Marketing Management of International Trade

1. Marketing Management of International Trade Session 1

2. What is marketing? The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. --Kotler and Armstrong (2010). Marketing is the management process for identifying, anticipating and satisfying customer requirements profitably. --The Chartered Institute of Marketing. Accessed 2012.

3. In other words… ‘There will always be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed is to make the product or service available’. Peter Drucker

4. What is marketing management? Marketing management is the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value.

5. Motivations for Internationalization • Efficiency • Economies of scale – access to a large number of new customers/markets • Exploit another country’s resources – labor raw materials, etc. • Extend the product life cycle • Operational flexibility – shift production to other countries as costs, exchange rates, etc., change over time • Strategic • First mover in a product – favorable access to customers • Cross-subsidization – use position in one country to subsidize position in another country • Leverage ownership advantages

6. Motivations for Internationalization • Risk • Diversify macroeconomic risks – economic growth and recessions vary across countries • Diversify operational risk – labor problems, earthquakes, wars • Learning • Acquire new capabilities in diverse competitive environments • Reputation • Crossover customers from one market to another

7. International vs. DomesticRISKS • Cross-cultural risk: a situation or event where a cultural miscommunication puts some human value at stake • Country risk: potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country • Currency risk: risk of adverse unexpected fluctuations in exchange rates • Commercial risk: firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures

8. The marketing environment Task environment Broad environment • Company • Suppliers • Distributors • Dealers • Target customers • Demographic • Economic • Physical • Technological • Political-legal • Social-cultural

9. The 7Ps of the marketing mix Figure 1.4 The 7Ps components of the marketing mix

10. Sources of Growth

11. Ansoff’s Matrix

12. International Strategy Forms Pressures for Global Efficiencies High Global Strategy Transnational Strategy Home Replication Multidomestic Strategy Low Low High Pressures for Local Responsiveness

13. Pressures for Global Integration • Economies of Scale. Concentrating manufacturing in a few select locations to achieve economies of mass production. • Capitalize on converging consumer trends and universal needs. Companies such as Nike, Dell, ING, and Coca-Cola offer products that appeal to customers everywhere. • Uniform service to global customers. Services are easiest to standardize when firms can centralize their creation and delivery. • Global sourcing of raw materials, components, energy, and labor. Sourcing of inputs from large-scale, centralized suppliers provides benefits from economies of scale and consistent performance. • Global competitors.Global coordination is necessary to monitor and respond to competitive threats in foreign and domestic markets. • Availability of media that reaches customers in multiple markets. Firms now take advantage of the Internet and cross-national television to advertise their offerings in numerous countries simultaneously. International Business: Strategy, Management, and the New Realities

14. Pressures for Local Responsiveness • Unique resources and capabilities available to the firm. Each country has national endowments that the foreign firm should access. • Diversity of local customer needs. Businesses, such as clothing and food, require significant adaptation to local customer needs. • Differences in distribution channels.Small retailers in Japan understand local customs and needs, so locally responsive MNEs use them. • Local competition. When competing against numerous local rivals, centrally-controlled MNEs will have difficulty gaining market share with global products that are not adapted to local needs. • Cultural differences. For those products where cultural differences are important, such as clothing and furniture, local managers require considerable freedom from HQ to adapt the product and marketing. • Host government requirements and regulations. When governments impose trade barriers or complex business regulations, it can halt or reverse the competitive threat of foreign firms. International Business: Strategy, Management, and the New Realities

15. GMOA (Global Market Opportunity Assessment) Six Steps

16. Understanding and Analyzing Markets P E S T • Political - includes (L)egal, (E)nvironmental law/policy • Economic - includes (E)nvironmental climate and weather • Social/Cultural - includes (D)emographic, (E)thical, (E)ducational, (E)nvironmental attitudes • Technological

17. And many variants… • PEEST • PESTEL • PESTLE • SLEPT • STEEPLED • PEST LIED

18. Where PEST fits in Environmental Scan / \ External Analysis Internal Analysis / \ Macroenvironment Microenvironment | PEST

19. Political - Legal • Tax policy • Employment laws • Environmental regulations • Consumer protection • Special interest groups • Government trade restriction and support • Licensing requirements • Political Stability

20. Economic • Income levels and PPP • Economic growth rates and Business cycles • Inflation rate • Price levels • Consumer confidence • Savings rate • Debt and credit availability • Exchange rates

21. Sociocultural • Social values (Others, Environment, Health) • Trends and Fads • Demographics • Education • Class structure and mobility • Household patterns • Religion

22. Technological • Rate of technological adoption and change • Infrastructure • ICT level • Cost of energy • R&D activity • Supply chain efficiency • Automation

23. Where 5 Forces fits in Environmental Scan / \ External Analysis Internal Analysis / \ Macroenvironment Microenvironment | | PEST Five Forces

24. Industry Analysis

25. Threat of New Entrants Barriers to entry • Supply-side economies of scale (Intel) • Demand-side economies of scale (ebay) • Customer Switching costs (SAP software) • Capital requirements • Incumbency advantages regardless of size • Unequal access to distribution channels • Restrictive government policies

26. Power of Suppliers Power increases if: • Is more concentrated than the industry it sells to (Microsoft) • Supplier group does not depend heavily on the industry for its profits • Switching costs are high (Bloomberg terminals) • Suppliers offer differentiated products (Drugs) • Suppliers can threaten to forward integrate

27. Power of Buyers Power increases if: • Few buyers and larger purchase volumes • Industry products are standardized • Buyers face few switching costs • Buyers can threaten to integrate backward

28. Power of Buyers (2) Price sensitivity is found when: • Purchased product is a significant percentage of procurement • Buyers earn low profits • Quality of buyers product isn’t influenced by industries product • Industry product has little effect on buyer’s other costs

29. Threat of Substitutes • It offers an attractive price-performance trade-off • Cost of switching is low

30. Rivalry Among Competitors Rivalry is greatest when: • Competitors are numersous or are roughly the same size • Industry growth is slow • Exit barriers are high • Rivals are highly committed to business and have leadership aspirations • Firms cannot read each others signals

31. Rivalry Among Competitors (2) Price competition most likely if: • Products or services are nearly identical and there are few switching costs • Fixed costs are high and marginal costs low • Capacity must be expanded in large increments to be efficient • Product is perishable

32. Industry Analysis (1)

33. Industry Analysis (2)

34. Pitfalls • Defining the industry too broadly or narrowly • Making lists instead of rigorous analysis • Paying equal attention to all forces • Confusing cyclical changes with structural changes • Using the analysis to declare an industry attractive or unattractive rather than to guide strategic choices

35. Where SWOT fits in OT SW Environmental Scan / \ External Analysis Internal Analysis / \ Macroenvironment Microenvironment | | PEST Five Forces

36. SWOT • Summary for strategic purpose • Clearly focused on a business objective • Specific, unique, and detailed • Complete ideas = multiple sentences • NOT single words • Limited = two or three points in each area • Organized = most important first (can be weighted) • SW = internal / OT = External

37. Perform a SWOT analysis on Highly Brill Leisure Center, based upon the following issues: The Center is located within a two-minute walk of the main bus station, and is a fifteen-minute ride away from the local railway station. There is a competition standard swimming pool; although it has no wave machines or whirlpool equipment as do competing local facilities. It is located next to one of the largest shopping centers in Britain. It is one of the oldest centers in the area and needs some cosmetic attention. Due to an increase in disposable income over the last six years, local residents have more money to spend on leisure activities. There has been a substantial decrease in the birth rate over the last ten years. In general people are living longer and there are more local residents aged over fifty-five now than ever before. After a heated argument with the manager of a competing leisure center, the leader of a respected local scuba club is looking for a new venue. The local authority is considering privatizing all local leisure centers by the year 2000. Press releases have just been issued to confirm that Highly Brill Leisure Center is the first center in the area to be awarded quality assurance standard BS EN ISO 9002. A private joke between staff states that if you want a day-off from work that you should order a curry from the Center's canteen, which has never made a profit. The Center has been offered the latest sporting craze. Highly Brill Leisure Center has received a grant to fit special ramps and changing rooms to accommodate the local disabled. It is widely acknowledged that Highly Brill has the best-trained and most respected staff of all of the centres in the locality.

39. Dada Sky Background • Vijay Shivalingu is the Marketing Director for Dada Sky Inc, based in Western India. He is beginning his marketing plan which will form the basis of a new and exciting satellite based digital TV and Internet experience. Personal experience. • Vijay has many years experience in the motor industry, and in fact began his career at Dada Motors Inc after graduating from university with a degree in engineering. He has no formal marketing qualifications, but has lots of valuable real-world experience.

40. Strengths. Dada has one of three new 25 -year government licenses to supply satellite services across India. Dada will be the first to launch its new services in the summer. Dada is a well-known brand in India for cars. It is not renowned for its technology brands. Weaknesses. The company is 3 months behind schedule with its launch programme. Opportunities. Huge expansion of TV and Internet access in India. The expansion is growing by 100% per annum. The potential value of such a business could be huge. Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US. Threats. A large European competitor brand has also entered the market. A large Australian competitor brand has announced a joint-venture with a national terrestrial TV Indian brand.

41. Strengths. Dada has one of three new 25 -year government licenses to supply satellite services across India. Dada will be the first to launch its new services in the summer. Dada is a well-known brand in India for cars. It is not renowned for its technology brands. Strengths. REV Dada will be the first to launch its new services in the summer. Being first to market will help it to land grab early customers. Competitors will need to work hard to get them to swap brands especially if they are satisfied with Dada's offering. 75% Dada has one of three new 25 -year government licenses to supply satellite service across India. It is the only Indian national company to win this prestigious contract and this fact will undoubtedly help the company attract important early adopters keen to support their flag carrier brand. 25%

42. Weaknesses. The company is 3 months behind schedule with its launch programme. Weaknesses. REV Dada is a well-known brand in India for cars. It is not renowned for its technology brands. A rebranding exercise needs to be undertaken. It should emphasize the innovative nature of the brand. A large investment must be considered here. 60% Dada is a well-known brand in India for industrial products. The company is 3 months behind schedule with its launch programme. This could mean that a competitor could launch before Dada. 40%

43. Opportunities. Huge expansion of TV and Internet access in India. The expansion is growing by 100% per annum. The potential value of such a business could be huge. Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US. Opportunities. REV Huge expansion of TV and Internet access in India. The expansion is growing by 100% per annum. The potential value of such a business could be huge. Services will include telephone, mobile devices, pay-per-view TV, all sorts of channels supplying services such as Bollywood movies to Test Cricket. 80% Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US. This opportunity will see regular income from the winning provider. As the national brand, this is vital business for Dada. 20%

44. Threats. A large European competitor brand has also entered the market. A large Australian competitor brand has announced a joint-venture with a national terrestrial TV Indian brand. Threats. REV A large Australian competitor brand has announced a joint-venture with a national terrestrial TV Indian brand. The Indian TV brand is the most popular independent TV company in the country. This will help the consortium to seamlessly enter the market. 60% A large European competitor brand has also entered the market. The company has years of international satellite experience and can build upon the synergy with its expanding British business. 40%

45. Corollary Approach CEO Director Sales and Marketing Director Finance and Administration Director Manufacturing and Operations Export Operations

46. Export Department CEO Director Sales and Marketing Director Finance and Administration Director Manufacturing and Operations Director Export Operations

47. International Division CEO Industrial Automotive Aerospace International Diesel Company (France) Electronics company (France) Brake Company (Mexico)

48. Figure 14.1 Shougang Corp.’s Global Product Design Chief Executive Officer Real Estate Steel Products New Ventures Semiconductors Financial Services Mining Banking Insurance

49. Figure 14.2 Cadbury Schweppes PLC’s Global Area Design Chairman and Chief Executive Officer Executive VP, United Kingdom Executive VP, Europe Executive VP, Pacific Rim Executive VP, North and South America Executive VP, Other Countries

50. Figure 14.3 British Airways’ Global Functional Design