Irwin/McGraw-Hill

C H A P T E R F I V E GLOBAL MARKETING AND WORLD TRADE Irwin/McGraw-Hill

Percent Distribution of Households by Annual Purchasing Power Level Less than $5,000 $5,000 to $9,999 $10,000 to $19,999 $20,000 and above 4% 75% 21% 1% South Asia 75% 16% 7% 2% Sub-Saharan Africa 73% 17% 7% 4% East Asia/Pacific Former Socialist 21% 32% 30% 17% economies Middle Eastern 22% 32% 28% 18% Crescent 24% 23% 26% 27% Latin America 3% Established market 8% 24% 65% economies 0% 20% 40% 60% 80% 100% Note: Consumption is in U.S. dollars on a purchase-power-parity basis. Percentages may add to more than 100 percent due to rounding. ** How Purchasing Power differs Around the World

** How Purchasing Power Around The World Let’s Make The Discussion Real ! $ 1 What percentage of the world’s population lives on $1.00 or less per day??

** How Purchasing Power Around The World Let’s Make The Discussion Real ! $ 1 What percentage of the world’s population lives on $1.00 or less per day?? Answer - 25%

** How Purchasing Power Around The World Let’s Make The Discussion Real ! $ 2 What percentage of the world’s population lives on $2.00 or less per day??

** How Purchasing Power Around The World Let’s Make The Discussion Real ! $ 2 What percentage of the world’s population lives on $2.00 or less per day?? Answer 40% - 45%

** “The World Economy” - For Who? • What does this mean is you are living in Mexico on $2.00 per day … • What are your thoughts ...

** Illustrative world trade flows (billions of dollars) Western Europe intratrade: 1430 194 227 241 North America intratrade: 465 200 Asia / Pacific Rim intratrade: 632 393 382 279 365 Rest of worldintratrade:175 381 140 137 313

** Countertrade Effect • The practice of using barter rather than money for making global sales. • 20% of world trade involves countertrade. • Popular with many Eastern European nations.

** Countertrade Effect Example • Volvo sells cars to Russia - which has no money … but ... • Gets crude oil in return … and … • Sells the crude oil in Scandinavian countries for cash

** Trade Feedback Effect • As a country’s exports increase, its national output and income increase, which leads to a increase in the demand for imports. Hence, imports affect exports and vice versa. • This Trade Feedback Effect is one argument for free trade among nations.

** United States Perspective • US is the world’s leader in gross domestic product (GDP), which is the monetary value of all goods and services produced in a country during one year. • US % share of world exports has shifted downward over the past 25 years, while its % share of world imports has increased. (continued)

** United States Perspective • Balance of trade is the difference in the monetary value of a nation’s imports and exports. Since 1975 imports to the US have significantly exceeded exports each year. Japan and China combine for about half of the total US trade deficit. • The three largest importers of US goods are Canada, Japan, and Mexico. The three largest exporters to the US are Japan, Canada, and Mexico.

PP5-2 Porter’s “diamond” of national competitive advantage Company strategystructure and rivalry • Number of companies in an industry • Intensity of competition • Public or private owner Demand conditions Factor conditions • Size of market • Sophistication of consumers • Media exposure of products • Natural resources • Education and skill levels • Wage rates Related and supporting industries • Existence of supplier clusters

PP5-3 How protectionism affects world trade Protectionism Tariffs Quotas Increase Prices Limit Supply Decreased Global Trade

PP5-EE Economic Protectionism • Protectionism is the practice of shielding one or more sectors of a country’s economy from foreign competition through the use of tariffs or quotas. • Tariffs are a government taxes on goods and services entering a country, primarily to raise the price on imports. • Quotas are restrictions placed on the amount of a product allowed to enter or leave a country.

PP5-4 15 Countries of the European Union Great Britian Ireland Sweden Finland Belguim Denmark Germany Luxembourg Netherlands Austria Spain Portugal France Italy Greece

PP5-FF Rise of Economic Integration European Union (EU) • 15 European countries forming a single market composed of 390 million consumers with a GDP only slightly less than that of the US. • The EU has resulted in: 1. fewer government regulations and tariffs 2. greater uniformity in product and packaging standards 3. fewer regulatory restrictions on transportation, advertising, and promotion 4. removal of most tariffs that directly affect pricing

PP5-GG North American Free Trade Agreement (NAFTA) NAFTA • NAFTA became effective in 1994 and consists of the US, Canada and Mexico, creating a marketplace of about 380 million consumers. • Provisions are similar to those of the EU • Negotiations are under way to expand NAFTA to a 34 country Free Trade Area of the Americas by 2005, and will include the US, Canada, Mexico, and Latin American and Caribbean countries.

PP5-HH Global Competition among Global Companies for Global Customers • Exists when firms originate, produce, and market their products and services worldwide. • The automobile, pharmaceutical, apparel, electronics, aerospace, and telecommunication fields represent industries with sellers and buyers on every continent.

PP5-II Strategic Alliances Strategic alliances are agreements among two or more independent firms to cooperate for the purpose of achieving common goals such as competitive advantage or customer value creation. They are becoming a common way in which firms are meeting the demands of global competition.

** Global companies and marketing strategies Type of Marketing Strategy Type of Global Company Extension of its home country marketing strategy International Firm Multi-domestic marketing strategy Multinational Firm Global marketing strategy Transnational Firm

PP5-JJa Three Types of Global Companies International Firm: engages in trade and marketing in different countries as an extension of the marketing strategy in its home country. Generally, they market their existing products and services in other countries the same way they do in their come country. Multinational Firm: views world as consisting of unique parts and markets to each part differently. Multinationals use multi-domestic marketing strategies, which means they have many different product variations, brand names, and advertising programs as countries in which they do business. (continued)

PP5-JJb Three Types of Global Companies Transnational Firm: views world as one market and emphasizes cultural similarities or universal consumer needs and wants more than differences. They employ global marketing strategies, which means standardized strategies adapted as cultures dictate.

PP5-KK Global Consumers Global Consumers consist of customer groups living in many countries or regions of the world who have similar needs or seek similar features and benefits from products and services.

** Cultural Appreciation Values Customs Aspects of culture Symbols Language

** Cultural Appreciation Let’s Jump Ahead to Some Examples

PP5-MMa Cultural Diversity • Values represent personal or socially preferable modes of conduct or states of existence that are enduring. Why doesn’t McDonald’s sell hamburgers in India? • Customs are norms and expectations about the way people do things in a specific country. Why were 3M executives perplexed concerning lukewarm sales of Scotch-Brite floor cleaner in the Philippines? (continued)

PP5-MMb Cultural Diversity • Cultural Symbols are things that represent ideas and concepts. By wisely using cultural symbols, global marketers can tie positive symbolism to their products and services. • Language: Global marketers should not only know the native tongues of countries in which they market, but also the nuances and idioms of a language.

Cultural Diversity - Bloopers! Hispanic Americans - The Fastest Growing Subculture • The Perdue Slogan “It takes a tough man to make a tender chicken” was translated … “It takes a sexually excited man to make a chick affectionate” • Budweiser was promoted as the “queen of beers” • A burrito was mistakenly call a burrada, which means … “Big Mistake”

Cultural Diversity - Bloopers! Hispanic Americans - The Fastest Growing Subculture • Coors beer’s slogan - “get loose with Coors” appeared in Spanish as “Get the runs with Coor’s”

Cultural Diversity - Bloopers! Asian Americans / Asian Cultures • In Japan Coca-Cola advertised “Coke Adds Life” translated as “Coke brings your ancestors back from the dead” • One company attempted to run an ad in Chinese to wish the community a Happy New Year, but … “The characters were printed upside down!”

Cultural Diversity - Bloopers! Asian Americans / Asian Cultures • KFC described it’s product as “finger-licking good” in an ad to the Chinese, but … “The Chinese don’t lick their fingers when the food is good.” • A footwear ad depicted Japanese women performing footing binding, it is a … • “Practice done exclusively in China.”

Cultural Diversity - Bloopers! • A Quick Tour Around The World … • Hallmark cards failed when they were first introduced in France, because … “The French dislike syrupy sentiment and prefer writing their own cards” • Coca-Cola had to withdraw its two-liter bottle from Spain, “Few Spaniards owned refrigerators large for the bottles”

Cultural Diversity - Bloopers! • A Quick Tour Around The World … • Philips Electronics could not sell its coffeemakers and electric shavers in Japan “Then PE made them smaller to fit in Japanese kitchens and smaller Japanese hands - and guess what - success”

Cultural Diversity - Bloopers! • A Quick Tour Around The World … • Kellogg’s Pop-Tarts failed in Britain, why … “The percentage of households with toasters was low and the product was too sweet” • Tang positioned as orange juice initially failed in France, why… “The French drink little orange juice and none in the morning!”

Cultural Diversity - Bloopers! • A Quick Tour Around The World … • Crest failed in Mexico when the U.S. ad campaign was used “Decay- prevention and scientific evidence were not appealing to Mexicans” • Johnson’s wax failed initially in Japan, why … “Wax makes the floors too slippery for Japanese who do not wear shoes in their homes”

Cultural Diversity - U.S. and Japan Japanese Culture America Culture Japanese language English Language Homogeneous population Diverse population Group, not individual, important Individualistic General focus Specific focus Unspoken agreements Get the facts straight Hold back emotions in public Display emotions in public Process-oriented Results-oriented Fun-oriented Humor-oriented Nonverbal communication Verbal communication Interested in who is speaking Interested in what is spoken

PP5-7 5 Product & Promotion Strategies for Global Marketing Same Product Adapt Product Create New Product Same Promotion Adapt Promotion Product Extension Strategy Product Adaptation Strategy Product Invention Strategy Communication adaptation strategy Dual Adaptation Strategy

PP5-NN Economic Considerations • Stage of Economic Development • Economic Infrastructure • Consumer Income and Purchasing Power • Currency Exchange Rates

PP5-OO Political-Regulatory Climate Political Stability PRS Group is an agency that tracks the risk associated with trading in various countries. Generally, trade among nations depends upon political stability. Trade Regulations ISO 9000 standards refer to standards for registration and certification of a manufacturer’s quality management and quality assurance system.

• • • • PP5-6 Alternative global market-entry strategies High Amount of a firm’s financial commitment, risk, marketing control, and profit potential Low Joint Venture Direct Ownership Exporting Licensing

PP5-QQ Crafting a Worldwide Marketing Effort • Product and Promotion Strategies Selling Products Globally 1. Product Extension 2. Product Adaptation 3. Product Invention • By recognizing cultural and buying motive differences, firms can sell the same products to different countries by adapting their advertising. • Some companies use dual adaptation, which means modifying both product and promotion messages.

Seller Final Consumer PP5-8 Channels of Distribution in Global Marketing Channels Within Foreign Nations Seller’s International Marketing Headquarters Channels Between Nations

PP5-RR Crafting a Worldwide Marketing Effort Pricing Strategy • Countries may impose considerable competitive, political, and legal constraints of the pricing latitudeof global companies. • Economic factorssuch as the costs of production, selling, and tariffs, plus transportation and storage costs, also affect global pricing decisions. • Dumping is when a firm sells a product in a foreign country below its domestic price or below its actual cost. • Gray Market (parallel importing) is a situation where products are sold through unauthorized channels of distribution.

PP5-D Global Marketing Practices That Affect Pricing Dumping is when firms sell a product in a foreign country below its domestic price or below its actual cost. Gray Marketing or Parallel Importing is a situation where products are sold through unauthorized channels of distribution.

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