Marketing Concepts Marketing in the Big Wide World

1. Marketing ConceptsMarketing in the Big Wide World MKTG 3110-004 Spring 2014 Mrs. Tamara L. Cohen Classes #11-12

2. KEY TERMS • Balance of Trade • Emerging Markets • Countertrade • Tariffs • Quotas • Global competition Global companies Global consumers Global brands • Dumping • Semiotics • Ethnocentrism • Currency exchange rates

3. KEY CONCEPTS • Protectionism • World Trade Organization (WTO) • Cultural diversity • values, customs, symbols • language problems • Strategic alliances • European Union • NAFTA • Bottom of the Pyramid • Microfinance • Political risk • Market entry strategies • Exporting • Licensing / Franchising • Joint Ventures • Foreign Direct Investment

4. How much world trade is there? • A LOT ($20 trillion?) • “International trade is the exchange of capital, goods, & services across international borders… Without international trade, nations would be limited to the goods and services produced within their own borders.” • What grows global markets? • Globalization • Greater access to markets • Global competition • Multinational corporations US & world trade • Balance of Trade DEFICIT • Biggest US trading partners Canada, China, Mexico, Japan, Germany

5. Peopleaccelerate global trade. Who are the ‘Globalizers’?

6. Process of Globalization • Global transactions touch us every day • Imports & exports come from & go to remote areas • Technology & e-business facilitate spread of trade

7. Growth in Emerging Economies “We used to design the same products for global requirements and distribute the same product globally … we started … talking to emerging country customers, designing a product for emerging countries, and initially launching the product in only emerging countries.”¹ Dell LISTENED Changes in Dell’s global strategy: • sales & distribution • ‘experience centers’

8. Published: January 19, 2011 in Knowledge@Wharton Emerging Markets BUZZZZ • 28 - 150 emerging markets worldwide • 4 Tigers = Hong Kong, Singapore, South Korea, Taiwan • 4 Lions = Egypt, Morocco, Tunisia, South Africa BRIC = Brazil, Russia, India, China CIVETS = Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa

9. Comparing revenue of the world's 10 most global firms to the GDP of nations

10. Countertrade Global marketer must know: Which markets will require countertrade? • Eastern Europe • old USSR states • some Latin American countries • some African countries Why countertrade? • when cash reserves low Countertrade may include • direct exchange of goods • part payment in goods, part in cash

11. Deal that ultimately brought Pepsi to Russian market in early ’70s hinged on famous barter agreement brokered by Kendall: Pepsi concentrate for Stolichnaya vodka. By 1990, barter trade reached $3 billion with Pepsi trading its product not only for vodka but also for ocean going freighters and tankers which were earmarked to be sold as scrap. By this point, Pepsi Co was not just selling syrup but was expanding in fast food business via its Pizza Hut franchise. Pepsi was not able to maintain exclusivity in Russia. With Soviet collapse, Coca-Cola introduced to Russian market and captured significant market share eventually overtaking Pepsi in 2005. 1959landmark event when Pepsi legend Donald M. Kendall, then head of Pepsi-Cola International, first introduced brand to Russians, including then-Soviet Premier Nikita Khrushchev at American National Exhibition in Moscow. Pepsi’s famous barter deal with Russia

12. Barter Ships for oil - Brazil proposed that South Korea supply drill ships, in return for stakes in Brazil’s Santos oil fields, which Korea would also manage

13. Counterpurchase Fred Krupp Huttenwerke AG of Germany sold $9 million of large capacity hydraulic cranes to Machinoimport in USSR - used countertrade tools & equipment in German plants, or resold them.

14. Marketing in a borderless economic world? Is Protectionism really waning? Tariffs still most common barrier to entry Quotas discouraged by WTO GATT limited trade barriers & promoted world trade through reduction of tariffs; did not address non-tariff barriers WTO deals with rules of trade between nations; ensures trade flows smoothly

15. World Trade Organization members &observers

16. Protectionism hinders world trade when countries raise prices & limit supply through tariff & quota policies PROTECTIONISM TARIFFS QUOTAS INCREASE PRICE LIMIT SUPPLY DECREASE WORLD TRADE

17. Tariffs = government tax levied on a product as it enters or leaves a nation • directly increases price of imported product more expensive + less appealing • export tariff 2. transit tariff 3. import tariff + • protect domestic producers • increase government revenue _ • domestic producers less competitive • increase consumer prices

18. Quotas = restriction on quantity of a good that can enter or leave a country during a certain time • most common non-tariff barrier IMPORT QUOTA • protects domestic producers • foreign companies compete for market access competition consumer prices consumer choices EXPORT QUOTA supply of product in home market, e.g. natural resources essential to local business or long-term survival supply on world market global price

19. Strategic Alliances • Countries form strategic alliances to cooperate to reduce or eliminate barriers to facilitate the international flow of products, people, and capital. PROS specialization efficiency trade consumption standards of living political benefits CONS trade diverted to cheaper countries protectionism national sovereignty divergent rules /standards

20. North AmericanFree Trade Agreement NAFTA Pop: 445 million GDP: $16 trillion Members: 3 began: 1994

21. European Union Pop: 500 million GDP: $15 trillion Members: 27 began: 1951

22. Pop: 560 million GDP: $1.1 trillion Members: 10 Began: 1967 Association of SouthEastAsian Nations GOALS: • Promote economic, social, and cultural development • Safeguard economic and political stability • Serve as a forum to resolve disputes

23. Global Competition • when companies originate, produce & market their products & services worldwide • widens competitive landscape for marketers • can give rise to global strategic alliances

24. Global Companies • international company trades overseas as extension of marketing at home • multinational company (MNC) uses multidomestic strategy, using many different brands & variations for different markets • transnational company views world as one market; focuses on cultural similarities across countries, or universal consumer needs & wants; global marketing strategy standardizes marketing activities

25. Global companies & marketing strategy

26. Global Brands • brand is marketed under the same name in multiple countries, using similar and centrally-coordinated marketing programs • strong corporate identity • same product formulation, same benefits, consistent advertising across borders • e.g. McDonald’s’ “food, fun, and families” in 118 countries; but some aspects customized

27. Global Consumers • consumer groups living in many countries or regions of the world, who have similar needs or seek similar features & benefits from products or services • global middle class; youth market; elites • companies that have developed these markets:

28. Networked Global Marketspace • Internet enables exchange of goods, services & information anywhere, any time, & at lower price • global electronic commerce grown especially by B2B • most active B2B commerce countries: US, Canada, UK, Germany, Sweden, Japan, India, China, Taiwan

29. Networked Global Marketspace:

30. Cultural appreciation

31. Cultural literacy Cross-cultural analysis = understand & appreciate values, customs, symbols & language of other cultures Values- modes of conduct that prevail over time Customs- normal & expected behaviors in a country Cultural symbols- represent ideas & concepts; semiotics = study of symbols & their meaning Language- verbal & non-verbal communication; back translation Ethnocentrism= judging others relative to one’s own group or culture, especially regarding language, behavior, customs, religion

32. Language Blunders Japanese knife manufacturer labeled its exports to the United States with “Caution: Blade extremely sharp! Keep out of children.” English sign in a Moscow hotel read, “You are welcome to visit the cemetery where famous Russians are buried daily, except Thursday.” Sign for non-Japanese-speaking guests in a Tokyo hotel read, “You are respectfully requested to take advantage of the chambermaids.” Sign in English at Copenhagen ticket office read, “We take your bags and send them in all directions.” Braniff Airlines’ English-language slogan “Fly in Leather” was translated into “Fly Naked” in Spanish.

33. Mixed Signals • Middle East, West Africa, South America, Iran, Sardinia, Bangladesh: rude, insulting; obscene gesture • Italy, Germany, Greece, Hungary: #1, or ‘okay’ • Russia, Finland, Australia: ‘good’, ‘well done’ • UK: farewell or greeting between young men • Japan: male gender • Egypt, Iraq, Israel: ‘perfect’ • SCUBA diving: “I’m okay” • Hitchhiker: “I need a ride”

34. World Map of Literacy

35. Economic Considerations • Developed or developing country • Economic infrastructure- communications, transportation, financial, distribution systems • Consumer income & purchasing power • Currency exchange rates - price of one currency in terms of another • Bottom of the Pyramid 2.5 billion people; < $2.50/day • Microfinance- offering small, collateral-free loans to people outside conventional capital markets

36. Comparing purchasing power differences around the world

37. Why do Currency Values Matter? Exchange rates affect demand: weak currency (valued low versus other currencies) price of exportsprice of imports strong currency (valued high versus other currencies) price of exportsprice of imports

38. Political Risk Conflict & violence Terrorism & kidnapping Property seizure Policy changes Local content requirements Trade regulations

39. How to enter the global market • Exporting (including Internet sales) • Licensing / Franchising • Joint Venture • Foreign Direct Investment

40. Global market-entry strategies

41. 1. Exporting Exporting accounts for +- 10% of global economic activity. • Internet marketinginitially focused on domestic sales. International internet marketing developed from companies receiving orders from customers overseas. • Direct exporting= company sells to a customer in another country; most common initial approach • Indirect exporting= company sells to a buyer (importer or distribution) in home country, who in turn exports the product • Direct salesespecially for high tech & big ticket industrial products

42. 2.Franchising&Licensing Franchising Licensing Company has less control over sale of product in foreign market Primary use in manufacturing Usually involves one-time transfer of property • Company has greater control over sale of product in foreign market • Primary use in service sector • Ongoing assistance required from franchiser

43. Franchises in the Global Marketplace

44. 3. Joint Venture (JV) Company created & jointly owned by 2 or more entities to achieve a common objective Advantages • reduce risk by sharing investment • penetrate markets usually reserved for locals • access to local party’s distribution channels Disadvantages • partner conflict if objectives change, cooperation & trust fade • control may be unpredictable if local government involved in JV

45. 4. Foreign Direct Investment = purchase of physical assets or a significant ownership share of company overseas, 10% in order to control management • FDI usually involves management participation, joint venture, transfer of technology or expertise, or any combination • FDI focuses on productive assets: factories, land, organizations • FDI INFLOW (=INWARD FDI) when investments made in home country by overseas investors • FDI OUTFLOWS (=OUTWARD FDI) when home country investors make investments overseas • FDIs can be made by individuals, private or public companies, governments, or any combination

46. China & FDI • FDI in China occurs through IJVs, cooperative enterprises, & solely foreign-owned enterprises • China acknowledges that FDI has been crucial in its ‘economic miracle’ • More of China’s FDI comes from East Asia, especially Hong Kong (½), then Taiwan, USA, Japan, Korea • Most FDI is in manufacturing • China has tightly controlled flow of FDI into services sector • 2 main FDI objectives: 1. promoting exports 2. transferring technology

47. FDI into Europe • Most global FDI goes into Western Europe • Much FDI activity is consolidation due to opening markets & removing barriers • New Central & Eastern European markets attracting FDI too • FDI attracted to higher value-added activities that benefit from well-educated work force • UK & France remain FDI leaders in Europe

48. CARS in INDIA: Examples of different Entry Modes • Maruti Suzuki India is a wholly owned subsidiary of Japan's Suzuki Motor, and is the biggest automobile manufacturer in India. • General Motors India Private Limited is a joint venture (50:50 partnership) between GM & SAIC. Maruti Swift • BMW exports some cars to India as CBUs, despite 105% import tax. • Tata Motors & Fiat established a strategic alliance in 2005, which grew into a JV shortly afterwards. Tata makes power trains for both Tata & Fiat models (backward integration). Tata distributes and markets Fiat cars in India (forward integration). BMW Chevy Beat FIAT

49. Valentine’s Dayaround the world USA– express love for sweethearts, spouse, teachers, parents, others JAPAN– 2 different dates; 2 different levels FRANCE– strong association since Middle Ages ITALY– in Turin betrothed couples announced engagement on V. Day LATIN AMERICA - El Día del Amor y la Amistad SOUTH KOREA – White Day & Black Day SOUTH AFRICA – only for lovers or crushes; anonymous cards

50. Thailand