International marketing 8th edition czinkota and ilkka

art 1 The International Marketing EnvironmentChapter 1 The Global Marketing Imperative 3Chapter 2 Trade Institutions and Trade Policy 29Chapter 3 The Cultural Environment 51Chapter 4 The Economic Environment 83Chapter 5 The Political and Legal Environment 125Part 2 International Market Entry and DevelopmentChapter 6 Strategic Planning 187Chapter 7 Marketing Organization, Implementation and Control 213Chapter 8 Research 243Chapter 9 Market Entry and Expansion 281 Part 3 Export Marketing Mix Chapter 10 Product Adaptation 325Chapter 11 Export Pricing 353Chapter 12 Marketing Communication 385Chapter 13 Distribution Management 413Part 4 The Global Marketing MixChapter 14 Global Product Management and Branding 473Chapter 15 Global Services 501Chapter 16 Global Logistics and Materials Management 523Chapter 17 Global Pricing 549Chapter 18 Global Promotional Strategies 575

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Thank you for reading our book! Practicing international marketing and writing

a text on the subject have much in common The focus is on delighting thecustomer; it is a lot of work; the competition is tough; and it’s fun to succeed

It is therefore with great pleasure that we present the eighth edition of national Marketing to you We have made significant revisions in this edition, but our

Inter-goals continue to be excellence and relevance in content, combined with friendliness for both the student and the professor We have greatly streamlined the text,which now comprises 18 chapters We have done so to balance the workload for thereader but without taking shortcuts We have combined topics, eliminated redundancies,and tightened content wherever possible The result is a shorter, crisper text of betterquality

user-We now address in depth controversies surrounding issues such as globalization, rorism, and international aid We paint a broader picture of the implications of a marketorientation, and highlight ethical concerns We discuss the shortcomings encountered incorporate transparency and executive veracity We also provide much deeper data analy-sis and support For example, in addition to discussing the leading economic regions, weoffer comparative benchmarks from China, Australia, Kenya, and Brazil Overall, we un-

ter-abasheduly admit that this eight edition of International Marketing is the best one yet!

Here are the key features that make this book stand out:

• We cover the full spectrum of international marketing, from start-up operations to theformation of virtual alliances.We offer a thorough discussion of the operations of multinationalcorporations, but also present a specific focus on the activities of small and medium-sized firms,which are increasingly major players in the international market and will be the employers ofmany students

• We provide a hands-on analysis of the growing interaction between government and business

We have served in government positions and advised international organizations We knowwhat role governmental considerations can play for the international marketer This policyorientation greatly enhances the managerial relevance of this book

• We cover both the theory and the application of international marketing Based on ourpersonal research record and business experience, we can offer research insights from aroundthe globe and show how corporations are adjusting to the marketplace realities of today

• We acknowledge and give clear examples of how the world has changed in an era of terrorism,hostility, and distrust We look at the marketing repercussions of these changes on peoplemanagement, sourcing policies, cargo security, inventory management, and port utilization.However, we also draw on our work with corporations to find new forms of collaboration andnetwork building without compromising safety or security

• We address the concerns of emerging and developing markets throughout the text Wepresent the issue of underserved markets, with a population of four billion, and also suggesthow these people and countries can become greater participants in marketing efforts

• We examine international marketing from a truly global perspective By addressing, confronting,and analyzing the existence of different environments, expectations, and market conditions, wehighlight the need for awareness, sensitivity, and adaptation

• We integrate the e-commerce and Web impact on the international marketer We discussthe revolutionary changes in communication between firms and their customers andsuppliers, and present the latest consequences for international market research and marketentry

iv

Personal Support

Most important, we personally stand behind our product and we will work hard to delight

you Should you have any questions or comments on this book, you can contact us, talk

to us, and receive feedback from us

czinkotm@georgetown.edu ronkaii@georgetown.edu

Organization

The text is designed primarily for the advanced undergraduate student with prior

expo-sure to the marketing field Because of its in-depth coverage, it also presents an excellent

challenge for graduate instruction and executive education

The text is divided into four parts First, the core concepts of international marketing

are outlined, and the environmental forces that the international marketer has to consider

are discussed The second part focuses on international market entry and development

We cover strategic planning for internationalization, organizing for implementation,

preparing through research, and executing the entry Part Three addresses the elements

of the marketing mix that are most important for firms at an initial level of the

interna-tional experience Part Four discusses the marketing management issues most relevant to

the expanded global operations of multinational corporations We conclude with an

ap-pendix of international employment opportunities

Both the instructor and the student can work with this text in two ways One

alterna-tive is to cover the material sequentially, progressing from the initial international effort to

multinational activities In this way, marketing dimensions such as distribution,

promo-tion, and pricing are covered in the order in which they are most relevant for the

partic-ular level of expertise within the firm Another approach is to use the text in a parallel

manner, by pairing comparable chapters from Parts Two, Three, and Four In this way, the

primary emphasis can be placed on the functional approach to international marketing

Key Features

The eighth edition reflects the highly dynamic nature of the international marketplace We

offer a perspective on the shift from marketplace to market space, and the impact of this

revolution on international marketers in terms of outreach, research, and competition

Our International Marketplace vignettes reflect state-of-the-art corporate practices We

have included links to the Web sites of companies, data sources, governments,

interna-tional organizations, and monitors of internainterna-tional marketing issues

Our focus on the physical environment and geography is strong Updated maps

pro-vide context in terms of social and economic data An appendix directly addresses the

relationship between geography and international marketing New text components,

mar-ketplaces, and several cases specifically focus on the environment and the opportunities,

challenges, and ambiguities that it poses to international marketers

This edition gives increased attention to developing economies and economies in

tran-sition In Part One, international organizations such as the World Bank, the World Trade

Organization, the International Monetary Fund, and the United Nations are covered, along

with the public debate surrounding these institutions In particular, we focus on the

evolv-ing role of the World Trade Organization and the push for the conclusion of the Doha

Round A case later in the book highlights the controversies surrounding the United

Nations’ Oil for Food Program We have increased the focus on ethics and corporate

citi-zenship in this section and strengthened our discussion of intellectual property rights

We broaden our discussion of emerging markets by systematically addressing the issue

of dealing with markets at the bottom of the income pyramid Our revised strategy section

is now linked directly with organization, implementation, and research concerns We havecompletely recast the chapter on market entry and expansion to include a wider variety

of ways in which firms go global All of these strategies are now integrated into one ter, organized around our model of the internationalization process

chap-The marketing mix discussions now include new technologies and their impact Forexample, we present the effect of consumer generated media (such as blogs) and new op-portunities presented by m-payments through mobile devices We offer specific sections

on outsourcing by involving partners in research and design, on the effect of terrorism oninternational transportation, and the reconfiguration of web-based services New also isthe focus on how local companies can defend against global players and win, and ouremphasis is on sponsorship and ambush marketing The final appendix of internationalemployment opportunities helps students prepare for the implementation steps yet tocome

Innovative Learning Tools

Contemporary Realism

Each chapter offers three current International Marketplace boxes They focus on realmarketing situations and help students understand and absorb the presented materials.The instructor can highlight the boxes to exemplify theory or use them as mini-cases forclass discussion

Research Emphasis

A special effort has been made to provide current research information and data fromaround the world Chapter notes are augmented by lists of relevant recommended read-ings incorporating the latest research findings In addition, a wide variety of sources andorganizations that provide international information are offered in the text These materi-als enable the instructor and the student to go beyond the text when desired

Internet Focus

The Internet, electronic commerce, and the World Wide Web affect all of internationalmarketing We highlight how the way of reaching customers and suppliers has changedgiven the new technology We explain the enhanced ability of firms to position them-selves internationally in competition with other larger players We offer insights into theelectronic marketing research process and present details of how companies cope withnew market realities Whenever appropriate, we direct readers to Internet resources thatcan be useful in updating information Each chapter also provides several Internet ques-tions in order to offer training opportunities that make use of the Internet

Geography

This edition contains several maps, covering the social, economic, and political features

of the world In addition, several chapters have maps particularly designed for this book,which integrate the materials discussed in the text and reflect a truly “global” perspective.These maps enable the instructor to visually demonstrate concepts such as socioeconomicvariables or exposure to terrorism An appendix, dealing specifically with the impact ofgeography on international marketing, is part of Chapter 1

Cases

Following each part of the text are a variety of cases, three quarters of which are eithernew or updated especially for this edition, that present students with real business situa-tions All cases address the activities of actual or former companies and cover a broadgeographic spectrum In addition, a number of video cases further help to enlivenclassroom activity Challenging questions accompany each case, permitting in-depth dis-cussion of the materials covered in the chapters

Ancillary Package

Instructor’s Resource CD-ROM

(IRCD; ISBN: 0-324-36108-4)

Key instructor ancillaries (Instructor’s Manual, Test Bank, ExamView, and PowerPoint

slides) are provided on CD-ROM, giving instructors the ultimate tool for customizing

lec-tures and presentations

Instructor’s Manual

Available on the IRCD and the password-protected instructor’s resource Web site, the text

is accompanied by an in-depth Instructor’s Manual, devised to provide major assistance

to the professor The material in the manual includes the following:

• Teaching Plans Alternative teaching plans and syllabi are presented to accommodate the

instructor’s preferred course structure and varying time constraints.Time plans are developed

for the course to be taught in a semester format, on a quarter basis, or as an executive

seminar

• Discussion Guidelines For each chapter, specific teaching objectives and guidelines are

developed to help stimulate classroom discussion

• End-of-Chapter Questions Each question is fully developed in the manual to

accom-modate different scenarios and experience horizons In addition, each chapter has

Internet-based exercises in order to offer students the opportunity to explore the application of new

technology to international marketing on their own

• Cases A detailed case-chapter matrix is supplied that delineates which cases are most

appropriate for each area of the international marketing field In addition, detailed case

discussion alternatives are provided, outlining discussion strategies and solution alternatives

• Video and Film References An extensive listing of video and film materials available

from educational institutions, companies, and government agencies is provided Materials are

briefly discussed, possible usage patterns are outlined, and ordering/availability information is

supplied

Test Bank

Available on the IRCD and the password-protected instructor’s resource Web site, the

re-vised and updated Test Bank includes a variety of multiple choice, true/false questions,

and cases, which emphasize the important concepts presented in each chapter The Test

Bank questions vary in levels of difficulty so that instructors can tailor their testing to meet

their specific needs

ExamView (Computerized) Test Bank

Available on the IRCD, ExamView contains all of the questions in the printed Test Bank

This program consists of easy-to-use test creation software compatible with Microsoft

Windows Instructors can add or edit questions, instructions, and answers, and select

questions (randomly or numerically) by previewing them on the screen Instructors can

also create and administer quizzes online, whether over the Internet, a local area network

(LAN), or a wide area network (WAN)

PowerPoint Presentation Slides

Available on the IRCD and the Web site, the PowerPoint Lecture Presentation enables

instructors to customize their own multimedia classroom presentations The package

in-cludes select figures and tables from the text, as well as outside materials to supplement

chapter concepts Material is organized by chapter, and can be modified or expanded for

individual classroom use PowerPoint presentations are also easily printed to create

cus-tomized Transparency Masters

Web Site www.thomsonedu.com/marketing/czinkota

Visit the text Web site to find instructor’s support materials, as well as study resources thatwill help students practice and apply the concepts they have learned in class

• Downloadable Instructor’s Manual files

• Downloadable PowerPoint presentation files

• Downloadable Test Bank files

DVD Videos (ISBN: 0-324-36110-6)

A video package has been prepared to correspond with the key concepts taught in thetext These videos, featuring companies such as Pier One Imports and Whirlpool, coincidewith the video cases found at the end of each part in the text Professors can assign thecases after presenting videos in class or use these cases to simply illustrate a key point

We are deeply grateful to all the professors, students, and professionals using

this book Your interest demonstrates the need for more knowledge aboutinternational marketing As our market, you are telling us that our productadds value to your lives As a result, you add value to ours Thank you!

We also thank the many reviewers for their constructive and imaginative comments and

criticisms, which were instrumental in making this edition even better

For their contributions to this revision, we would like to thank the following:

Dr John P Fraderich

Southern Illinois University—Carbondale

Roberto Friedmann

University of Georgia

Shenzhao Fu

University of San Francisco

Jim Gentry

University of Nebraska

Donna Goehle

Michigan State University

Mankato State University

We remain indebted to the reviewers and survey respondents of this and earlier editions

of this text:

Many thanks to all the colleagues and students who have helped us sharpen our ing by cheerfully providing challenging comments and questions In particular, we thankBernard LaLonde, The Ohio State University; Lyn Amine, St Louis University; TamerCavusgil, Michigan State University; and James Wills, University of Hawaii.

think-Many colleagues, friends, and business associates graciously gave their time and edge to clarify concepts; provide us with ideas, comments, and suggestions; and deepenour understanding of issuses Without the direct links to business and policy that you haveprovided, this book could not offer its refreshing realism In particular, we are grateful toSecretaries Malcolm Baldrige, C William Verity, Clayton Yeutter, and William Brock for theopportunity to gain international business policy experience and to William Morris, PaulFreedenberg, and J Michael Farrell for enabling its implementation We also thank WilliamCasselman of Stairs Dillenbeck Kelly Merle and Finley, Robert Conkling of VSSL Corpora-tion, Lew Cramer of CAPPA Inc., Mark Dowd of IBM, David Danjczek of the Global Offsetand Countertrade Association, and Veikko Jaaskelainen and Reijo Luostarinen of HSE

knowl-We also thank the colleagues who have generously written new cases to contribute tothis new edition of our book They are Professor Svetla Marinova of the University ofBirmingham, Professor Lluis Renart of IESE, Hannu Serisitö of HSE, and Professor ThomasCooke of Georgetown University

Valuable research assistance was provided by our student research elite team Theymade important and substantive contributions to this book They pursued research infor-mation with tenacity and relentlessness; they organized and analyzed research materials,prepared drafts of vignettes and cases, and reinforced everyone on the third floor of OldNorth with their can-do spirit They are Darra Cherepennikova, Anastasiya Grouverman,

Trina Larsen

Drexel University

Edmond Lausier

University of Southern California

Bertil Liander

University of Massachusetts

Mushtaq Luqmani

Western Michigan University

Henry Munn

California State University, Northridge

Jacob Naor

University of Maine, Orono

Urban Ozanne

Florida State University

Tony Peloso

Queensland University of Technology (Australia)

Sumas Wongsunopparat

University of Wisconsin— Milwaukee

Natalya Skiba, Elizaveta Berg, Daina Xie, and Dennis Wang, all of Georgetown University.

We would also like to thank Samantha Vinograd for her tireless work on reviewing the

manuscript We appreciate all of your work

A very special word of thanks to the people at Thomson Business and Economics

Melissa Acuña and Neil Marquardt have the vision but haven’t lost their hands-on

ap-proach Nicole Moore continues to expertly market the text Emma Guttler supported the

lengthy process of writing a text with her input and feedback Emily Gross and Starratt

Alexander helped us in the final stretch of production Stacy Shirley created the

outstand-ing design and John Hill provided art research and permission coordination

Foremost, we are grateful to our families, who have truly participated in our labors

Only the patience, understanding, and love of Ilona and Margaret Victoria Czinkota and

Susan, Sanna, and Alex Ronkainen enabled us to have the energy, stamina, and

inspira-tion to write this book

Michael R Czinkota Ilkka A Ronkainen

Washington, DC August 2006

Michael R Czinkota teaches international marketing and business at the Graduate School

and the Robert Emmett McDonough School of Business at Georgetown University He hasheld professorial appointments at universities in Asia, Australia, Europe, and the Americas

Dr Czinkota served in the U.S government as Deputy Assistant Secretary of Commerce

He also served as head of the U.S Delegation to the OECD Industry Committee in Paris and

as senior advisor for Export Controls

Dr Czinkota’s background includes eight years of private-sector business experience as

a partner in a fur trading firm and in an advertising agency His research has been ported by the U.S government, the National Science Foundation, the Organization ofAmerican States, and the the American Management Association He was listed as one of

sup-the three most published contributors to international business research in sup-the Journal of International Business Studies, and has written several books, including Best Practices in International Marketing and Mastering Global Markets (Thomson).

Dr Czinkota served on the Global Advisory Board of the American Marketing tion, the Global Council of the American Management Association, and the Board of Gov-

Associa-ernors of the Academy of Marketing Science He is on the editorial boards of Journal of the Academy of Marketing Science, Journal of International Marketing, and Asian Journal of Marketing For his work in international business and trade policy, he was named a Distin-

guished Fellow of the Academy of Marketing Science, a Fellow of the Chartered Institute ofMarketing, and a Fellow of the Royal Society of Arts in the United Kingdom He has beenawarded honorary degrees from the Universidad Pontificia Madre y Maestra in the Domini-can Republic and the Universidad del Pacifico in Lima, Peru

Dr Czinkota serves on several corporate boards and has worked with corporationssuch as AT&T, IBM, GE, Nestlé, and US WEST He advises the Executive Office of thePresident of the United States, the United Nations, and the World Trade Organization

Dr Czinkota is often asked to testify before the United States Congress

Dr Czinkota was born and raised in Germany and educated in Austria, Scotland, Spain,and the United States He studied law and business administration at the University ofErlangen-Nürnberg and was awarded a two-year Fulbright Scholarship He holds an MBA

in international business and a Ph.D in logistics from The Ohio State University

Ilkka A Ronkainen is a member of the faculty of marketing and international business

at the School of Business at Georgetown University From 1981 to 1986 he served as

Associate Director and from 1986 to 1987 as Chairman of the National Center for

Export-Import Studies Currently, he directs Georgetown University’s Hong Kong Program

Dr Ronkainen serves as docent of international marketing at the Helsinki School of

Economics He was visiting professor at HSE during the 1997–88 and 1991–92 academic

years and continues to teach in its Executive MBA, International MBA, and International

BBA programs He is currently the chairholder at the Saastamoinen Foundation

Profes-sorship in International Marketing

Dr Ronkainen holds a Ph.D and a master’s degree from the University of South

Car-olina as well as an M.S (Economics) degree from the Helsinki School of Economics

Dr Ronkainen has published extensively in academic journals and the trade press He

is a coauthor of a number of international business and marketing texts, including Best

Practices in International Marketing and Mastering Global Markets (Thomson) He serves

on the review boards of the Journal of Business Research, International Marketing Review,

and Journal of Travel Research, and has reviewed for the Journal of International

Market-ing and the Journal of International Business Studies He served as the North American

co-ordinator for the European Marketing Academy, 1984–90 He was a member of the board

of the Washington International Trade Association from 1981 to 1986 and started the

asso-ciation’s newsletter, Trade Trends.

Dr Ronkainen has served as a consultant to a wide range of U.S and international

institutions He has worked with entities such as IBM, the Rand Organization, and the

Organization of American States He maintains close relations with a number of Finnish

companies and their internationalization and educational efforts

Preface ivAcknowledgments ixAbout the Authors xii

Part 1 The International Marketing Environment

Appendix B Geographical Perspectives on International Marketing 21Chapter 2 Trade Institutions and Trade Policy 29

Chapter 5 The Political and Legal Environment 125

Trick or Treat 160Marketing Cigarettes and Tobacco 164IKEA 171

Car Financing in China 176Video Case 1 Equal Exchange Strives for Equality through Fair Trade 183

Part 2 International Market Entry and Development

Chapter 7 Marketing Organization, Implementation and Control 213

Appendix A Information Sources for Marketing Issues 272Appendix B The Structure of a Country Commercial Guide 278

Polar-Adidas 308Parker Pen Company 313Exporting Chopsticks to Japan 316Video Cases 2 Green Mountain Coffee Roasters 318

Doc Martens Makes Strides around the World 320

Part 3 Export Marketing Mix

xiv

Cases 3 Dr Eris: Cosmetics from Poland 449

Imaginarium 454Joemarin Oy 459The Gray Ferrari 464Video Cases 3 Global Vendor Relations at Pier 1 Imports 467

Goya Helps Latinos Maintain Mealtime Traditions 469

Part 4

The Global Marketing Mix

Chapter 14 Global Product Management and Branding 473

Chapter 16 Global Logistics and Materials Management 523

Chapter 18 Global Promotional Strategies 575

Appendix C Careers in International Marketing 607

Oil for Food 618Should Dubai Take Over U.S Ports? 622Blood Free Diamonds 629

Novia Scotia 632The F-18 Hornet Offset 636Video Cases 4 Whirlpool and the Global Appliance Industry 642

ESPN’s Worldwide Reach 645

Glossary G-1Index I-1

Preface ivAcknowledgments ixAbout the Authors xii

Part 1 The International Marketing Environment Chapter 1 The Global Marketing Imperative 3

The International Marketplace 1.1 3What International Marketing Is 4The Importance of World Trade 5

Global Linkages 6

The International Marketplace 1.2 7

Domestic Policy Repercussions 8

Opportunities and Challenges in International Marketing 10The International Marketplace 1.3 11

The Goals of This Book 11

Summary 14 Key Terms 15 Questions & Discussion 15 Internet Excercises 15 Recommended Readings 15 Notes 15

Appendix A: Basics of Marketing 17

Appendix B: Geographical Perspectives on International Marketing 21

Location 21Place 22

Natural Features 22 Human Features 23

Interaction 23Movement 25Region 26

Key Terms 27

Chapter 2 Trade Institutions and Trade Policy 29

The International Marketplace 2.1 29The Historical Dimension 30

Global Division 31

Transnational Institutions Affecting World Trade 32

World Trade Organization (WTO) (http://www.wto.org) 32

xvi

The International Marketplace 2.2 34

International Monetary Fund (IMF) (http://www.imf.org) 34 World Bank (http://www.worldbank.org) 35

Regional Institutions 36

Trade Positions Compared 37

A Diagnosis of the U.S.Trade Position 37

The Impact of Trade and Investment 39

The Effect of Trade 39 The Effect of International Investment 40

Policy Responses to Trade Problems 41

Restrictions of Imports 41 Export Promotion Efforts 45

A Strategic Outlook for Trade and Investment Policies 46

A U.S Perspective 46

An International Perspective 47

The International Marketplace 2.3 48

Summary 49 Key Terms 49 Questions for Discussion 49 Internet Exercises 49 Recommended Readings 50 Notes 50

Chapter 3 The Cultural Environment 51

The International Marketplace 3.1 51Culture Defined 54

The International Marketplace 3.2 56The Elements of Culture 57

Language 57 Nonverbal Language 59 Religion 59

Values and Attitudes 62 Manners and Customs 63 Material Elements 65

The International Marketplace 3.3 66

Aesthetics 67 Education 67 Social Institutions 68 Sources of Cultural Knowledge 69

Cultural Analysis 72The Training Challenge 76The International Marketplace 3.4 78Making Culture Work for Marketing Success 78

Summary 80 Key Terms 80 Questions for Discussion 80 Internet Excercises 80 Recommended Readings 81 Notes 81

Chapter 4 The Economic Environment 83

The International Marketplace 4.1 83Market Characteristics 88

Population 88 Infrastructure 96

The International Marketplace 4.2 99Impact of the Economic Environment on Social Development 100Regional Economic Integration 101

Levels of Economic Integration 101

The International Marketplace 4.3 109

Other Economic Alliances 111 Economic Integration and the International Marketer 113

Emerging Markets 116

Adjust Entry Strategy 117 Manage Affordability 118 Invest in Distribution 118

Developing Markets 119

Research 119 Creating Buying Power 119 Tailoring Local Solutions 120 Improving Access 120 Shaping Aspirations 120

The International Marketplace 4.4 121

Summary 121 Key Terms 122 Questions for Discussion 122 Internet Exercises 122 Recommended Readings 123 Notes 123

Chapter 5 The Political and Legal Environment 125

The International Marketplace 5.1 125Home Country Political and Legal Environment 127

Embargoes and Sanctions 127 Export Controls 129

A New Environment for Export Controls 130 Import Controls 131

Regulation of International Business Behavior 132

Host Country Political and Legal Environment 133

Political Action and Risk 133

The International Marketplace 5.2 135

Legal Differences and Restraints 138

The International Marketplace 5.3 139

Influencing Politics and Laws 140

The International Environment 142

International Politics 142 International Law 143 International Terrorism and Marketing 143

Ethical Issues 147

Corporate Governance and Responsibility 147

The International Marketplace 5.4 149

Intellectual Property 149 Bribery and Corruption 150 Summary 153

Key Terms 153 Questions & Discussion 153 Internet Exercises 154

Recommended Readings 154 Notes 154

Cases 1 The Catfish Dispute 156

The U.S Catfish Industry 156The Issue 156

Congressional Reaction:The Labeling Dispute 157When Is a Catfish a Catfish? 157

Department of Commerce and International Trade Commission 157The Issue and Free Trade 158

Questions for Discussion 158Notes 158

“Trick-or-Treat?” Costume Market in Horror as Halloween Approaches 160

Fighting Imports 160Turning the Tide 161

Marketing Cigarettes and Tobacco 164

The Importance of Tobacco for the U.S Economy 164The Importance of Tobacco Exports 164

U.S.Trade Policy 166Tobacco Marketing in the United States and the Developing World 167Government Support of the Tobacco Industry 168

Conflicting Objectives 168Questions for Discussion 169Sources 169

IKEA 171

The IKEA Concept 171IKEA in the Competitive Environment 173IKEA in the United States 174

Questions for Discussion 175

Car Financing in China 176

China and the WTO 176Changes in the Chinese Car Market 179Current Market Structure for Car Financing in China 180Expected Market Changes in Car Financing in China 180Options for Market Entry and Development 181GMAC’s Competitive Position 181

Implications for Global Operations 182Questions for Discussion 182

Video Equal Exchange Strives for Equality through Fair Trade 183

Case 1

Questions for Discussion 184

Part 2 International Market Entry and Development Chapter 6 Strategic Planning 187

The International Marketplace 6.1 187Global Marketing 189

The International Marketplace 6.3 201

Global Marketing Program Development 202 Competitive Moves 203

Implementing Global Marketing 204

The International Marketplace 6.4 206The Local Company in the Global Environment 208

Summary 209 Key Terms 210 Questions for Discussion 210 Internet Exercises 210 Recommended Readings 210 Notes 211

Chapter 7 Marketing Organization, Implementation, and Control 213

The International Marketplace 7.1 213Organizational Designs 215

Organizational Designs 215 Evolution of Organizational Structures 224

The International Marketplace 7.2 225Implementation 225

Locus of Decision Making 226 Factors Affecting Structure and Decision Making 227 The Networked Global Organization 228

Promoting Internal Cooperation 230

The International Marketplace 7.3 232

The Role of Country Organizations 233

Control 234

Types of Controls 235

The International Marketplace 7.4 235

Exercising Control 238 Summary 240 Key Terms 240 Questions for Discussion 240 Internet Exercises 241 Recommended Readings 241 Notes 241

Recognizing the Need for Research 245The Benefits of Research 246

Determining Research Objectives 247

Going International: Exporting 247 Going International: Importing 248 Market Expansion 249

Determining Secondary Information Requirements 249

Sources of Data 249

The International Marketplace 8.2 250

Evaluating Data 253 Analyzing and Interpreting Secondary Data 252

The Primary Research Process 253

Determining Information Requirements 254 Industrial versus Consumer Research 254 Determining Research Administration 254 Determining the Research Technique 258

The International Marketplace 8.3 260

Designing the Survey Questionnaire 261

The International Marketplace 8.4 264

Developing the Sampling Plan 264 Data Collection 265

Analyzing and Interpreting Primary Data 265 Presenting Research Results 265

Follow-Up and Review 265 Research on the Web 266

The International Information System 266

Environmental Scanning 267 Delphi Studies 268

Scenario Building 269 Summary 269 Key Terms 270 Questions for Discussion 270 Internet Excercises 270 Recommended Readings 270 Notes 271

Appendix A: Information Sources for Marketing Issues 272

European Union 272 United Nations 272 U.S Government 273 Selected Organizations 273 Indexes to Literature 274 Directories 275

Periodic Reports, Newspapers, Magazines 275 Selected Trade Databases 276

Appendix B: The Structure of a Country Commercial Guide 278

The U.S Commercial Service 278 Guide for Doing Business in Austria 278

Chapter 9 Market Entry and Expansion 281

The International Marketplace 9.1 281Stimuli to Internationalize 282

Proactive Stimuli 283 Reactive Stimuli 283

Change Agents 285

Internal Change Agents 285 External Change Agents and Intermediaries 286 Corporate Export Stages 286

Intermediaries 288 Export Management Companies 288 Trading Companies 288

E-Commerce 289Licensing and Franchising 290

Licensing 291

The International Marketplace 9.2 291

Franchising 292

Foreign Direct Investment 295

Major Foreign Investors 295 Reasons for Foreign Direct Investment 297

The International Marketplace 9.3 298

A Perspective on Foreign Direct Investors 299 Types of Ownership 300

Summary 303 Key Terms 303 Questions for Discussion 303 Internet Exercises 304 Recommended Readings 304 Notes 304

Cases 2 Damar International 306

Questions for Discussion 307

Polar-Adidas 308

Introduction 308About Partnership Agreements 308The Growth of Polar Electro Oy 310Polar Marketing 311

Other Partnerships 312Growth Prospects of Polar 312Questions for Discussion 312

Parker Pen Company 313

Globalization 313Globalization at Parker Pen Company 313Epilogue 315

Questions for Discussion 315

Exporting Chopsticks to Japan 316

Company Background 316Learning about the Chopstick Market 316

The Founding of Lakewood Forest Products 316

The Production and Sale of Chopsticks 317Questions for Discussion 317

Video Green Mountain Coffee Roasters 318 Cases 2

Questions for Critical Thinking 319

Doc Martens Makes Strides around the World 320

Questions for Critical Thinking 321

Part 3

Export Marketing Mix

Chapter 10 Product Adaptation 325

The International Marketplace 10.1 325Product Variables 327

Standardization versus Adaptation 328 Factors Affecting Adaptation 330

The Market Environment 331

Government Regulations 331 Nontariff Barriers 332 Customer Characteristics, Expectations, and Preferences 333

The International Marketplace 10.2 334

Economic Development 336 Competitive Offerings 337 Climate and Geography 337

Service 343 Country-of-Origin Effects 344

Company Considerations 344Product Counterfeiting 345The International Marketplace 10.4 346

Summary 349 Key Terms 349 Questions for Discussion 349 Internet Exercises 349 Recommended Readings 349 Notes 350

Chapter 11 Export Pricing 353

The International Marketplace 11.1 353Price Dynamics 354

The Setting of Export Prices 356

Export Pricing Strategy 357 Export-Related Costs 359

Terms of Sale 361Terms of Payment 363The International Marketplace 11.2 364Getting Paid for Exports 369

The International Marketplace 11.3 372Managing Foreign Exchange Risk 372Sources of Export Financing 376

Commercial Banks 376 Forfaiting and Factoring 377 Official Trade Finance 377

The International Marketplace 11.4 379Price Negotiations 380

Leasing 380

Dumping 381

Summary 382 Key Terms 382 Questions for Discussion 383 Internet Exercises 383 Recommended Readings 383 Notes 383

Chapter 12 Marketing Communication 385

The International Marketplace 12.1 385The Marketing Communications Process 387International Negotiations 388

Stages of the Negotiation Process 389 How to Negotiate in Other Countries 390

Marketing Communications Strategy 392Communications Tools 396

Business/Trade Journals and Directories 396 Direct Marketing 398

Internet 399

The International Marketplace 12.2 400

Trade Shows and Missions 402

The International Marketplace 12.3 404

Personal Selling 405

The International Marketplace 12.4 407

Summary 408 Key Terms 409 Questions for Discussion 409 Internet Exercises 409 Recommended Readings 409 Notes 410

Chapter 13 Distribution Management 413

The International Marketplace 13.1 413Channel Structure 415

Channel Design 416

Customer Characteristics 416 Culture 417

The International Marketplace 13.2 418

Competition 419 Company Objectives 420 Character 421

Capital 422 Cost 422 Coverage 423 Control 424 Continuity 424 Communication 425

Selection of Intermediaries 425

Types of Intermediaries 425 Sources for Finding Intermediaries 426 Screening Intermediaries 430

The Distributor Agreement 432

Channel Management 434

Factors in Channel Management 435 Gray Markets 436

The International Marketplace 13.3 438

Termination of the Channel Relationship 441

E-Commerce 442The International Marketplace 13.4 444

Summary 445 Key Terms 446 Questions for Discussion 446 Internet Exercises 446 Recommended Readings 446 Notes 446

Cases 3 Dr Eris: Cosmetics from Poland 449

The Polish Cosmetics Market 449The Company 451

Brand Image 452 Diversification 452 Marketing Communications 453 Internationalization 453

Questions for Discussion 453Notes 453

Imaginarium 454

Background 454Imaginarium:A New Business Concept 454

Fine-tuning the New Business Concept 455 Opening the Next Four Stores 455 Opening of the First Franchised Stores 455 Opening the First Stores Abroad 456

The Product Department 456The Expansion and Projects Department 456Operations and Logistics 456

Imaginarium’s Marketing Strategy 457Club Imaginarium 457

Questions for Discussion 458Notes 458

Joemarin Oy 459

Questions for Discussion 463

The Gray Ferrari 464

The Standards 464Ferrari’s Response 464The Reaction 465Government in the Middle 465

A Side Note 466The Decision 466Questions for Discussion 466

Video Global Vendor Relations at Pier 1 Imports 467

Cases 3

Questions for Discussion 468

Goya Helps Latinos Maintain Mealtime Traditions 469

Questions for Discussion 470

Part 4 The Global Marketing Mix Chapter 14 Global Product Management and Branding 473

The International Marketplace 14.1 473Global Product Development 475

The Product Development Process 476 The Location of R&D Activities 479

The International Marketplace 14.2 480

The Organization of Global Product Development 481

The International Marketplace 14.3 482

The Testing of New Product Concepts 483 The Global Product Launch 484

Management of the Product and Brand Portfolio 485

Analyzing the Product Portfolio 485 Disadvantages of the Product Portfolio Approach 488 Managing the Brand Portfolio 489

Brand Strategy Decisions 491

The International Marketplace 14.4 493

Private Brand Policies 495 Summary 497

Key Terms 497 Questions for Discussion 497 Internet Exercises 497 Recommended Readings 498 Notes 498

Chapter 15 Global Services 501

The International Marketplace 15.1 501Differences between Services and Goods 502

Linkage between Services and Goods 504 Stand-Alone Services 505

The Role of Services in the U.S Economy 508The Role of International Services in the World Economy 509Global Transformation of Services 510

International Trade Problems in Services 512

Data Collection Problems 512 Regulations and Service Trade Negotiations 512

Corporations and Involvement in International Services Marketing 513

Services and E-Commerce 513 Services and Academia 514 Typical International Services 514 Starting to Market Services Internationally 516

The International Marketplace 15.2 517

Strategic Implications of International Services Marketing 518

The International Marketplace 15.3 519

Summary 520 Key Terms 521 Questions for Discussion 521 Internet Exercises 521 Recommended Readings 521 Notes 522

Chapter 16 Global Logistics and Materials Management 523

The International Marketplace 16.1 523

A Definition of International Logistics 524

Supply Chain Management 525The Impact of International Logistics 526

The New Dimensions of International Logistics 527

International Transportation Issues 527

Transportation Infrastructure 527

The International Marketplace 16.2 528

Availability of Modes 528 Choice of Transport Modes 531

The International Shipment 533

Documentation 534 Assistance with International Shipments 535

International Inventory Issues 535

Order Cycle Time 535 Customer Service Levels 536 Inventory as a Strategic Tool 536

International Storage Issues 537

Storage Facilities 537 Outsourcing 537

The International Marketplace 16.3 538

Foreign Trade Zones 539

International Packaging Issues 539Management of International Logistics 541

Centralized Logistics Management 541 Decentralized Logistics Management 541 Contract Logistics 542

The Supply Chain and the Internet 542Logistics and Security 543

The International Marketplace 16.4 544Recycling and Reverse Logistics 545

Summary 546 Key Terms 547 Questions for Discussion 547 Internet Exercises 547 Recommended Readings 547 Notes 547

Chapter 17 Global Pricing 549

The International Marketplace 17.1 549Transfer Pricing 550

Use of Transfer Prices to Achieve Corporate Objectives 552 Transfer Pricing Challenges 553

Pricing within Individual Markets 555

Corporate Objectives 555 Costs 557

Demand and Market Factors 558 Market Structure and Competition 559 Environmental Constraints 559

Dealing with Financial Crises 560

Causes of the Crises 560 Effects of the Crises 561 Consumer and Marketer Responses 561

The International Marketplace 17.2 563Pricing Coordination 563

The Euro and Marketing Strategy 564The International Marketplace 17.3 565Countertrade 566

The International Marketplace 17.4 567

Why Countertrade? 567

Types of Countertrade 568Preparing for Countertrade 570

Summary 572 Key Terms 572 Questions for Discussion 572 Internet Exercises 572 Recommended Reading 573 Notes 573

Chapter 18 Global Promotional Strategies 575

The International Marketplace 18.1 575Planning Promotional Campaigns 577

The Target Audience 577 Campaign Objectives 579 The Budget 579

Media Strategy 580 Audience Characteristics 584 Global Media 584

The International Marketplace 18.2 585

The Promotional Message 587

The International Marketplace 18.3 590

The Campaign Approach 591 Measurement of Advertising Effectiveness 594

Other Promotional Elements 596

Personal Selling 596 Sales Promotion 597 Public Relations 599 Sponsorship Marketing 602

The International Marketplace 18.4 603

Summary 604 Key Terms 604 Questions for Discussion 604 Internet Exercises 604 Recommended Readings 604 Notes 605

Appendix: Careers in International Marketing 607

Further Training 607Employment with a Large Firm 607Employment with a Small or Medium-Sized Firm 610Opportunities for Women in Global Firms 612Self-Employment 612

Recommended Readings 614 Notes 614

Cases 4 International Marketing and the NBA 615

A New Ming Dynasty? 615The NBA Goes Global 615Global Expansion in China 615Licensing Benefits 616

“The Golden Bridge” 616Questions for Discussion 616Sources 616

Oil for Food 618

Selling the Oil 619

Buying the Goods 620

The Banking Issue 621

The Investigation 621

Questions for Discussion 621

Sources 621

Should Dubai Take Over U.S Ports? 622

DP World, a Dubai Company 622

Investment in U.S Ports 623

Ports and Container Operations 624

Blood Free Diamonds 629

The Diamond Production Process: From Mine to Market 629

The Not So Dazzling Side of the Diamond Trade 629

The Kimberley Process 630

Critics Speak Out 630

New Technologies Offer Solutions 630

Questions for Discussion 631

Sources 631

Nova Scotia 632

The U.S Market for Canadian Travel Services 632

A Benefit-Matching Model 632

The Case of Nova Scotia 632

Examples of Successful Positioning 634

Positioning Nova Scotia 635

Questions for Discussion 635

Notes 635

The F-18 Hornet Offset 636

Offsets 636

McDonnell’s Deal with the Finnish Air Force 637

The Finnish Government Position 638

Selecting the Fighter 638

Working Out the Offsets 639

The F-18 Team’s Position 640

Competing for the Deal 640

Satisfying the Offset Obligation 640

Results 641Questions for Discussion 641Recommended Readings 641

Video Whirlpool and the Global Appliance Industry 642 Cases 4

Whirlpool and Its Options 642Global Success Factors 643

China and Asia 643 United States 644 Europe 644 Latin America 644

Questions for Discussion 644

ESPN’s Worldwide Reach 645

Questions for Discussion 646

Glossary G-1Index I-1

The International

Marketing Environment

1

Part

Part One introduces the international trade framework and environment It highlights the need for international marketing activities and explores recent developments in world trade and global markets, including an overview of

regional and international trade agreements These chapters are largely devoted to macroenvironmental forces that firms and managers must be aware of when conducting business internationally In order to be

successful, the marketer must adapt to foreign environments and must be able

to resolve conflicts stemming from differences in cultural, economic, political, and legal factors.

1 2 3 4 5

One really big surprise of the postwar era has been that

historic enemies, such as Germany and France or Japan

and the United States, have not had the remotest threat

of war from each other since 1945.Why should they?

Anything Japan has that the United States wants can be

bought, and on very easy credit terms, so why fight for it?

Why should the Japanese fight the United States and lose

all those profitable markets? France and Germany, linked

intimately through marketing and the European Union,

are now each other’s largest trading partners

Closed systems build huge armies and waste their

resources on guns and troops; open countries spend their

money on new machines to crank out Barbie dolls or

some other consumer products The bright young people

of open countries figure out how to run machines or

provide services, not how to fire the latest missile For

some reason, they not only get rich fast but also lose

inter-est in military adventures Japan, that peculiar superpower

without superguns, confounds everyone simply because no

one has ever seen a major world power that got that way

by selling you to death, not shooting you to death

Freedom is about options A true option provides the

opportunity to make a meaningful decision, to exercise

virtue International marketing contains the freedom of

almost unlimited growth potential However, the cost of

freedom is rising Terms like free trade or free choice are

misleading because they come with a price We are all

paying a higher price due to global terrorism Marketerspay the higher cost of preparing their shipments, scrutinizingtheir customers, and conforming to government regulations.Local participants, employees, and investors pay with theirsuffering and economic loss after a terrorist attack

In most instances, terrorism is not an outgrowth ofchoice, but rather the lack of it Terrorists do not succeed

in increasing their freedom through their actions, but onlydecrease the freedom of others International marketers

in turn can invest in the world’s poorest markets andincrease their own revenue while decreasing poverty

The expansion of trade creates jobs, improves health andeducation standards, and raises overall standards of living

in impoverished regions—all of which bring a new sense

of hope that turns aside the false appeal of terrorism U.S.trade agreements with Vietnam, Bahrain, and Russia, andthe slashing of tariffs on Pakistani textiles by the EuropeanUnion, showcase the might of international marketing

However, much effort continues to be required from theglobal community Trade-based progress toward globalwealth must include extensive health-care and environ-mental aid, massive debt write-offs, and substantial tariffand quota reductions for steel, textile, and agriculturalexports from impoverished regions

SOURCES: Czinkota, Michael R “On Freedom and International

Marketing.” Congressional Record, May 9, 2005; Farmer, Richard N “Would You Want Your Daughter to Marry a Taiwanese Marketing Man?” Journal of

Marketing 51 (October 1987): 114–115.

International Marketing: Bringing Peace, Fighting Terrorism

The Global Marketing

Imperative

1

3

You are about to begin an exciting, important, and necessary task: the

explo-ration of international marketing International marketing is exciting because itcombines the science and the art of business with many other disciplines.Economics, anthropology, cultural studies, geography, history, languages,jurisprudence, statistics, demographics, and many other fields combine to help youexplore the global market Different business environments will stimulate your intellectualcuriosity, which will enable you to absorb and understand new phenomena Internationalmarketing has been compared by many who have been active in the field to the task ofmountain climbing: challenging, arduous, and exhilarating

International marketing is important because the world has become globalized.Increasingly, we all are living up to the claim of the Greek philosopher Socrates, whostated, “I am a citizen, not of Athens or Greece, but of the world.” International market-ing takes place all around us every day, has a major effect on our lives, and offers newopportunities and challenges After reading through this book and observing internationalmarketing phenomena, you will see what happens, understand what happens, and, atsome time in the future, perhaps even make it happen All of this is much better than tostand by and wonder what happened

International marketing is necessary because, from a national standpoint, economicisolationism has become impossible Failure to participate in the global marketplaceassures a nation of declining economic capability and its citizens of a decrease in theirstandard of living Successful international marketing, however, holds the promise of animproved quality of life, a better society, more efficient business transactions, and even a

more peaceful world, as The International Marketplace 1.1 highlights.

This chapter is designed to increase your awareness of what international marketing isabout It describes current levels of world trade activities, projects future developments,and discusses the repercussion on countries, institutions, and individuals worldwide Boththe opportunities and the threats that spring from the global marketplace are highlighted,and the need for an international “marketing” approach on the part of individuals andinstitutions is emphasized

This chapter ends with an explanation of the major organizational thrust of this book,which is a differentiation between the beginning internationalist and the multinationalcorporation This theme ties the book together by taking into account the concerns, ca-pabilities, and goals of firms that will differ widely based on their level of international ex-pertise, resources, and involvement The approach to international marketing taken herewill therefore permit you to understand the entire range of international activities andallow you easily to transfer your acquired knowledge into practice

What International Marketing Is

In brief, international marketing is the process of planning and conducting transactionsacross national borders to create exchanges that satisfy the objectives of individuals andorganizations International marketing has forms ranging from export–import trade tolicensing, joint ventures, wholly owned subsidiaries, turnkey operations, and manage-ment contracts

As this definition indicates, international marketing very much retains the basic keting tenets of “satisfaction” and “exchange.” International marketing is a tool used toobtain improvement of one’s present position The fact that a transaction takes placeacross national borders highlights the difference between domestic and international mar-keting The international marketer is subject to a new set of macroenvironmental factors,

mar-to different constraints, and mar-to quite frequent conflicts resulting from different laws, tures, and societies The basic principles of marketing still apply, but their applications,complexity, and intensity may vary substantially It is in the international marketing fieldwhere one can observe most closely the role of marketing as a key agent of societalchange and as a key instrument for the development of societally responsive business

cul-strategy When we look, for example, at the emerging market economies of China and

Russia, we can see the many new challenges confronting international marketing How

does the marketing concept fit into these societies? How can marketing contribute to

eco-nomic development and the improvement of society? How should distribution systems be

organized? How can we get the price mechanism to work? Similarly, in the international

areas of social responsibility and ethics, the international marketer is faced with a

multi-cultural environment with differing expectations and often inconsistent legal systems

when it comes to monitoring environmental pollution, maintaining safe working

condi-tions, copying technology or trademarks, or paying bribes.1 In addition, the long-term

repercussions of marketing actions need to be understood and evaluated in terms of their

societal impact These are just a few of the issues that the international marketer needs to

address The capability to master these challenges successfully affords a company the

potential for new opportunities and high rewards

The definition also focuses on international transactions The use of the term

recog-nizes that marketing internationally is an activity that needs to be pursued, often

aggres-sively Those who do not participate in the transactions are still exposed to international

marketing and subject to its changing influences The international marketer is part of the

exchange, and recognizes the constantly changing nature of transactions This need for

adjustment, for comprehending change, and, in spite of it all, for successfully carrying out

transactions highlights the fact that international marketing is as much art as science

To achieve success in the art of international marketing, it is necessary to be firmly

grounded in its scientific aspects Only then will individual consumers, policymakers, and

business executives be able to incorporate international marketing considerations into

their thinking and planning Only then will they be able to consider international issues

and repercussions and make decisions based on answers to questions such as:

• Should I obtain my supplies domestically or from abroad?

• What marketing adjustments are or will be necessary?

• What threats from global competition should I expect?

• How can I work with these threats to turn them into opportunities?

• What are my strategic global alternatives?

If all these issues are integrated into each decision made by individuals and by firms,

international markets can become a source of growth, profit, needs satisfaction, and

qual-ity of life that would not have existed for them had they limited themselves to domestic

activities The purpose of this book is to aid in this decision process

The Importance of World Trade

World trade has assumed an importance heretofore unknown to the global community In

past centuries, trade was conducted internationally but never before did it have the broad

and simultaneous impact on nations, firms, and individuals that it has today Within five

years alone, world trade in merchandise has expanded from $6.2 trillion in 2000 to over

$9 trillion in 2005 World trade in services has expanded from $1.5 trillion to $2.1 trillion

in the same period of time That represents a growth of nearly 150 percent for trade in

both merchandise and services!2Such economic growth is exceptional, particularly since,

as Exhibit 1.1 shows, trade growth on a global level has usually outperformed the growth

of domestic economies in the past few decades As a result, many countries and firms

have found it highly desirable to become major participants in international marketing

The Iron Curtain has disintegrated, offering a vast array of new marketing opportunities—

albeit amid uncertainty Firms invest on a global scale, with the result that entire

indus-tries shift their locations International specialization and cross-sourcing have made

pro-duction much more efficient New technologies have changed the way we do business,

allowing us to both supply and receive products from across the world by using the

Internet As a result, consumers, union leaders, policymakers, and sometimes even the

firms themselves are finding it increasingly difficult to define where a particular product

was made There are trading blocs such as the European Union in Europe, NAFTA inNorth America, Mercosur in Latin America, and ASEAN in Asia These blocs encouragetrade relations between their members, but, through their rules and standards, they alsoaffect the trade and investment flows of nonmember countries.

Individuals and firms have come to recognize that they are competing not onlydomestically but also globally World trade has given rise to global linkages of markets,technology, and living standards that were previously unknown and unanticipated At thesame time, it has deeply affected domestic policy-making and has often resulted in the

emergence of totally new opportunities as well as threats to firms and individuals The International Marketplace 1.2 provides an example.

Global Linkages

World trade has forged a network ofglobal linkages that bind us all—countries, tions, and individuals—much more closely than ever before These linkages were firstwidely recognized during the worldwide oil crisis of 1970, but they continue to increase

institu-A drought in Brazil and its effect on coffee production and prices are felt around theworld The 2004 tsunami in the Indian Ocean resulted in massive casualties in SouthAsia, caused worldwide disruptions in manufacturing and trade, and devastated thetourism industry of many countries For example, in the Maldives, which are locatedmore than 2,500 kilometers (1.6 kilometers  1 mile) from the quake’s epicenter,tourism is the largest industry, contributing 30 percent of its GDP of $1.25 billion.3Theindustry is estimated to have suffered at least $100 million of damage in addition toanother $250 million in business losses as an indirect result of the tsunami.4 The com-bined effects of hurricanes Katrina and Rita on the Gulf Coast of the United States in thefall of 2005 caused the production loss of nearly 75 million barrels of oil, or 13.6 percent

of the annual oil production in the Gulf of Mexico The result was a spike in the price

of gasoline worldwide, which raised the transportation costs for countless industries andbusinesses.5

These linkages have also become more intense on an individual level Communicationhas built new international bridges, be it through music or international programstransmitted by CNN, BBC, Al Arabiya, and other networks New products have attained

Percent Change

Growth of World Output in Trade (1997–2006) 1.1

Exhibit

SOURCE: International Monetary Fund, World Economic Outlook 2005, Statistical Appendix, 205, 233.

Public discussion has long highlighted companies that

outsource their manufacturing facilities or their technical

support call centers.When outsourcing first began, many

lawmakers and citizens were worried about the loss of

production jobs within the United States Companies

argued that while some jobs may be lost, other more

skilled and higher paying jobs would emerge.Today,

however, companies are outsourcing information

technology, software support and, most importantly,

their innovation

In October 2005, General Motors announced that it

would open its newest research and development facility

in Russia.According to the United Nations Conference

on Trade and Development, GM has the sixth-largest

research and development budget of any company in the

world, annually spending $5 billion on R & D alone Its

research and development branch has historically been

headquartered in Warren, Michigan, but the supply of

technical expertise and engineering knowledge the car

maker needs today is more available in countries such as

India, Brazil, and Russia

Similarly, global competition and time pressures force

the pharmaceutical industry to speed up the

develop-ment process while simultaneously cutting costs.The

Italian pharmaceutical company, Congenia, has outsourced

a portion of its drug formulation capabilities to Indian

software giant Tata Consultancy Services Ltd Previously,

Tata had been used by many companies as a source of

low-cost computer services and support Pfizer, another

pharmaceutical company, which has a center in Mumbai,

outsources chemical synthesis, drug development, drug

manufacturing, and even clinical trials.While all drugsthat companies plan to sell in the United States must beapproved at every step of the process by U.S regulatoryagencies, companies are finding it cheaper and faster totake parts of the innovation process abroad

U.S and Western European companies are turning tocountries that have a technically educated population, butrelatively low levels of domestic capital Initially, theseconditions offer low cost production facilities However,

as workers gain more experience in particular fields, theybecome poised to become the innovators themselves

HelloSoft, an Indian company providing technology forvoice-over-internet protocol communications, has raisedover $16 million from U.S venture capitalists

Industrialized countries have long recruited talent fromaround the world.Today, Indian and Eastern Europeanscientists, mathematicians, and engineers no longer need

to emigrate, but can work from their home countries

Governments and companies must learn to adapt to achanging global technology-intensive climate in whichmost projects can be completed by teams from aroundthe world and seamlessly combined into a final product.Lawmakers, workers, and consumers need to changetheir policies and outlooks on outsourcing in order for acountry to stay globally competitive Otherwise,

innovation will not just be outsourced, it will be comingfrom entirely different regions of the world

SOURCES: Hamm, Steve, “Scrambling up the Development Ladder,”

Business Week, August 22/29 2005, 112; Smolchenko, Anna, “GM to Open

Russian R&D Center,” The Moscow Times, Issue 3280, October 24, 2005, 7.

Outsourcing Innovation?

international appeal and encouraged similar activities around the world—where many of

us wear jeans, dance to the same music on our iPods, and eat kebobs, curry, and sushi

Transportation linkages let individuals from different countries see and meet each other

with unprecedented ease Common cultural pressures result in similar social phenomena

and behavior—for example, more dual-income families are emerging around the world,

which leads to more frequent, but also more stressful, shopping.6

World trade is also bringing about a global reorientation of corporate processes, which

opens up entirely new horizons Never before has it been so easy to gather, manipulate,

analyze, and disseminate information—but never before has the pressure been so great to

do so Ongoing global technological innovation in marketing has direct effects on the

efficiency and effectiveness of all business activities Products can be produced more

quickly, obtained less expensively from sources around the world, distributed at lower

cost, and customized to meet diverse clients’ needs As an example, only a decade ago, it

would have been thought impossible for a firm to produce parts for a car in more than

one country, assemble the car in yet another country, and sell it in still other nations

Today, such global investment strategies coupled with production and distribution

shar-ing are becomshar-ing a matter of routine Of course, as The International Marketplace 1.2

explains, these changes increase the level of global competition, which in turn makes it

an ongoing effort if one wants to stay in a leadership position

Advances in technology also allow firms to separate their activities by content and text Firms can operate in a “market space” rather than a marketplace7 by keeping thecontent while changing the context of a transaction For example, a newspaper can now

con-be distributed online globally rather than house-to-house on paper, thereby allowing reach to entirely new customer groups

out-The level of global investment is at an unprecedented high out-The shifts in financial flowshave had major effects They have resulted in the buildup of international debt by gov-ernments, affected the international value of currencies, provided foreign capital for firms,and triggered major foreign direct-investment activities For example, well over one-third

of the workers in the U.S chemical industry toil for foreign owners Many of the officebuildings Americans work in are owned by foreign landlords The opening of plants cantake the place of trade All these developments make us more and more dependent onone another

This interdependence, however, is not stable On almost a daily basis, realignmentstaking place on both micro and macro levels make past trade orientations at least partiallyobsolete For example, for the first 200 years of its history, the United States looked toEurope for markets and sources of supply Today, U.S two-way trade with Asia far out-paces U.S trade with Europe

Not only is the environment changing, but the pace of change is accelerating as well.Atari’s Pong was first introduced in the early 1980s; today, action games and movies aremade with computerized humans The first office computers emerged in the mid-1980s;today, home computers have become commonplace E-mail was introduced to a massmarket only in the 1990s; today, many college students hardly ever send personal notesusing a stamp and envelope.8

These changes and the speed with which they come about significantly affect tries, corporations, and individuals One change is the role participants play For example,the United States accounted for nearly 25 percent of world merchandise exports in the1950s, but by 2005 this share had declined to less than 9 percent Also, the way countriesparticipate in world trade is shifting In the past two decades the role of primary com-modities in international trade has dropped precipitously, while the importance of manu-factured goods has increased The increase in the volume of services trade has been evenhigher In a few decades, international services went from being a nonmeasured activity

coun-to a global volume of more than $2.1 trillion in 2005.9 Exhibit 1.2 shows how substantialthe growth rates for both merchandise and services trade have been Most important, thegrowth in the overall volume and value of both merchandise and services trade has had

a major impact on firms, countries, and individuals

Domestic Policy Repercussions

The effects of closer global linkages on the economics of countries have been dramatic.Policymakers have increasingly come to recognize that it is very difficult to isolatedomestic economic activity from international market events Decisions that once wereclearly in the domestic purview have now become subject to revision by influences fromabroad, and domestic policy measures are often canceled out or counteracted by theactivities of global market forces

A lowering of interest rates domestically may make consumers happy or may be ically wise, but it quickly becomes unsustainable if it results in a major outflow of funds

polit-to countries that offer higher interest rates Agricultural and farm policies, which hispolit-tori-cally have been strictly domestic issues, are suddenly thrust into the international realm.Any policy consideration must now be seen in light of international repercussions due toinfluences from global trade and investment

histori-To some extent, the economic world as we knew it has been turned upside down.For example, trade flows traditionally have been used to determine currency flows and

therefore the level of the exchange rate In the more recent past,currency flowstook on a

life of their own Independent of trade, they set exchange rates, which are the values of

currencies relative to each other Theseexchange ratesin turn have now begun to

deter-mine the level of trade Governments that wish to counteract these developments with

monetary policies find that currency flows outnumber trade flows by 100 to 1 Also,

private-sector financial flows vastly outnumber the financial flows that can be marshaled

by governments, even when acting in concert Similarly, constant rapid technological

change and vast advances in communication permit firms and countries to quickly

emu-late innovation and counteract carefully designed plans As a result, governments are often

powerless to implement effective policy measures, even when they know what to do

Policymakers therefore find themselves with increasing responsibilities yet with fewer

and less effective tools to carry out these responsibilities At the same time that more parts

of a domestic economy are vulnerable to international shifts and changes, these parts are

becoming less controllable The global market imposes increasingly tight limits on

na-tional economic regulation and sovereignty

To regain some of their power to influence events, policymakers have sought to restrict

the impact of global trade and financial flows by erecting barriers, charging tariffs,

de-signing quotas, and implementing other import regulations However, these measures too

have been restrained by international agreements that regulate trade restrictions,

particu-larly through the World Trade Organization (WTO) (http://www.wto.org) Global trade has

therefore changed many previously held notions about nation-state sovereignty and

ex-traterritoriality The same interdependence that has made us more affluent has also left us

more vulnerable Because this vulnerability is spread out over all major trading nations,

however, some have credited international marketing with being a pillar of international

peace, as The International Marketplace 1.1 showed Clearly, closer economic relations

can result in many positive effects At the same time, however, interdependence brings

with it risks, such as dislocations of people and economic resources and a decrease in a

nation’s capability to do things its own way Given the ease—and sometimes the

desirability—of blaming a foreign rather than a domestic culprit for economic failure, it

may well also be a key task for the international marketer to stimulate societal thinking

about the long-term benefits of interdependence

Percentage

Growth

Countries

0 200 400 600 800 1000

Africa

EU 15*

United States Japan

India China

Brazil Australia

Services Merchandise

119 94

140 108

*Report for 2003

Key

Changes in Exports (1990–2004) 1.2

Exhibit

* Report for 2003

SOURCE: WTO Statistics Database, accessed November 20, 2005