Chapter Five

1. Chapter Five Global Markets

2. P&G in Japan • 1972 - P&G is the first company to introduce disposable diapers to Japan • 80% share of market within a year • 1985 - P&G market share has plunged to 8% and the subsidiary is losing $40 million per year. WHY? P&G ignored cultural differences!

3. Consumer Markets and Convergence • Are consumption patterns converging? • The French drink more beer • The Germans drink more wine • The Japanese eat more beef • The Swiss prefer French cheese

4. But major differences persist…!

5. Starbucks’ Mexican Dilemma • Why don’t Mexicans drink coffee? • 5th largest coffee producer • Mexicans - 2 lbs. a year • Americans - 10 lbs. a year • Swedes - 26 lbs. a year • What should Starbucks do?

6. Global Marketing Considerations • Global marketers must consider national differences in: • Ability to buy • Consumer needs • Consumer behavior

7. Ability to Buy • Per capita income • Purchasing power parity • Income Distribution

8. Per Capita Income in Selected Countries (US $)

9. Income Distribution • Government tax policies • Wealth concentration • Belgium Top 10% = 20% income • Colombia Top 10% = 46% income

10. The Hidden Economy • Informal sector = Income not reported to authorities • Peru’s informal sector = • 42% construction • 45% transportation • 16% manufacturing

11. Changing Views on Informal Sector Economic Development Informal Sector Activity • Assumption: • Reality = The bulk of new employment in recent years—particularly in developing and transition economies—has been in the informal economy

12. Informal Sector Growth: Why? • Globalization • Loss of employment in formal sector • Uncompetitive “formal” firms fold following liberalization • Uncompetitive “formal” firms fold during currency crises and other global economic shocks • Cost pressures of “formal” FT labor • Core of wage employees and periphery of informal workers • Information and communications technology • Makes global coordination of informal firms and workers possible

13. Informal Sector Growth: Why? (cont’d) • Institutions • Lack of enforcement against • Corruption • Tax evasion • Labor and health violations • Red tape of “formal” bureaucratic institutions creates market opportunities for informal players • Tax-related issues • Complex, unfair tax codes • Lack of effective tax auditing • Lack of political will to change institutions!

14. Consumer Needs • Is Maslow’s hierarchy of needs applicable cross-culturally? Self-actualization Friendship, Love Safety, Food, Shelter Physiological Needs

15. Consumer Behavior • Cultural differences revisited • Life Insurance doesn’t sell in Muslim countries • Processed baby food doesn’t sell in Brazil • Who makes purchase decisions? • More joint husband-wife decisions in the U.S. than in Venezuela • Power-distance and masculinity/femininity effects

16. Global Colors and Color Differences • The world’s favorite color? • Blue • But many colors elicit different responses • Purple = Expensive (in Japan, China, South Korea) • Purple = Cheap in USA • Orange is sacred in India

17. Segmentation • A marketing technique that targets a group of customers with specific characteristics

18. Characteristics of Viable Segments • Homogeneous characteristics • Adequate profit potential • Ability to measure segment characteristics • Ability to efficiently communicate to segment • Ability to efficiently distribute to segment

19. Segmentation • Key principles: • Not everyone in a country needs to buy your product – you just need a large enough segment to be successful • How and how much you adapt your marketing mix depends on the characteristics of the segment(s) that you are targeting • Most segmentation should be done at the local level • Should we target French housewives or French working women? • Avoid “blanket branding” an entire country’s consumers

20. Global Segments • Global segment – transnational consumer segment based on age, social class, lifestyle, behavioral or other segmentation variable • Coca Cola drinkers, teens • But for most products and segmentation schemes, national differences DO persist

21. Just-Like-Us Segment • Just-like-us-segment – segments in international markets that resemble a firm’s domestic buyers (a duplication strategy) • Easier because does not require marketing mix adaptation • But may result in few consumers worldwide and limits a firm’s global profit potential • EXAMPLE – If toy manufacturer only targeted children in China they would miss out on a large segment – adults buying toys for themselves!

22. Business Markets Are business markets less culture-specific than consumer markets? • Yes • Cost and performance standards • No • Relationship-drivennature of B2B transactions • Culture matters!

23. First Meetings Should you present a prospective client with a gift? Yes – China and Japan No! – Latin America and the Arab world United States???

24. Developing Business Relationships • Cross-cultural negotiations are a particular challenge • Russian tactics: • Emotional outburst, falling asleep, unreasonable requests • Arabic tendencies to mix business and personal discussions (polychronic) • Americans like to negotiate clear contracts while Chinese prefer to establish personal trust relationships (high vs. low context cultures)

25. Labor Cost Indices

26. Labor vs. Capital Intensive Technology • The cost-performance criterion is a key consideration for business buyers • Business buyers in developed countries choose capital intensive technologies • Capital is cheaper/ labor is more expensive • Business buyers in developing countries usually choose labor intensive technologies • Labor is cheaper/ capital is more expensive

27. Global Buyer Types & Configurations • National global buyers • Search the world for products used in a single market (Williams-Sonoma) • Multinational global buyers • Search the world for products used throughout their global operations (Wal-Mart) • Global account management • Marketers assign special executive or teams to address demanding global buyers

28. Government Markets – Buying Processes • The buying process • Procurement processes vary by country • With some governments, contracts go to the lowest bidder • With other governments, the process is more complex • Requirements for using local labor, joint-venturing or investing in local production facilities or ramp-up

29. Marketing to Governments in Developing Countries • Insert figure 5.2, p. 165 here

30. Bribery and Government Markets • Bribery = giving something of value to an individual in a position of trust to influence judgment or behavior • Government employees are trusted to do what’s best for the public good • Government corruption is more prevalent in emerging markets • But is also present in industrialized countries (ex: Italy)

31. Transparency International “Corruption is operationally defined as the misuse of entrusted power for private gain.” (TI web site) http://www.transparency.org/

32. Transparency International (cont’d) “Transparency can be defined as a principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably.” (TI web site)

33. Transparency International (cont’d) • Corruption Perceptions Index (see text) measures “perception” of corruption among businesses and consumers 2. Bribe Payers Index – (see text) measures actual levels of bribery

34. Which Country Is the Least Corrupt? Source: Transparency International

35. Which Country Is the Most Corrupt? Source: Transparency International

36. Which Country Pays the Least Amount of Bribes? Source: Transparency International

37. Which Country Pays the Most Amount of Bribes? Source: Transparency International

38. U.S. Foreign Corrupt Practices Act • Forbids U.S. citizens to bribe foreign government employees or politicians – or to give money to agents that is subsequently used to bribe • Citizens must report bribery in their organization • Records must be transparent and well kept • Failure to comply can result in fines and jail time ! • Lockheed Martin Corp. in Egypt

39. Expediting Payments • Small sums paid to civil servants to do their jobs • Unilever and BP Amoco do it! • P&G refused to do it! (Brazil) • Used to avoid delays, not gain an unfair competitive advantage • Allowed under the U.S. FCPA

40. Beyond the U.S. FCPA • Did the U.S. FCPA put U.S. firms at a competitive disadvantage? • Will an OECD anti-bribery pact level the playing field? (34 nations signed on)