally to companies from developed countries, such

as Australia and New Zealand, geographically isolated from the other major

industrialized parts of the world D^ome Coffees Australia is building a

multi-national coffee shop empire by expanding into Asia and the Middle East

Inevita-bly, the day will come when Starbucks from the United States and D^ome Coffees

from Australia will compete head-on for global dominance.6

Emerging Markets. During the twentieth century, the large economies and large

trading partners have been located mostly in the Triad Regions of the world (North

America, Western Europe, and Japan), collectively producing over 80 percent of

world gross domestic product (GDP) with only 20 percent of the World’s population.7

However, in the next 10 to 20 years, the greatest commercial opportunities are

expected to be found increasingly in ten Big Emerging Markets (BEMs)—the

Chinese Economic Area, India, Commonwealth of Independent States (Russia,

Central Asia, and Caucasus states), South Korea, Mexico, Brazil, Argentina, South

Africa, Central European countries, Turkey, and the Association of Southeast Asian

Nations (Indonesia, Brunei, Malaysia, Singapore, Thailand, the Philippines, and

Vietnam) Accordingly, an increasing number of competitors are expected to

origi-nate from those ten emerging economies In the past 20 years, China’s real annual

GDP growth rate has averaged 9.5 percent a year; while India’s has been 5.7 percent,

compared to the average 3 percent GDP growth in the United States Clearly, the

milieu of the world economy has changed significantly and over the next two decades

the markets that hold the greatest potential for dramatic increases in U.S exports are

not the traditional trading partners in Europe, Canada, and Japan, which now account

for the overwhelming bulk of the international trade of the United States But they

will be those BEMs and other developing countries that constitute some 80 percent of

the‘‘bottom of the pyramid.’’8

As the traditional developed markets have becomeincreasingly competitive, such emerging markets promise to offer better growth

opportunities to many firms

Global Competition. We believe something profound has indeed happened in our

view of competition around the world About thirty years ago, the world’s greatest

automobile manufacturers were General Motors, Ford, and Chrysler Today, companies

like Toyota, Honda, BMW, Renault, and Hyundai, among others, stand out as

competitive nameplates in the global automobile market Now with a 15-percent

market share in the United States, Toyota’s market share is larger than Ford’s 14

percent In early 2008, Toyota surpassed General Motors to become the world’s largest

automaker in terms of worldwide output.9 Similarly, while personal computers had

been almost synonymous with IBM, which had previously dominated the PC business

around the world, today, the computer market is crowded with Dell and

Hewlett-Packard (HP) from the United States, Sony and Toshiba from Japan, Samsung from

Korea, Acer from Taiwan,10and so on Indeed, Lenovo, a personal computer company

from China, acquired the IBM PC division in 2005, and now sells the ThinkPad series

under the Lenovo brand The deal not only puts Lenovo into third place in the industry,

it also challenges the world top players, Dell and HP/Compaq, respectively.11Nike is a

C K Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Philadelphia, PA:

Wharton School Publishing, 2004.

9

‘‘Toyota’s Global Sales Top GM by 277,000 Units in 1 st Half,’’ Nikkeinet Interactive, www.nni.nikkei.co.jp, July 24,

2008.Catches GM in Global Sales,’’ CNNMoney.com, January 23 2008.

10

‘‘Why Taiwan Matters: The Global Economy Couldn’t Function without It, but Can It Really Find Peace with

China?’’ Business Week, May 16, 2005, pp 74–81.

11

‘‘Can China’s Lenovo Brand in the Land of Dell?’’ B to B, October 10, 2005, p 1 and p 45.

Why Global Marketing Is Imperative  3

U.S company with a truly all-American shoe brand, but all its shoes are made in foreigncountries and exported to many countries Pillsbury (known for its Betty Crockerrecipes and H€aagen-Dazs ice cream brand) and 7-Eleven convenience stores are twoAmerican institutions owned and managed, respectively, by Diageo from the UnitedKingdom and Seven & i Holdings Co from Japan On the other hand, the world ofmedia, led by U.S media giants, has become equally global in reach MTV, targetingteenage audiences, has 35 channels worldwide, 15 of them in Europe, produces a largepart of its channel contents locally CNN has 22 different versions In 1996, 70 percent ofthe English-language version of CNN International was American; today that share hasshrunk to about 8 percent.12The video game industry is truly global from day one;Nintendo’s Wii, Sony’s Playstation 3, and Microsoft’s Xbox now vie for customers in theTriad regions simultaneously.

Global Cooperation. Global competition also brings about global cooperation.This is most obvious in the information technology industry IBM and Japan’s Fujitsuused to be archrivals Beginning in 1982, they battled each other for fifteen years insuch areas as software copyright But in October 2001, they developed a comprehen-sive tie-up involving the joint development of software and the mutual use of computertechnology IBM would share its PC server technology with Fujitsu and the Japanesecompany would supply routers to IBM.13 Japan’s Sony, Toshiba, and U.S computermaker IBM are jointly developing advanced semiconductor processing technologiesfor next-generation chips As part of the project, IBM transfers its latest technologies

to Sony and Toshiba, and the partner companies each send engineers to IBM’sresearch center in New York to work on the joint project.14Similarly, in the automo-tive industry, in 1999 French carmaker Renault SA took a 36.8 percent stake inJapanese carmaker Nissan Motor Corp The two companies began producing cars onjoint platforms in 2005 To help pave the way for that, in March, 2001 the twocarmakers decided that they would combine their procurement operations in ajoint-venture company that would eventually handle 70 percent of the companies’global purchasing The joint venture is headquartered in Paris, with offices in Japanand the United States.15

Globe-trotting companies are vying for customers’

‘‘mind share’’ in many parts of the world such as

in Piccadilly Circus, London, England

JTB Photo/Photolibrary Group Limited

12

‘‘Think Global,’’ Economist, April 11,2002.

13 ‘‘Fujitsu, IBM Negotiate Comprehensive Tie-up,’’ Nikkei Interactive Net, www.nni.nikkei.co.jp, October 18, 2001 14

‘‘IBM, Sony, Toshiba Broaden and Extend Successful Semiconductor Technology Alliance,’’ IBM Press Room, http://www-03.ibm.com/press/us/en/pressrelease/19103.wss, January 12, 2006,’’ Nikkei Interactive Net, www.nni nikkei.co.jp, April 2, 2002.

15 ‘‘Nissan and Renault Look to Boost Joint Procurement Efforts,’’ Japan Times, November 29, 2002.

Internet Revolution. The proliferation of the Internet and e-commerce is wide

reaching The number of Internet users in the world reached 1.4 billion by March 2008,

which amounts to almost three times that of 2000 According to Internet World Stat,16

41.2 percent of the Internet users come from Asia, followed by 24.6 percent and 15.7

percent from Europe and North America, respectively Although the Middle East and

Africa account for only 6.3 percent of Internet users, these two regions rank top two in

their usage growth of over ten times between 2000 and 2008 In the same period,

Internet usage in Asia and Latin America/Caribbean grew by 475 percent and 861

percent, respectively As a result, the total global e-commerce turnover ballooned more

than 33 times from $385 billion in 2000 to $12.8 trillion in 2006, taking up 18 percent of

the global trade of commodities in 2006 Developed countries led by the United States

are still leading players in this field, while developing countries like China are

emerging, becoming an important force in the global e-commerce market.17

Compared to business-to-consumer (B2C) e-commerce, business-to-business (B2B)

e-commerce is larger, growing faster, and has less unequal geographical distribution

globally.18 Increases in the freedom of the movements of goods, services, capital,

technology, and people, coupled with rapid technological development, resulted in an

explosion of global B2B e-commerce The share a country is likely to receive of the global

B2B e-commerce, on the other hand, depends upon country-level factors such as income

and population size, the availability of credit, venture capital, and telecom and logistical

infrastructure; tax and other incentives, tariff/nontariff barriers, government emphasis on

the development of human capital, regulations to influence firms’ investment in R&D,

organizational level politics, language, and the activities of international agencies.19

Who could have anticipated the expansion of today’s e-commerce companies,

including Amazon, eBay, and Yahoo in the United States; QXL Ricardo and Kelkoo in

Europe; Rakuten and 7dream in Japan, and Baidu in China? The Internet opened the

gates for companies to sell direct-to-consumers easily across national boundaries Many

argue that e-commerce is less intimate than face-to-face retail; however, it actually

provides more targeted demographic and psychographic information

Manufacturers that traditionally sell through the retail channel may benefit the

most from e-commerce Most importantly, the data allow for the development of

relevant marketing messages aimed at important customers and initiate loyal

relation-ships on a global basis.20 With the onset of satellite communications, consumers in

developing countries are equally familiar with global brands as consumers in developed

countries, and as a result, there is tremendous pent-up demand for products marketed

by multinational companies (which we also refer to as MNCs).21

What’s more, the Internet builds a platform for a two-way dialogue between

manufacturers and consumers, allowing consumers to design and order their own

products from the manufacturers Customized build-to-order business model is already

an established trend Dell Computer is a pioneer that does business globally by

bypassing traditional retail channels It accepts orders by phone, fax, or on the

Internet.22 General Motors started providing a build-to-order Web service for its

16

http://www.internetworldstats.com, accessed July 20, 2009.

17

Annual Report on the Development of Global E-Commerce Industry: 2006-2007, http://market.ccidnet.com/pub/

report/show_17192.html, accessed July 20, 2009.

18

B2B and B2C, among others, have become trendy business terms in recent years However, they are fundamentally

the same as more conventional terms, consumer marketing and industrial marketing, respectively, except that B2B

and B2C imply the use of the Internet, Intranet, customer relationship management software, and other information

technology expertise In our book, we will not use use these trendy terms unless they are absolutely necessary in

making our point.

However, Dell’s direct sales on the Internet fails to work in some emerging markets, particularly where customers

want to see products before they buy Such is the case in small cities in China See ‘‘Dell May Have to Reboot in

China,’’ Business Week, November 7, 2005, p 46.

Why Global Marketing Is Imperative  5

Brazilian customers in 2000 Mazda’s Web Tune Factory site, being one of the firstJapanese auto build-to-order models, allows consumers to choose their own enginespecifications, transmission type, body color, wheel design and other interior andexterior equipment.23 However, as presented in Global Perspective 1-1, we wouldalso like to stress as a caveat that the proliferation of e-commerce and satellitecommunications does not necessarily mean that global marketing activities are goingculture- and human contact-free Learning of foreign languages will probably remain

as important as ever

r r r r r r r r r r r r r r r r r r r r r r r r r r r r r

Cultural differences greatly affect business relationships in the

world of e-commerce, but this is often underestimated,

espe-cially in international team-building efforts Language issues

are not the only source of the problem Foreign companies

need acceptance by the local market and understanding of the

local business culture The Internet’s awesome

communica-tions power can be turned into a conduit for miscommunication

if such cultural factors are ignored Knowing what level of

communication is appropriate for a certain level of trust is

particularly important in a Web-based environment, where

face-to-face contact may be more limited

Think, for example, a typical mid-sized manufacturer in, say,

Taiwan, China, or Thailand Would it enter into a strategic

business relationship with companies and people they

encoun-ter only through compuencoun-terized inencoun-teractions? The short answer is

yes; they will enter into such relationships However, we qualify

our positive reply by adding that the initial courtship ritual must

continue to have personal face-to-face, one-to-one, or what we

feel is becoming a new‘‘screen-to-screen’’ relationship

dimen-sion as with a traditional business model In China, which has a

long tradition of distrust and a culture of relationship building

known as‘‘guanxi,’’ information, a key source of power in this

business culture, is only passed selectively to individuals who

are proven trustworthy or known as insiders This kind of

culture has considerable impact on B2B e-commerce adoption

and diffusion in China In this context, such sociocultural

tensions cannot be solved with only the Internet’s technical

power In fact, traditional personal face-to-face

communica-tions are still critical in building trust and relacommunica-tionships

However, after the initial mating ritual, you can and already

do see tremendous transactional business-to-business activity

in these countries There is nothing to say that e-commerce can

or should replace the human element in relationship building

In fact, e-commerce is a new form of personalized relationshipbuilding that even the highest context cultures engage in eBayand the other online auction companies are perfect examples

of such new electronic relationship and trust building Even inthe Eastern cultures, we see numerous gambling sites springing

up where the only aspects of the relationship are anonymouse-commerce-related

The critical factor will be the Web site evolving into the firststep in developing the personal international business rela-tionship Unless the Web site makes the first connection based

on sensitivity to the cross-cultural aspects of interface design,human factors, navigation currency, time and date conven-tions, localization, internationalization, and so on, the ability

to‘‘connect’’ will be stilted

In the information technology sector, one can look at Delland Gateway, which both do very strong business in the Asia/Pacific region The networking company, Cisco Systems, serves

as an example of the morphing of electronic and personalrelationships While they have done a tremendous job ofbuilding global relationships and partnerships on an in-countryface-to-face level, almost 90 percent of their business (i.e.,sales transactions) is conducted over the Web

Has the Web replaced the need for the personal businesscourtship? Absolutely not Has it added a new element to thesame relationship after the bonds are formed? Most definitely.Will there be new electronic forms of relationship building thatreplace the old model of face-to-face in a karaoke bar? Yes, it is happening already Starting with video/teleconfer-ences in the boardroom and expanding downward to MicrosoftNetMeetings using a Webcam on the desktop

Just think, one decade or so ago very few of us would hardlydream that most Web-enabled adolescents communicate morethrough instant messaging than they do on the phone or inperson In ten years, technology will give us HDTV screenquality with real time audio and video bandwidth This surelywill not completely replace face-to-face interaction amongglobal sellers and buyers, but it will for certain offer a viablesubstitute for those who grew up chatting online

Sources: Frank Cutitta, GINLIST@LIST.MSU.EDU, April 17, 1999;

Nitish Singh, Vikas Kumar, and Daniel Baack, ‘‘Adaptation of Cultural

Content: Evidence from B2C E-Commerce Firms, ’’ European Journal

of Marketing, 39 (1/2), 2005, pp 71–86; Jing Tan, Katherine Tyler,

Andrea Manica, ‘‘Business-to-Business Adoption of eCommerce in

China, ’’ Information & Management, 44, April 2007, pp 332–51; and

Maris G Martinsons, ‘‘Relationship-Based e-Commerce: Theory and

Evidence from China, ’’ Information Systems Journal, published online,

April 15, 2008.

23 Setsuko Kamiya, ‘‘Mazda lets buyers fine-tune Rodster,’’ The Japan Times Online, www.hapantimes.co.jp, January 5, 2002.

An examination of the top 100 largest companies in the world also vividly illustrates

the profound changes in competitive milieu and provides a faithful mirror image of broad

economic trends that we have seen over the past thirty some years (see Exhibit 1.1) In

particular, the last decade was characterized by the long-term recession in Japan and a

resurgence of the U.S economy that had once been battered by foreign competition in

the 1980s Take Japan, which has suffered several recessions since 1995 and many political

changes, as an example The number of Japanese companies on the list fell from 23 in

2000 to 10 in 2009 The number of U.S and European firms ranking in the largest 100 has

stayed relatively stable since 1990 Although the United States boasts the largest number

of firms in the top 100 list, a list of countries with large firms is getting more decentralized

One of the biggest changes since 1990 has been the emergence of China.24As economic

reform progressed and Chinese companies improved their accounting standards, their

presence grew steadily Five Chinese companies are on the 2009 Fortune Global 100 list

Because of the rising tide of petrodollars, a Chinese company, Sinopec, was lifted into the

top 10 for the first time The current world economy has changed so drastically from what

it was merely a decade ago

The changes observed in the past thirty years simply reflect that companies from

other parts of the world have grown in size relative to those of the United States despite

the resurgence of the U.S economy in the 1990s In other words, today’s environment is

characterized not only by much more competition from around the world but also by

more fluid domestic and international market conditions than in the past As a result,

many U.S executives are feeling much more competitive urgency in product

develop-ment, materials procuredevelop-ment, manufacturing, and marketing around the world It does

not necessarily mean that U.S companies have lost their competitiveness, however The

robust economy in the United States in the late 1990s met a slow down in 2000 due to

EXHIBIT1-1

CHANGE IN THEWORLD’S100 LARGESTCOMPANIES

ANDTHEIRNATIONALITIES

Source: Fortune, various issues up to 2009.

 Fortune Global 500 criteria changed to include services firms (including retailing and trading)

 Includes joint nationality of firms (joint nationality has been counted for both the countries), so the total may exceed 100.

the crash of dot.com’s bubble economy, and was worsened by the terrorist attacks onSeptember 11, 2001 But the strong consumer demand has saved its economy On theother hand, many Asian countries have recovered from the 1997 Asian financial crisis(see chapter 3 for details).

The same competitive pressure equally applies to executives of foreign companies.For example, while its Japanese home market was the incredible shrinking market inthe 1990s, Toyota’s new strategy has been to de-Japanize its business and make the U.S.market its corporate priority By 2001, Toyota had already accomplished its goal byselling more vehicles in the United States (1.74 million) than in Japan (1.71 million),with almost two-thirds of the company’s operating profit coming from the U.S market.Now Toyota’s top U.S executives are increasingly local hires As Mark Twain oncewrote,‘‘if you stand still, you will get run over.’’ This analogy holds true in describingsuch competitive pressure in this era of global competition

It is not only this competitive force that is shaping global business today Particularly

in the past several years, many political and economic events have affected the nature ofglobal competition The demise of the Soviet Union, the establishment of the EuropeanUnion and the North American Free Trade Agreement, deregulation, and privatization

of state-owned industries have also changed the market environments around the world.Furthermore, the emerging markets of Eastern Europe and the rapidly re-emergingmarkets of Southeast Asia also add promise to international businesses

The fluid nature of global markets and competition makes the study of globalmarketing not only interesting but also challenging and rewarding The term globalepitomizes both the competitive pressure and the expanding of market opportunitiesall over the world It does not mean, however, that all companies have to operateglobally like IBM, Sony, Philips, or Samsung Whether a company operates domesti-cally or across national boundaries, it can no longer avoid competitive pressure fromother parts of the world Competitive pressure can also come from competitors athome When Weyerhaeuser, a forest products company headquartered in Seattle,Washington, began exporting newspaper rolls to Japan, it had to meet the exactingquality standard that Japanese newspaper publishers demanded—and it did As aresult, this Seattle company now boasts the best newspaper rolls and outperforms otherdomestic companies in the U.S market as well Even smaller firms could benefit fromexacting foreign market requirements When Weaver Popcorn Co of Van Buren,Indiana, started to export popcorn to Japan, Japanese distributors demanded betterquality and fewer imperfections This led to improvements in Weaver’s processingequipment and product, which helped its domestic as well as international sales.25Furthermore, e-commerce comes in handy for those smaller firms with internationalmarketing ambitions For example, LaPebbles.com, a small handcrafted jewelry makerbased in the northeastern part of the United States, can tap into potentially large globalmarkets So can small firms based in foreign countries looking to the U.S market aswell Therefore, even purely domestic companies that have never sold anything abroadcannot be shielded from international competitive pressure The point is that when wecome across the term global, we should be made aware of both this intense, competitivepressure and expanding market opportunities on a global basis

When a country’s per capita income is less than $10,000, much of the income is spent onfood and other necessity items, and very little disposable income remains However,once per capita income reaches $20,000 or so, the disposable portion of incomeincreases dramatically because the part of the income spent on necessities does not

25 Doug LeDuc, ‘‘Overseas Markets Spur Growth for Van Buren, Ind.-Based Popcorn Maker,’’ The News-Sentinel, (April 19, 1999).

rise nearly as fast as income increases As a result, a billion people, constituting some 16

percent of the population, around the world with per capita income of $20,000 and

above have considerable purchasing power With this level of purchasing power,

people, irrespective of their nationality, tend to enjoy similar educational levels,

academic and cultural backgrounds, and access to information As these cultural

and social dimensions begin to resemble each other in many countries, people’s desire

for material possessions, ways of spending leisure time, and aspirations for the future

become increasingly similar Even the deeply rooted cultures have begun to converge.26

In other words, from a marketing point of view, those people have begun to share a

similar‘‘choice set’’ of goods and services originating from many parts of the world

What does it mean?

In one sense, we see young people jogging in Nike shoes (an American product

made in China), listening to System of a Down (an Armenian rock band) or Thalia Sodi

(a Mexican pop singer) on Apple Computer’s iPod (an American product) in Hong

Kong, Philadelphia, S~ao Paulo, Sydney, and Tokyo Similarly, Yuppies (young urban

professionals) in Amsterdam, Chicago, Osaka, and Dallas share a common lifestyle:

driving a BMW (a German car assembled in Toluca, Mexico) to the office, listening to

Sumi Jo’s and Sissel Kyrkjebø’s new CD albums (purchased on their business trips to

Korea and Norway, respectively), using a Dell notebook computer (an American

product made by Quanta, a Taiwanese company in Taiwan) at work, calling their

colleagues with a Nokia cellular phone (a Finnish product), signing important

docu-ments with an exquisite Parker Pen (made by a French-based company owned by a U.S

company), and having a nice seafood buffet at M€ovenpick (a Swiss restaurant chain) on

a Friday In the evenings, these people spend their spare time browsing various Web

sites using Google search engine (an American Internet company) to do some

‘‘virtual’’ window-shopping on their PCs (powered by a microprocessor made in

Malaysia by Intel, an American company) The convergence of consumer needs in

many parts of the world translates into tremendous business opportunities for

compa-nies willing to risk venturing abroad

The convergence of consumer needs at the macro level may be evident, but it does

not necessarily mean that individual consumers will adopt all the products from around

the world Globalization does not suffocate local cultures, but rather liberates them

from the ideological conformity of nationalism.27As a result, we have become ever

more selective Therefore, you find one of your friends at school in the United States

driving a Toyota Tacoma (a compact Japanese truck made by General Motors and

Toyota in Fremont, California), enjoying Whoppers at a Burger King fast food

restaurant (an ex-British company, now American), and practicing capoeira (a

400-year-old Brazilian martial art); another friend in Austria is driving a Peugeot 107

(a French car made by Toyota in the Czech Republic, also marketed as Citro€en 1 and

Toyota Aygo), enjoying sushi at a sushi restaurant (a Japanese food), and practicing

karate (an ancient Japanese martial art); and a cousin of yours is driving a Ford Escape

(an American sports utility vehicle jointly developed with Mazda, a Japanse

auto-maker), munching on pizzas (an American food of Italian origin), and practicing soccer

(a sport of English origin, known as football outside the United States and some few

other countries) In other words, thanks to market globalization, not only have we

become more receptive to new things, but we also have a much wider, more divergent

‘‘choice set’’ of goods and services to choose from to shape our own individual

preferences and lifestyles This is true whether you live in a small town in the United

States or in a big city in Europe In other words, the divergence of consumer needs is

taking place at the same time For example, Pollo Campero, a Latin American fried

chicken chain from Guatemala, which offers a crunchy bite of chicken with a Latin

service in a Latin-American environment, has been catching on quietly in the United

26

For an excellent story about global cultural convergence, read ‘‘Global Culture’’ and ‘‘A World Together,’’

National Geographic, 196 (August 1999), pp 2–33.

27

Mario Vargas Llosa, ‘‘The Culture of Liberty,’’ Foreign Affairs, issue 122, January/February 2001, pp 66–71.

Globalization of Markets: Convergence and Divergence  9

States, the land of Kentucky Fried Chicken (KFC), to cater to Americans’ increasedappetite for a different kind of chicken.28From a marketing point of view, it is becomingmore difficult—not easier—to pinpoint consumers’ preferences in any local marketaround the world, the more globalized the markets become.

As presented in Global Perspective 1-2, the European Union (EU) market offers avivid example of how market forces of convergence and divergence are at work Onething is clear There is no such a thing as a static market in an era of globalization

r r r r r r r r r r r r r r r r r r r r r r r r r r r r r

Will Euroland survive? Rejection of the proposed EU

Con-stitution by France and The Netherlands in 2005 caused

anguish for political and EU economic elites An‘‘ever closer

union’’ had been seen—until the no vote called it into

ques-tion—(see Chapter 2 for details), as the European answer to

globalization, political security, and economic growth

Euro-pean leaders aren’t the only ones who are concerned

Insight-ful American and Japanese business managers are also worried

because, contrary to popular belief, the chief economic

bene-ficiaries of European integration are American and Japanese

multinational corporations

Historically, Europe, due to national, cultural, and ethnic

differences, has had heterogeneous and fragmented markets

These markets produced small to mid-sized firms capable of

adapting to, and prospering from, highly differentiated

envi-ronments Even the largest European companies tended to

operate at the national, rather than Pan-European, level,

avoiding the many encumbrances of functioning across

bor-ders where market conditions were so dissimilar For instance,

for many years Unilever sold a fabric softener in ten countries

under seven different brand names, using a variety of

market-ing strategies and bottle shapes

Typical European firms pursued niche strategies,

emphasiz-ing craftsmanship, specialization, and networks of

relation-ships Europe, with its myriad laws, languages, and customs,

historically constituted a market environment with significant

entry and operating barriers Foreign firms could not use

economies of scale or scope inherent in large homogeneous

markets; they were unable to compete on the basis of low cost

or low price High labor costs, heavy taxation to support

welfare states, and high expectations of European retailers

and consumers, all worked together to shape an environment

that favored the creation of specialized, premium products

rather than mass-consumption products This put U.S

multi-nationals in Europe at a competitive disadvantage

The traditional European advantage was based on the notion

that a less homogeneous marketplace requires a more

individu-alized marketing strategy This approach is at odds with the

strategy of many American firms—preserving the ability to

reduce costs through economies of scale and scope Historically,

market fragmentation shielded Europe from U.S competition

Such fragmentation constituted location-specific advantages that

were either costly to overcome, or were simply impenetrable bymany smaller U.S companies However, the creation of theEuropean Union changed the rules of the game

One major purpose of the EU is to create extensivehomogeneous markets in which large European firms areable to take advantage of economies of scale and thereforeare better able to compete with their U.S counterparts EUreformers hope to create an economy analogous to the UnitedStates, in which low inflation coexists with high growth,thereby leading to low unemployment

The formation of the EU has resulted in extremely largelevels of U.S and Japanese foreign direct investment (FDI) inEurope Why? First, it was feared that the EU would become

‘‘Fortress Europe’’ through the implementation of significantprotectionist measures against firms from outside the EU.Under these circumstances, FDI constitutes tariff jumping

in anticipation of negative actions that may or may not occur

in the future Second, the elimination of internal borderscreates a single market, amenable to the large economies ofscale and scope preferred by U.S and Japanese multinationals.Numbers tell the story The average FDI inflows into theEuropean Community (as the EU was known until November

1, 1993) amounted to $65.6 billion from 1985–1995 The inflow

in 1999 (the year the euro, a new currency adopted by eleven

EU member countries, was launched) was $479.4 billion—a

700 percent increase By 2000 Japanese investment in the EUwas roughly six times more than EU investment in Japan In

1980 the total FDI stock of European Community was $216billion, by 2005 it was $3,123 billion Finally, FDI stock as apercentage of GDP was 8.5 percent in 1987 (the year that plansfor the Maastricht Treaty were presented) In 2002, the year inwhich euro notes and coins replaced local currencies, it was34.6 percent

Four decades ago the French intellectual, J J Schreiber complained bitterly about the U.S presence inEurope in a best-selling book entitled, The American Chal-lenge (1967) The Europeans now face similar competitivedynamics Ironically, in their quest for economic competitive-ness, they may have made themselves more vulnerable to theambitions of U.S and Japanese multinationals

Servan-What can European firms do to cope with the onslaught ofU.S and Japanese multinationals? Large European firms can

28

‘‘From Guatemala with Love,’’ Chain Leader, September/October 2005, pp 28–32.

The United States, which enjoys one of the highest per-capita income levels in the

world, has long been the most important single market for both foreign and domestic

companies As a result of its insatiable demand for foreign products, the United States

has been running a trade deficit since 1973—for three consecutive decades (more on

this in Chapter 2) In the popular press, the trade deficits have often been portrayed as a

declining competitiveness of the United States This assumes—rather erroneously—

that U.S companies engaged only in exports and imports and that international trade

takes place between independent buyers and sellers across national boundaries In

order to appreciate the complexities of global competition, the nature of international

trade and international business must first be clarified, followed by a discussion of who

manages international trade

First of all, we have to understand the distinction between international trade and

international business Indeed, international trade consists of exports and imports, say,

between the United States and the rest of the world If U.S imports exceed U.S exports,

then the nation would register a trade deficit If the opposite were the case, then the

United States would register a trade surplus On the other hand, international business

is a broader concept and includes international trade and foreign production U.S

companies typically market their products in three ways First, they can export their

products from the United States, which is recorded as a U.S export Second, they can

invest in their foreign production on their own and manufacture those products abroad

for sale there This transaction does not show up as a U.S export And third, they can

contract out manufacturing in whole or part to a company in a foreign country, either by

way of licensing or joint venture agreement Of course, not all companies engage in all

three forms of international transaction Nonetheless, foreign manufacture,

indepen-dently or contractually, is a viable alternative means to exporting products abroad

Although it is not widely known, foreign production constitutes a much larger portion

of international business than international trade

The extensive international penetration of U.S and other companies has been

referred to as global reach.29 Since the mid-1960s, U.S.-owned subsidiaries located

around the world have produced and sold three times the value of all U.S exports

Although more recent statistics are not available, this 3:1 ratio of foreign manufacture

to international trade had remained largely unchanged in the 1980 and 1990s, and it

becomes much more conspicuous if we look at U.S business with the European Union,

counter U.S competitors by exporting or investing directly in

the United States and other markets Red Bull, the Austrian

company that created the energy drink category, expanded

throughout Europe after the Maastricht Treaty came into

force in 1993 In 1997 it was big enough to take on the

American market and by 1999 its sales were $75 million

Today, Red Bull is popular around the world In 2006, more

than 3 billion cans were sold in over 130 countries And in 2007,

the company sales amounted to 3.08 billion euro On March 24,

2008 Red Bull introduced its first foray into the cola market

with a product named‘‘Simply Cola.’’ Mergers and itions resulting from unification, also enhance the ability of

acquis-EU firms to enter the United States For example, in June of

2000 the French firm Publicis Group acquired Saatchi &Saatchi, the U.K.-based advertising firm, as a means ofstrengthening its position in the American market

Smaller European firms are likely to consider pursuing auniversal niche-market strategy For instance, Iona Technolo-gies, PLC, an Irish software firm, has successfully internation-alized by pursuing a global niche-market strategy

Finally, there remain EU customers who continue to prefer themore expensive, high-quality European products Keeping thismarket segment from erosion by U.S and Japanese competitors iskey in retaining the viability of the EU market The irony is that, ifthe failure of the EU Constitution is just the first event in acascade of reversals for the integrationists, the newly refrag-mented markets may once again play a major role in strengthen-ing the competitive position of smaller European firms

Source: Lance Eliot Brouthers and Timothy J Wilkinson, ‘‘Is the EU

Destroying European Competitiveness? ’’, Business Horizons, 45

(July–August 2002), 37–42; EU Foreign Direct Investment Yearbook

2007, Luxembourg: Office for Official Publications of the European

Communities, 2007; ‘‘Buyers Bullish on Red Bull, Sales Up,’’ New

Europe, February 25, 2008, Issue 770, http://www.neurope.eu/articles/

83145.php, accessed July 20, 2009; and ‘‘United Europe Celebrates

Ethnic Diversity, ’’ CNN.com, November 20, 2008.

29

Richard J Barnet and R E Muller, Global Reach: The Power of the Multinational Corporations (New York: Simon

and Schuster, 1974).

International Trade versus International Business

Globalization of Markets: Convergence and Divergence  11

where U.S.-owned subsidiaries sold more than six times the total U.S exports in 1990.Similarly, European-owned subsidiaries operating in the United States sold five times

as much as U.S imports from Europe.30This suggests that experienced companies tend

to manufacture overseas much more than they export On the other hand, Japanesecompanies did not expand their foreign manufacturing activities in earnest until abouttwenty years ago According to one estimate, more than 90 percent of all the cases ofJapanese FDI have taken place since 1985.31 Despite their relative inexperience ininternational expansion, Japanese subsidiaries registered two-and-a-half times as muchforeign sales as all Japanese exports worldwide by 1990.32

As just discussed, international trade and foreign production are increasingly managed

on a global basis Furthermore, international trade and foreign production are alsointertwined in a complex manner Think about Honda Motors, a Japanese automobilemanufacturer Honda initially exported its Accords and Civics to the United States inthe 1970s By mid-1980s the Japanese company began manufacturing those cars in theUnited States in Marysville, Ohio The company currently exports U.S.-made Accordmodels to Japan and elsewhere and boasts that it is the largest exporter of U.S.-madeautomobiles in the United States Recently, Honda announced that it would startmanufacturing its‘‘world car’’ in Thailand, Brazil, and probably China, due to the lowcost, and then export it mainly to Europe and Japan It is expected that eventually allHonda cars in Japan will be produced and imported from aboard.33 Similarly, TexasInstruments has a large semiconductor manufacturing plant in Japan, marketing itssemiconductor chips not only in Japan but also exporting them from Japan to theUnited States and elsewhere In addition to traditional exporting from their home base,these companies manufacture their products in various foreign countries both for localsale and for further exporting to the rest of the world, including their respective homecountries In other words, multinational companies (MNCs) are increasingly managingthe international trade flow from within This phenomenon is called intra-firm trade.Intra-firm trade makes trade statistics more complex to interpret, since part of theinternational flow of products and components is taking place between affiliated companies

A Global Reach: Executives increasingly use aglobal map to visualize their strategy

Charles Thatcher/Tony Stone Images New York, Inc.

30 Peter J Buckley and R D Pearce, ‘‘Overseas Production and Exporting by the World’s Largest Enterprises,’’ International Executive, 22 (Winter), 1980, pp 7–8; Dennis J Encarnation, ‘‘Transforming Trade and Investment, American, European, and Japanese Multinationals Across the Triad,’’ a paper presented at the Academy of International Business Annual Meetings, November 22, 1992.

31 Masaaki Kotabe, ‘‘The Promotional Roles of the State Government and Japanese Manufacturing Direct Investment in the United States, ’’ Journal of Business Research, 27 (June 1993), pp 131–46.

32 Encarnation.

33

‘‘Honda to Re-Import ‘World Car’ Produced in Thailand,’’ Nikkei Interactive Net, www.nni.nikkei.co.jp, December 18, 2001; ‘‘Honda Could Bring a Small Car to Europe from Thailand,’’ Automotive News Europe, December 13, 2004, p 3.

Who Manages

International Trade?

within the same corporate system, transcending national boundaries Although statistical

information is scarce, one United Nations official report shows that in 1999, 34 percent of

world trade was intra-firm trade between MNCs and their foreign affiliates and among

those affiliates, and that additional 33.3 percent of world trade constituted exports by those

MNCs and their affiliates In other words, two-thirds of world trade is managed one way or

another by MNCs.34These trade ratios have been fairly stable over time.35

Although few statistics are available, service industries are going through the same

evolution as manufacturing industries on a global basis Indeed, some similarities exist

in intra-firm trade of services In 2007 alone, world commercial services exports rose by

18 percent to $3.3 trillion Among the top global service exporters and importers, the

United States was still ranked the largest exporter, providing $454 billion of services to

the rest of the world The United States was also the top importer of services, receiving

$440 billion worth of services.36As stated earlier in the chapter, however, the severe

global recession is expected to reduce the global trade for the first time in over 25

years.37Today, approximately 16 percent of the total value of U.S exports and imports

of services were conducted across national boundaries on an intra-firm basis.38

Government deregulation and technological advancement have facilitated the

trad-ability of some services globally and economically

Marketing is essentially the activity, set of institutions, and processes for creating,

communicating, delivering, and exchanging offerings that have value for customers,

clients, partners, and society at large.39Marketing is not only much broader than selling,

it also encompasses the entire company’s market orientation toward customer

satisfac-tion in a competitive environment In other words, marketing strategy requires close

attention to both customers and competitors.40Quite often marketers have focused

excessively on satisfying customer needs while ignoring competitors In the process,

competitors have outmaneuvered them in the marketplace with better, less-expensive

products It is widely believed that in many cases, U.S companies have won the battle of

discovering and filling customer needs initially, only to be defeated in the competitive

war by losing the markets they pioneered to European and Japanese competitors.41

34

Khalil Hamdani, ‘‘The Role of Foreign Direct Investment in Export Strategy,’’ presented at 1999 Executive Forum

on National Export Strategies, International Trade Centre, the United Nations, September 26–28, 1999.

35

United Nations Center on Transnational Corporations, Transnational Corporations in World Development: Trends

and Perspectives, New York: United Nations, 1988; Organization for Economic Cooperation and Development,

Intra-Firm Trade, Paris, OECD, 1993; William J Zeile, ‘‘U.S Affiliates of Foreign Companies,’’ Survey of Current

Janet Y Murray and Masaaki Kotabe, ‘‘Sourcing Strategies of U.S Service Companies: A Modified

Transaction-Cost Analysis,’’ Strategic Management Journal, 20, September 1999, 791-809; Masaaki Kotabe and Janet Y Murray,

‘‘Global Procurement of Service Activities by Service Firms,’’ International Marketing Review, 21 (6), 2004, 615–633;

for detailed statistics, see Michael A Mann, Laura L Brokenbaugh, Sylvia E Bargas, ‘‘U.S International Services,’’

Survey of Current Business, 80, October 2000, pp 119–61.

39

This is the definition of marketing adopted by the American Marketing Association in October 2007, and is

strongly influenced by Drucker’s conception of two entrepreneurial functions—marketing and innovation—that

constitute business Recent thinking about marketing also suggests the task of the marketer is not only to satisfy the

current needs and wants of customers, but also to innovate on products and services, anticipating and even creating

their future needs and wants See Peter F Drucker, The Practice of Management (New York: Harper & Brothers,

1954), pp 37–39; and also Frederick E Webster, Jr., ‘‘The Changing Role of Marketing in the Corporation,’’ Journal

of Marketing, 56 (October 1992), pp 1–16.

40 Ayseg€ul € Ozsomer and Bernard Simonin, ‘‘Antecedents and Consequences of Market Orientation in a Subsidiary

Context,’’ Enhancing Knowledge Development in Marketing, 1999 American Marketing Association Educators’

Proceedings, Summer 1999, p 68.

41

Robert M Peterson, Clay Dibrell, and Timothy L Pett, ‘‘Whose Market Orientation is Longest: A Study of Japan,

Europe, and the United States,’’ Enhancing Knowledge Development in Marketing, 1999 American Marketing

Association Educators’ Proceedings, Summer 1999, p 69.

What Is Marketing?

Evolution of Global Marketing  13

It is increasingly difficult for companies to avoid the impact of competition fromaround the world and the convergence of the world’s markets As a result, an increasingnumber of companies are drawn into marketing activities outside their home country.However, as previously indicated, different companies approach marketing around theworld very differently For example, Michael Dell established Dell Computer because

he saw a burgeoning market potential for IBM-compatible personal computers in theUnited States After his immediate success at home, he realized a future growthpotential would exist in foreign markets Then his company began exporting DellPCs to Europe and Japan In a way this was a predictable pattern of foreign expansion

On the other hand, not all companies go through this predictable pattern Think about anotebook-sized Macintosh computer called the PowerBook 100 that Apple Computerintroduced in 1991 In 1989, Apple enlisted Sony, the Japanese consumer electronicsgiant, to design and manufacture this notebook computer for both the U.S and Japanesemarkets.42Sony has world-class expertise in miniaturization and has been a supplier ofdisk drives, monitors, and power supplies to Apple for various Macintosh models In anindustry such as personal computers, where technology changes quickly and the existingproduct becomes obsolete in a short period of time, a window of business opportunity isnaturally limited Therefore, Apple’s motivation was to introduce the notebook com-puter on the markets around the world as soon as it could before competition picked up.Companies generally develop different marketing strategies depending on thedegree of experience and the nature of operations in international markets Companiestend to evolve over time, accumulating international business experience and learningthe advantages and disadvantages associated with complexities of manufacturing andmarketing around the world.43As a result, many researchers have adopted an evolu-tionary perspective of internationalization of the company just like the evolution of thespecies over time In the following pages we will formally define and explain five stagesthat characterize the evolution of global marketing Of course, not all companies gothrough the complete evolution from a purely domestic marketing stage to a purelyglobal marketing stage An actual evolution depends also on the economic, cultural,political, and legal environments of various country markets in which the companyoperates, as well as on the nature of the company’s offerings A key point here is thatmany companies are constantly under competitive pressure to move forward bothreactively (responding to the changes in the market and competitive environments) andproactively (anticipating the change) Remember,‘‘if you stand still, you will get runover.’’

Therefore, knowing the dynamics of the evolutionary development of internationalmarketing involvement is important for two reasons First, it helps in the understanding

of how companies learn and acquire international experience and how they use it forgaining competitive advantage over time This may help an executive better prepare forthe likely change needed in the company’s marketing strategy Second, with thisknowledge, a company may be able to compete more effectively by predicting itscompetitors’ likely marketing strategy in advance

As shown in Exhibit 1.2, there are five identifiable stages in the evolution ofmarketing across national boundaries.44These evolutionary stages are explained below.The first stage is domestic marketing Before entry into international markets, manycompanies focus solely on their domestic market Their marketing strategy is devel-oped based on information about domestic customer needs and wants, industry trends,

42

‘‘Apple’s Japanese Ally,’’ Fortune (November 4, 1991), pp 151–52.

43 Anna Shaojie Cui, David A Griffith, S Tamer Cavusgil, ‘‘The Influence of Competitive Intensity and Market Dynamism on Knowledge Management Capabilities of Multinational Corporation Subsidiaries, ’’ Journal of International Marketing, 13 (3), 2005, pp 32–53).

44 This section draws from Balaj S Chakravarthy and Howard V Perlmutter, ‘‘Strategic Planning for A Global Business,’’ Columbia Journal of World Business (Summer 1985), pp 3–10; Susan P Douglas and C Samuel Craig,

‘‘Evolution of Global Marketing Strategy: Scale, Scope and Synergy,’’ Columbia Journal of World Business 24 (Fall 1989), pp 47–59.

Domestic Marketing