Slide international business 6e by CHarless hill 07IBChapter 17

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Global Marketing and

R & D

International Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Opening Case

• Kodak entered Russia in the early 1990’s

- Country was deep in the middle of a turbulent transition from a communist economy to a new democracy

- Russian consumers had little knowledge of Kodak’s

products

- The consumer market for photography was

underdeveloped

- Apart from state-run stores, there was little or no

infrastructure in place for distributing photographic equipment, film, and processing

- Consumers were poor and lacked the ability to afford all

but the most inexpensive cameras

Opening Case

• Kodak’s entry into Russia is widely regarded as a major success

because it accounts for a significant portion of $2.59 billion in

international sales and growth rate of 26%

• Reasons for Kodak’s success include

- A clear and consistent marketing message communicated

through a number of media

- They invested in promoting a corporate image as a firm that

takes a stand against corruption and black-market practices

- The product strategy has been to sell lower-end film and cameras in Russia

- Encouraged major enterprises to give cameras to valued employees

- Built a distribution channel through franchising

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Markets and Brands

• Important to determine when product standardization

is appropriate in an international market

• Firms may need to vary marketing mix in each

different country

• Globalization may be the exception rather than the rule

in many consumer goods markets and industrial

markets

Market Segmentation

• Refers to identifying distinct groups of consumers

whose purchasing behavior differs from others in

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Market Segmentation

• Two main issues relating to segmentation:

- Extent of differences between countries in the structure of

market segments

- Existence of segments that transcend national borders

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Cultural Differences

• Differ along dimensions such as social structure,

language, religion, and education

• Impact of tradition

• Some tastes and preferences becoming cosmopolitan

Economic Development

• Consumer behavior is influenced by economic

development

- Consumers in highly developed countries tend to

demand extra performance attributes in their products

• Price not a factor due to high income level

- Consumers in less developed countries value basic

features as more important

• Price a factor due to lower income level

- Cars: no air-conditioning, power steering, power windows, radios, and cassette players

• Product reliability is more important

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Product and Technical Standards

- Government standards can rule out mass

production and marketing of a standardized product

- Differing technical standards constrain

globalization of markets

• Different television signal frequencies

Distribution Strategy

• Choice of the optimal channel for delivering a product

to the consumer

- Optimal strategy is determined by the relative costs and

benefits of each alternative

- Depends on differences between countries

• Retail concentration

• Channel length

• Channel exclusivity

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Typical Distribution System

Retail Concentration

number of households with refrigerators and freezers, and two-income households

number of urban centers, e.g Japan

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Channel Length

• Refers to number of intermediaries between the

producer and the consumer

• Determined by degree to which the retail system is

fragmented

- Long distribution channel

- Short distribution channel

Channel Length

• Long distribution channel

- Fragmented retail system promotes growth of

wholesalers and retailers

- Firms go through intermediaries such as wholesalers

to cut selling costs

• Short distribution channel

- Concentrated retail system

- Firms deal directly with retailers

• Varies between countries

- Japan - exclusive systems because personal relations, often decades old, play an important role in stocking products

- Difficult for new firm to get shelf space as compared to an

old firm

Choosing a Distribution

Strategy

• The optimal strategy is determined by the relative

costs and benefits of each alternative

- Varies from country to country

• Benefits of a shorter distribution channel

- The longer the channel, the greater the aggregate markup and the higher the price that consumers are charged for the final product

- If price is an important competitive weapon the firm might

choose a shorter channel

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Choosing a Distribution

Strategy

• Benefits of a longer distribution channel

- Cuts selling costs when the retail sector is fragmented

- Longer channels can provide increased market access

• If channel quality is poor, a firm should consider what

steps it could take to upgrade the quality of the

channel

- This may include establishing its own distribution channel

Communication Strategy

• Defines the process the

firm will use in

- Develop cross-cultural literacy

- Firm should use local input such as local advertising agency and sales force

- Receiver of the message evaluates the message based on status or image of the sender

- Place of manufacturing influences product evaluations

product

• Developed countries - high

• Less developed countries - low

• Standardized advertising strategy execution more

difficult (culture, laws)

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Push Versus Pull Strategy

• Push strategy emphasizes personal selling

- Requires intense use of a sales force

- Relatively costly

• Pull strategy depends on mass media advertising

- Can be cheaper for a large market segment

• Determining factors of type of strategy

- Product type and consumer sophistication

- Channel length

- Media availability

Product Type and Consumer Sophistication

- Direct selling allows firms

to educate users

- Short distribution channels

- Used in poorer nations

for consumer goods where direct selling only way to reach consumers

- Mass advertising to generate demand to pull product

through various layers

• Push Strategy

- In countries with low literacy levels to educate

consumers

Media Availability

• Pull strategy

- Relies on access to advertising media

- Common in developed nations

• Push strategy

- Media availability limited by law

- All electronic media state owned with no commercial policy

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Global Advertising

• Standardized:

- Significant economic advantages

- Scarce creative talent

- Many global brand names

• Non-standardized:

- Cultural differences

- Advertising regulations can be a restriction

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Price Discrimination

• Said to occur when consumers in different countries

are charged different prices for the same product

• Two conditions necessary

- National markets kept separate to prevent arbitrage

• Capitalization of price differentials by purchasing product in

countries where prices are lower and reselling where prices are higher

- Different price elasticities of demand in different

countries

• Greater in countries with low income levels and highly

competitive conditions

Elastic and Inelastic Demand

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Strategic Pricing

• Predatory pricing

- Using price as a competitive weapon to drive weaker

competition out of a national market

- Firms then raise prices to enjoy high profits

- Firms normally have profitable position in another

national market

Strategic Pricing

• Multipoint pricing strategy

- Two or more international firms compete against each other

in two or more national markets

- A firm’s pricing strategy in one market may impact a rival in

another market

• Kodak and Fuji

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Strategic Pricing

• Experience curve pricing

- Firms price low worldwide to build market share

- Incurred losses are made up as company moves

down experience curve, making substantial profits

- Cost advantage over its less-aggressive competitors

Regulatory Influences on Prices

• Antidumping regulations

- Selling a product for a price that is less than the cost of

producing it

- Antidumping rules vague, but place a floor under export

prices and limit a firm’s ability to pursue strategic pricing

• Article 6 of GATT allows action against an importer if the product is sold at ‘less than fair value’ and causes ‘material injury to a domestic industry’

• Competition policy

- Regulations designed to promote competition and restrict

monopoly practices

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Configuring the Marketing Mix

Culture

Eco nom y

C om pe titi on

St an

da rd s

St ra

te gy

m un ica tion s

Str

Pricing Strateg y

Differences Here

Requires Variation Here

New Product Development

• The location of R & D

- Rate of new product development greater in countries

where

• More money spent on R&D

• Underlying demand is strong

• Consumers are affluent

• Competition is intense

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Marketing and Production

• Integrating R&D, production and marketing ensures

- Project development driven by customer needs

- New products are designed for ease of manufacture

- Development costs are kept in check

- Time to market is minimized

Marketing and Production

• High failure rate ratio

- Between 33 % and 60% of new products fail to earn

adequate profits

• Reasons for failure:

- Limited product demand

- Failure to adequately commercialize product

- Inability to manufacture product cost-effectively

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Cross-Functional Product

Development Teams

• Objective of team to take a product development

project from the initial concept development to market

introduction

• Effective teams must have

- “Heavyweight “ project manager

- One member from each key function

- Physically co-located to facilitate communication

- Clear plan and goals

- Own process for communication and conflict resolution

Looking Ahead to Chapter 18

• Global Human Resource Management

- The Strategic Role of International HRM