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Master of Business Administration

International Marketing
Paper 488914

Class Details

488914 International Marketing

CLASSES: Weekly 3-hour classes, 6 – 9pm

LECTURER:
Name Mike Hoffmeister
Title Prof Dr
Room:
Phone:

OFFICE HRS:

1
Objectives

¾ Prescriptor
• The nature and complexity of international marketing are examined.
An appreciation of factors to be considered when developing
international marketing strategies and plans; the making of management
decisions is developed.
¾ Paper aim
• To show the importance of international marketing for New Zealand
business
• To examine the factors to take into account when developing
international marketing strategies and plans
¾ Learning outcome
• Identify and evaluate marketing opportunities for local business in a
global market.
• Develop marketing strategies and plans for exporting to international
markets

Organisation

¾ Student learning time


• A minimum of 75 hours, comprising 18 hours of class contact, 3 hours of
assessment and 54 hours of self-directed learning

¾ Learning & Teaching Strategies


• Lectures, Group seminars, Class discussion, Readings, Case studies, …

¾ Assessment
• Assignment
• Weekly formative assessment involving questions and practice
assignments to assist development of understanding of and ability to
apply concepts

2
Weekly Programme (I)

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing


Importance of Export for NZ
Discuss the challenges of global
Drivers towards globalisation Text: Chapter 1-3 Fundamentals
marketing
Case 1.1: Ikea´s Global Strategy
Management orientation

Meaning of culture
WEEK 2: Market Entry Options

Discuss impoact of entry barriers on Foreign Entry Research


Text: Chapter 4-6
the choice of an entry mode
Case 2.1: Daloon A/S
Export, Licensing, Joint Ventures,
Foreign Direct Investment

WEEK 3: Local Marketing


Segmentation

Discuss how to create and Mature Markets


Text: Chapter 7-10
implement local marketing activities
Case 3.2: Levi Strauss Japan KK
New Growth Markets

Emerging Markets

Weekly Programme (II)

Objective Topics Readings

WEEK 4: Global Marketing (I) Brand and Product Strategies


Standardization
Discuss the emergence of
Text: Chapter 11-12
standardized global brand and Brand Management
Case: Disney in France;
product marketing strategies
in Hill, International Business
Product Strategy

Global Services
WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

Price Strategy
Discuss selected standardized global Text: Chapter 13-15
marketing mix instruments Case 4.3: United Colors of
Distribution Strategy
Benetton
Advertising Strategy
WEEK 6: Salesforce Management and Marketing Organisation

Discuss aspects of personal selling


and marketing organisation · Managing a sales force
Text: Chapter 16-17
· International Human Resources
Case: Sales Force in Automotive
Management
Retailing
· Organizational Structure

3
Assignment for International Marketing

¾ Please write a profile on one of the later mentioned companies


with special regard to their international operations. Please
consider the following:

• What are the company´s mission statements and objectives?


• How has the company become international? Was it successful?
• What is their international brand and product strategy?
• What is the company´s philosophy concerning their employees and
leadership style in general and specifically for their sales force?

Textbook

Paper based on

Global Marketing
Foreign Entry
Local Marketing &
Global Management

Johny K. Johansson
Georgetown University, USA

3rd Edition, Boston et al, 2003

4
Master of Business Administration
International Marketing
Paper 488914

Part 1
Introduction

Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing


Importance of Export for NZ
Text: Chapter 1-3
Discuss the challenges of
Drivers towards globalisation Fundamentals
global marketing
Case 1.1: Ikea´s Global
Management orientation Strategy

WEEK 2: Market Entry Options Meaning of culture

WEEK 3: Local Marketing

WEEK 4: Global Marketing (I) Brand and Product Strategies

WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

5
The future is not ahead of us.
It has already happened.

Unfortunately,
it is unequally distributed
among
companies,
industries, and
nations.

(Philip Kotler 2003, Marketing


Management)

What is Marketing?

Marketing
• … is a social and managerial process by which
individuals and groups obtain what they need and
want through creating and exchanging products
and value with others.
(Philip Kotler 2004, Principles of Marketing, p 5)

• … is the process of planning and executing the


conception, pricing, promotion and distribution of
ideas, goods, and services to create exchanges
that satisfy individual and organizational goals.
(American Marketing Association)

6
Nike: Superb Marketing

¾ Nike
• Company with a powerful brand and superb marketing skills
- It is not so much the shoe but where they take you:
- Markts a way of life, a sports culture, a “Just Do It!” attitude
- The culture and style is to be a rebel
• Gives customers more than just good athletic gear
• Customers do not wear Nikes, they experience them

Marketing Mix

A set of controllable, tactical marketing tools that the firm blends to produce the
response it wants in the target market. It consits everything the firm can do to
influence the demand for its product.
(Philip Kotler 2004, Principles of Marketing, p 56)

Product Price
Variety; Quality List price
Design; Features
Brand name Target customers Discounts
Allowances
Packaging Payment period
Services Credit terms

Promotion Place
Channels
Advertising
Coverage
Personal selling
Assortments
Sales promotion
Locations
Public relations
Logistics

7
What is INTERNATIONAL Marketing?

International Marketing

• … is the process of planning


and conducting transactions
across national borders to
create exchanges that satisfy
the objectives of individuals
and organisations.
(Czinkota/ Ronkainen 2004, International
Marketing, p 4)

Why International Marketing


The Example of New Zealand

8
Export/ Import by Country in NZ

¾ Merchandise Exports ¾ Merchandise Imports


• Total (07/2002-06/2003): $28,2 bill • Total (07/2002-06/2003): $32,2 bill
• Australia 20% • Australia 23%
• European Union 16% • European Union 19%
• USA 15% • USA 13%
• Japan 12% • Japan 12%
Source: NZ Trade Statistics, June 2003

Export/ Import by Product in NZ

¾ Merchandise Exports ¾ Merchandise Imports


• Total (07/2002-06/2003): $28,2 bill • Total (07/2002-06/2003): $32,2 bill
• Diary products 20% • Motor vehicles 16%
• Meat 15% • Mechanical machinery 13%
• Foresty 11% • Mineral fuels 10%

Source: NZ Trade Statistics, June 2003

9
Wine Industry in New Zealand

300

250
Wine Export in NZ$000

200

150 281,8
246,4
100 198,1
168,3
125,4
50 97,6
75,9
60,3
41,5 40,8
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: NZ Trade Statistics, June 2003

Wool Exports in NZ
07/1997 – 06/1998

30

25
Wool Export in %

20

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Forestry Exports in NZ
04/2001 – 03/2002

1200

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Forestry Export in NZ$000

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Drivers towards globalisation

¾ Market

¾ Competition

¾ Technology

¾ Government

11
Market Drivers

¾ Common customer needs


• When customers in different countries have same/
simular needs in a product or service category
- Nike, McDonalds

¾ Global customers
• Customers that need the same product or service in
several countries
• Therefore, firms follow customers abroad
- Hotel industry
- German Bosch follows Volkswagen

¾ Global channels
• Existence of global distribution and logistic firms
- Federal Express

¾ Tranferable marketing
• Using the the same name packing, advertising, brand
names and other marketing mix elements in various
countries
- Nike: Basket-ball star Michael Jordon

Competitive Drivers

¾ Active
• If competitors go to foreign markets
• Incentive for firms to follow
• Trying to match a competitor´s move
• Example
- Swedish Ericsson and Finnish Nokia both went into the USA market in the
late 1990
- Toyota´s Lexus, Honda´s Acura and Nissan´s Infinity were introduced in the
USA at the same time

¾ Passive
• Presence of foreign competitors in a firm´s domestic market increases
the need for the firm to venture abroad or to counterattack in foreign
country
• Example
- Benetton´s success in the USA has led The Gap and The Limited, two US
competitors, to go abroad

12
Cost Drivers

¾ Economies
• … of Scale
- Spreading activities across multiple product lines of businesses Unit
cost
• … of Scope
- reduction by increased production
• Example
- Volkswagen: over 20 factories in foreign countries

¾ Sourcing advantages
• Supply from a low-wage country
- global sourcing

Technology Drivers

¾ Internet
• Global information and
communication
• Business transactions
• E-commerce
• On-line marketing
• Examples
- Microsoft
- Amazon
- Ryan Air

13
Government Drivers

¾ Favorable trade policies


• BMW goes to the US

¾ Acceptance of foreign investments


• China

¾ Compatible technical standards


• ISO 9000

Risks of international activities

¾ Misunderstanding customers preferences


and foreign business cultures
¾ Lack of international management know
how
¾ Unstable governments
¾ Foreign exchange problems
¾ Foreign-government entry requirements
and bureaucracy
¾ Tariffs and other trade barriers
¾ Corruption
¾ Technological pirating
¾ High cost of product and communication
adaption
¾ Shifting borders
Kotler 2003: Marketing Management, p 385 and Kotler 1999, Marketing Management an Asian Perspective, p 410

14
Limits to global marketing

¾ Limits
• Negative industry drivers Leads to
• Lack of resources LOCALIZED
• Localized mix requirements Global Marketing
• Antiglobalization trends

Localized Global Marketing

¾ Definition
• Globalise …
- the product strategy by marketing the same
o product lines,
o product designs and
o brand names
every where but
• Localize …
- distribution and marketing communication

¾ A firms global marketing strategy has to be flexibly implemented


and take into account of the different degrees to which the
activites need local adaptions and personnel

¾ New code word in marketing strategy

15
International management orientation

International management orientation

¾ Need to classify international companies not only by


quantitative figures but also by qualitative features
(eg values, international orientation)

¾ EPRG
• Ethnocentric
• Polycentric
• Regiocentric
• Geocentric

*Heenan/ Perlmutter 1979, S. 17ff

16
Management Orientation: EPRG-Model*

¾ Ethnocentric orientation
• Home market attitude foreign
- „This works at home; therefore, it
must work in your country“

domestic
• Export company
- Each market is simular
- Focus on home market
- Sourcing, production and marketing foreign
from home market perspective
- Management decisions done locally
- Manager for oversears are sent from
home markets

*Heenan/ Perlmutter 1979, S. 17ff; Kreutzer 1989, S. 12ff.; Hünerberg 1994, S. 114; Becker 1990, S. 270ff.

Management Orientation: EPRG-Model*

¾ Polycentric orientation
• Host market orientation foreign
- „We want to be a good local company“

• Multi-national company domestic


- Each host market is different
- Foreign market adaptions
- Management decisions done in guest
market foreign
- Akquisition of manager for guest
market in that country

*Heenan/ Perlmutter 1979, S. 17ff; Kreutzer 1989, S. 12ff.; Hünerberg 1994, S. 114; Becker 1990, S. 270ff.

17
Management Orientation: EPRG-Model*

¾ Geocentric orientation
• World orientation foreign

• Global company
- Worldwide complex company domestic
structure
- International management
- Standardised, global objectives and
strategies foreign
- Recruitment of managers worldwide

*Heenan/ Perlmutter 1979, S. 17ff; Kreutzer 1989, S. 12ff.; Hünerberg 1994, S. 114; Becker 1990, S. 270ff.

Management Orientation: EPRG-Model*

¾ Regiocentric orientation
• Based on polycentric orientation f f
- Considers increasing regionalisation
of economies ie Europe f f
- Base: not countries but country
groups domestic
- Each country group is different while
each country within a group is simular f f

f f

*Heenan/ Perlmutter 1979, S. 17ff; Kreutzer 1989, S. 12ff.; Hünerberg 1994, S. 114; Becker 1990, S. 270ff.

18
Country Specific Advantages (CSAs)

¾ Factors that determine competitive advantages of a country


• Factor Conditions
- The nation’s position in factors of production, such as skilled labor or
infrastructure, necessary to compete in a given industry

• Demand Conditions
- The nature of the home demand for the industry’s product or service

• Related and Supporting Industries


- The presence or absence in the nation of supplier industries and related
industries that are internationally competitive

• Firm Strategy, Structure, and Rivalry


- The conditions in the nation governing how companies are created,
organized, and managed, and the nature of domestic rivalry

Firm-Specific Advantages (FSAs)

¾ Firm-specific advantages
• Patent
• Trademark
• brand name
• Control of raw materials required for the manufacturing of the product

¾ Knowledge-Based FSAs
• Knowledge is recognized as one of the key resources of the firm
• Resource-Based Strategy
- Defines the firm not in terms of the products or services it markets, or in
terms of the needs it seeks to satisfy, but in terms of what it is capable of
• Marketing FSAs
- It is important to recognize that the source of a firm-specific advantage can
depend on specific market know-how

19
Culture

¾ Defined as
• the underlying value framework that
guides an individual’s behavior

¾ Reflected in an individual’s
perceptions
• of observed events, in personal
interactions, and in the selection of
appropriate responses in social situations

¾ Manifests itself
• in learned behavior as individuals grow
up and gradually come to understand
what their culture demands of them

¾ The modern conception of culture


• focuses directly on observable behavior;
• consequently, culture creates a repertoire
of behavioral skills

Cultures Across Countries

¾ High Context Cultures ¾ Low Context Cultures


• The meaning of individual • Intentions are expressed
behavior and speech changes verbally
• Nonverbal messages • A person’s meaning should be
explicit: not taken for granted
• When words are spoken:
“reading between the lines” • Propositions have to be
justified and opinions
• Found in most of the defended openly
European countries, some of
Latin American countries, and • Found in the USA, Russia,
in Japan and many of the Australia and New Zealand
newly industrializing Asian
countries

20
Five different “Silent Languages”

¾ Space
• Relates to matters such as the distance between two people conversing

¾ Material Possessions
• Usually describes a person’s station in life

¾ Friendship Patterns
• Reflective of a person’s cultural upbringing

¾ Agreements Across Cultures


• Interpreted differently across cultures

¾ Time
• Studies have documented the cultural problems with time perceptions

Geert Hofstede Cultural Dimensions


Source: www.itim.org/geert-hofstede

21
Hofstede’s Cultural Dimensions

¾ Individualism versus Collectivism


• In a collective society the identity and worth of the individual is rooted in
the social system

¾ High versus Low Power Distance


• High power distance societies tend to be less egalitarian

¾ Masculine versus Feminine


• Captures the degree to which culture is dominated by assertive males

¾ Uncertainty Avoidance
• Rates nations based on the level

¾ Confucianist Dynamics
• Distinguishes the long-term orientation of Asian people; from the more
short-term outlook of Western people

Hofestede´s Classification of
Triad Countries

Japan Anglo-Saxon W. Europe W. Europe


(Canada, US, UK) Northern Continent

Individualism Low High High High

Power High Low Low High


Distance

Masculinity High High Low High

Risk Low High High Low


Tolerance

Context High Low High Low

22
Four stages of business negotiation

Japanese Americans

Nontask Sounding Considerable time and expense Relatively shorter periods are
devoted to such efforts it the typical
practice

Task-Related Exchange of Most important step; high first Information is given briefly and
Information offers with long explanations and in- directly. “Fair” fist offers are more
depth clarifications typical

Persuasion Persuasion is accomplished Most important step; minds are


primarily behind the scenes. Vertical changed at the negotiation table and
status relations dictate bargaining aggressive persuasive tactics are
outcomes used

Concessions and Agreements Concessions are made only towards Concessions and commitments are
the end of negotiations; holistic made throughout; a sequential
approach to decision making. approach to decision making
Progress is difficult to measure for
Americans

Case 1.1 IKEA

DISCUSSION QUESTIONS

1. What are IKEA's firm-specific advantages?


Country-specific advantages?
2. What are the cultural factors which make
expansion abroad in retailing difficult? What
has made it possible in IKEA's case?
3. Describe how IKEA'S expansion has re-
energized mature markets around the world
and changed the competitive situation.
4. What could be the cultural reasons for IKEA's
problems with store managers and
employees in North America?
5. How does the TV advertising campaign
initiated by IKEA overcome the entry barrier
of high advertising expenditures?

23
Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing

WEEK 2: Market Entry Options


Discuss impoact of entry Foreign Entry Research
Text: Chapter 4-6
barriers on the choice of an
Case 2.1: Daloon A/S
entry mode Export, Licensing, Joint
Case 2.3: Illycaffee Company
Ventures, Foreign Direct
Investment
WEEK 3: Local Marketing

WEEK 4: Global Marketing (I) Brand and Product Strategies

WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

24
Master of Business Administration
International Marketing
Paper 488914

Part 2
Market Entry Options

Lecturer Profile
Prof Dr Mike Hoffmeister

Academic Business

¾ Since August 2003 ¾ 1992 – 2003 Volkswagen AG


• Professor for International Business at the • Head of Sales People Development and Training
University of Applied Sciences Braunschweig/ for the Volkswagen Brand in Germany
Wolfenbuettel, Campus Wolfsburg, Germany • Area Sales Manager for the Arabian Gulf States
• Marketing Consultant for Brand Management and
¾ Since 2000 MBA Lecturing Experience Dealer Network Strategy
• KIMS Kassel International Management School, • Trainee at dealership in the USA
Germany (Sales Management) • Member of the Automotive Committee for Sales
People Development of the Automotive Industry in
Germany
¾ PhD at University of Kassel, Germany
• subject: Multi-Franchising in Car Retailing
¾ 1983 – 1986
• 2.5 year apprenticeship at Volksbank Wolfsburg
¾ 1986 – 1992 Business Studies
• Soldier in German Army
• Studied Marketing and Distribution at the University
of Muenster, Germany
• Internships at Banks and Advertising agencies in ¾ Contact
New York, San Francisco, Hong Kong and South • Tel +49-5361-831533, 831501
Africa • Mail: m.hoffmeister@fh-wolfenbuettel.de
• Robert-Koch-Platz 10-14, 38440 Wolfsburg,
Germany

1
Wolfsburg

Hamburg

Wolfsburg Berlin

Amsterdam

Frankfurt Prague

Munic

Wolfsburg

2
German Unification

Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing

WEEK 2: Market Entry Options


Discuss impact of entry Foreign Entry Research
Text: Chapter 4-6
barriers on the choice of an
Case 2.1: Daloon A/S
entry mode Export, Licensing, Joint
Case 2.3: Illycaffee Co
Ventures, Foreign Direct
Investment
WEEK 3: Local Marketing

WEEK 4: Global Marketing (I) Brand and Product Strategies

WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

3
Research topics

¾ Entering new markets abroad requires information about


• Political environment

• Physical environment

• Sociocultural environment

• Economic environment

• Regulatory environment

Political risk factors

¾ Level 1: General Instability


• Revolution, external aggression

¾ Level 2: Expropriation
• Nationalisation, contract revocation

¾ Level 3: Operations
• Import restrictions, local content rules, taxes, export requirements

¾ Level 4: Finance
• Repatriation restrictions, exchange rates

4
Unclear legal systems

Lack of transparency; unclear legal systems


China

Top 3
Russia
Indonesia

Kenyo
Thailand
Brasil

selected
Japan
UK
USA
Singapore

0 20 40 60 80 100
Source: Economist, March 3, 2001, p. 100

Contracts in China

¾ Germany ¾ China
• Official check of • No tradition for written
credibility contracts; courts have
• Written Contract no power; judges are not independent
and have to execute orders
• End of negotiation process
• Rely on personal references
• Defines mutual rights and
commitments • Shows mutual interest / relationship
• Written = commitments • Start of co-operation
• Defines mutual purpose
• No lasting regulation for future
• A good and trustful co-operation
implies that under new circumstances
the contract can be newly negotiated
and adopted

Personal relationships are more important than written contracts


ie Hongkong: in 1996, 1/3 of all sub-contracts of companies are based on verbal commitments

5
Piracy/ Counterfeiting in China

¾ Personal-care product companies such as Henkel and Procter


and Gamble estimate that about 25% of the goods bearing their
names in China are fake

¾ Pfizer started selling Viagra in China in July 2000


• By end of the year, 3 local producers introduced a cheaper version of
the pill
• Within the next 90 days another 30 companies followed

Source: Kotler, Marketing Management: An Asian Perspective

McDonald´s in China

¾ First McDonald´s restaurant opened in Beijing downtown in


1992; 20 year lease contract

¾ Became then the largest McDonald´s in the world within two


years

¾ In 1994 the Beijing city government abruptly informed


McDonald´s that the location would be needed for commercial
complex and that McDonald´s had to move

¾ McDonald´s took the Beijing City Government to court but lost

Source: Kotler, Marketing Management: An Asian Perspective

6
Gillette Razor Blade in China

¾ The Huaxing Razor Blade Factory was producing Gillette look-


alike razor blades and sold them in the same packaging

¾ Chinese authorities fined that company US$ 3,500 and told


management to stop

¾ Five months later, the company still produced those razor


blades

¾ Chinese authorities fined that company again (US$ 3,300)

¾ Huaxing Razor Blade Factory argued it did not want to throw


away already produced material

Source: Kotler, Marketing Management: An Asian Perspective

Coca Cola in India

¾ 1977 the Indian government decreed that the secret formula for
the cola and 60% of the equity of its Indian subsidiary must be
transferred to local nationals
• Reasons: Indian government wanted to control manufacturing and to
stop the outflow of foreign exchange
¾ Coca-Cola deceided to withdraw from India rather than
jeopardize their firm-specific advantages, giving the secret
formula to domestic imitators
¾ 1990’s: Liberalisation in India
• Less-restrictive investment conditions
¾ Coca-Cola returned to India in 1993

7
Israel boycott list
www.inminds.co.uk/boycott-faq.html

Israel boycott list


www.inminds.co.uk/boycott-faq.html

8
Israel boycott list
www.inminds.co.uk/boycott-faq.html

¾ Quoted/Source www.inminds.co.uk/boycott-faq.html
• “McDonalds is a "major corporate partner" of the Jewish United Fund. In its own
words, the Jewish United Fund "works to maintain American military, economic
and diplomatic support for Israel; monitors and, when necessary, responds to
media coverage of Israel." Also, McDonalds chairman and CEO Jack M.
Greenberg is a honorary director of the American-Israel Chamber of Commerce
and Industry”.
• “McDonalds has 80 resturants in israel, providing employment to 3000 israelis.”
• “McDonalds has just announced it is closing down its operation in the middle east
due to loss of revenue as a direct result of the boycott (Oct 2002), and is
replacing Greenberg as its chairman and CEO (Dec 2002). Since the launch of
the boycott campaign, two of Jordan's six McDonald's franchises have closed due
to lack of business. In Egypt, McDonald's decided to change its brand name to
Manfoods this past March, in an attempt to dodge the boycott. It had no effect
and Egyptian police forces were ordered to guard the entrances to McDonald's
restaurants, after stone throwing incidents took place. A total of 175 restaurants
will be closed at a loss of $350 million.”

Product reliability in the USA


The McDonald's Hot Coffee Case

¾ A woman spilled hot coffee on herself while driving. She had


purchased the coffee at the drive-through window of a McDonald's
Restaurant. She sued McDonald's for compensation for her injuries
(about $11,000) and was awarded nearly $3 million in compensatory
and punitive damages by a New Mexico jury.
• Stella Liebeck, 79, purchased the coffee and while driving her car, placed the
coffee cup between her legs and tried to remove the lid. The cup spilled and
coffee ran into her lap. Wearing a sweatsuit and sitting in a bucket seat, she
received second- and third-degree burns across her buttocks, thighs, and labia.
• After the spill, Liebeck spent seven days in the hospital and three weeks
recuperating at home with her daughter in attendance. This was followed by skin
grafts. During this period, she lost 20 pounds—to 83 pounds—almost 20% of her
body weight.
• Liebeck wrote to McDonald’s and asked them to turn down the coffee
temperature, which was set at 170 degrees. She also asked for her out-of-pocket
medical expenses of about $2,000 plus the lost wages of her
daughter. McDonald’s offered $800. She sued, asking for no less than $100,000
in compensatory damages, including pain and suffering, and triple punitive
damages. Just before trial, she offered to settle for $300,000, but McDonald’s
rejected the offer.

9
Impact of Media in the USA
Audi and the 60 Minutes Show

¾ When 60 Minutes did the


"expose" on Audi 5000 sedan's
"sudden acceleration" problems
that supposedly caused
accidents.
¾ This caused sales of Audi to slip
until they redesigned the model
and called it a different name.

Foreign market entry barriers

¾ Barriers ¾ Tariff barriers


• Primarly, to protect domestic • Customs
business agianst foreign • Tax
competitors • Quotas for imports
¾ Cost ¾ Nontariff barriers
• inefficiency creates higher prices • Slow customs procedures
for consumers
• Special product tests for imports
• Gatekeepers hold the key to the
market and have a chance to • Bureaucratic inertia in processing
profit from a monopolistic position import licenses

10
Impact of Barriers

¾ By lobbying home or host governments


¾ When the imported product has a certain level of “local content”
or when imports involve production for reexport
¾ Establishing manufacturing in a member country in the regional
group; the firm can then export to the market country in the
region at lower tariff rates from the transplant operation inside
the region
¾ Government Regulations: company may need a native partner
who can carry out negotiations with government authorities and
local regulators
¾ difficulty to get members of the distribution channels to carry
the firm’s product

Foreign Entry Research

¾ Globalisation
• research firms expand abroad and beome multi-national as well
• Such as
- AC Nielsen in the USA
- Taylor Nelson Sofres in the UK
- GfK in Germany
• The internet aggregators: cheaper, better, faster
- Profound.com
- AllNetResearch.com

11
AC Nielsen in the USA

¾ ACNielsen is the
world's leading
marketing information
company.
¾ 21,000 employees
worldwide
¾ Offering services in
more than 100
countries
¾ ACNielsen provides
market research,
information, analysis
and insights to the
consumer products
and service industries.

Macrosegmentation

¾ Grouping countries on the


basis of common
characteristics deemd to be
important for marketing
purposes
¾ Examples
• Trade blocs
- EU, NAFTA, ASEAN, …
• Geographical regions
- Southeast Asia, Oceania,
Middle East, Western Europe,

• Customer behavior
- Lifestyle segmentation

12
Lifestyle Segmentation of the EU Consumer

¾ A study covering France, Germany, Italy and the UK identified


eight groups:
• Upper conservative Traditional mainstream Traditional working class
Modern mainstream Trendsetter Avantgarde Socially concerned
Underprivileged

¾ Another broader-based European study produced sixteen so-


called Euro-styles:
• Citizens Moralists Ultra-conservatives Underprivileged Intellectuels
Pioneers Puritans Tolerants Suburbanites Yuppies Prudents Dandies
Rockers Romantics Prudents Vigilantes

¾ The RISC Organization in Geneva offers a continuous


measurement of trends. Their research has produced six Euro-
types:
• Traditionalists Homebodies Pleasurists Strivers Trendsetters
Rationalists www.languages.dk/marketing/lifestyle_segmentation_of_europe.htm

Foreign Market Entry Modes

Foreign
Strategic
Exporting Licensing Direct
Alliance
Investment

Amount of commitment, risk, control and profit potential

13
Foreign Market Entry Modes
Exporting
Foreign
Strategic
Exporting Licensing Direct
Alliance
Investment ¾ Indirect Exporting
• Export management companies work with independent
agents which operate for the firm in overseas markets,
going to fairs, and contacting distributors
indirect direct • Pro

Export market
- firm avoids the overhead costs and administrative burden
involved in managing their own export affairs
- Less risk
Agent - Economies of scale effects (location economies) at home/
learning curve
- High transport cost
• Con
- skills and know-how developed through experiences
abroad are accumulated outside the firm, not in it
Agent
Home market

¾ Direct Exporting
• Pro
- The firm is able to more directly influence the marketing
effort in the foreign market
Export Company

Foreign Market Entry Modes


Licensing

Foreign
Strategic
Exporting Licensing Alliance
Direct
Investment

¾ The licensor licenses a foreign ¾ pro


company to use a • The need for market research is
• manufacturing process reduced
• The licensee may support the
• Trademark product strongly in the new market
• Patent ¾ Con
• trade secret or other item of value • Lack of tight control over
for a fee manufacturing and marketing
• Less economies of scale/ learning
¾ Variations curve effects in home country
• Manufacturing contract • Less profit (taken by licensee)
• Limits the ability to move
• Management contract budgets/profits across countries in
• Franchising order to support competitive attacs
on others
• Loss of technology know how

14
Foreign Market Entry Modes
Licensing: Franchising

Foreign
Strategic
Exporting Licensing Alliance
Direct
Investment

¾ pro
Franchising • Marketing concept is
defined in detail
• Quicker international
expansion possible
¾ Franchising • The local franchisee raises
• More complete form of licensing the necessary capital and
• Franchiser offers a franchisee a manages the franchise
complete brand concept and
operating system ¾ con
• Longer-term commitment
• Careful and continuous
• Franchiser often assists the quality control is necessary
franchisee to run the business

Foreign Market Entry Modes


Strategic Alliance

Foreign
Exporting Licensing
Strategic Direct
Alliance Investment

¾ Strategic Alliances ¾ Advantages


• Partnership • Improved capacity load
• Formal or informal arrangement • Wider product line
between two or more companies; • Inexpensive access to a market
sometimes competitors, across borders • Quick access to a market
• Exchange or share value activities • Assets are complimentary
- R&D
• Each partner can concentrate on what
- Manufacturing
they do best
- Marketing
- Distribution
¾ Distribution Alliances ¾ Disadvantages
• Also called “piggybacking”, “consortium • Time arrangement can limit growth for
marketing” the partners
• STAR Alliance • Can hinder learning more about the
- United Airlines, Lufthansa, Air Canada,
market, creating obstacles to further
SAS, Thai Airways, China Air, and Varig inroads
Brazilian Airlines

15
Foreign Market Entry Modes
Strategic Alliance: Joint Venture

Foreign
Exporting Licensing
Strategic Direct
Alliance Investment

¾ Pro
• Benefits from local partners knowledge
Joint Venture of host countries
• Sharing development costs and risk

¾ Joint Venture ¾ Con


• Foreign investors join with local investors to • Knowhow transfer to partner
create a joint venture • Difficult to manage (common goals,
• Common business objectives visions) especially when various
cultures are involved
• Share ownership and control
• Limited economies of scale
• Involve capital investments • Limited ability to coordinate
• Creation of new corporate unit international strategy against
• Partners competitors
- High net-worth families
- Relatively small companies in the same
business
- Large companies
- Government or government-linked companies

Foreign Market Entry Modes


Foreign Direct Investment

Foreign
Strategic
Exporting Licensing
Alliance
Direct
Investment

¾ Direct ownership of ¾ Pro


foreign-based • Cost economies in form of cheaper labor or raw
materials
assembly or
• Foreign government incentives
manufacturing
• Better image in host market because it creates jobs
facilities
• Deeper relationship with government, customers,
local suppliers and distributors
• Full control over the investment (manufacturing and
marketing)
• Reduces risk of know how transfer to competitors (ie
Joint Venture)

¾ Cons
• Large investment
• Blocked or devalued currencies
• Expensive to exit (reduce or close operations

16
Internationalisation stages

Stage 1: Indirect exporting, licensing

Stage 2: direct export, via independent distributor

Stage 3: establishing foreign sales subsidiary

Stage 4: local assembly

Stage 5: foreign production

Export Expansion Strategy

¾ Waterfall Strategy
• The firm gradually moves into overseas
markets ¾ Waterfall Strategy
- Advantages of this strategy are that expansion home
can take place in an orderly manner and it is host
relatively less demanding in terms of resource host
requirements
host
- Disadvantage of this strategy it may be too slow
in fast-moving market

¾ Sprinkler Strategy
• The firm tries to enter several country markets
¾ Sprinkler Strategy
simultaneously or within a limited period of time
- Advantages of this strategy are that it is a much home
quicker way to market penetration across the host
globe and it generates first-mover advantages host
host
- Disadvantage of this strategy is the amount of
managerial, financial, and other resources
required

17
Case 2.1 Daloon A/S

¾ DISCUSSION QUESTIONS:
• What are the firm-specific advantages of
Daloon over its competitors? The
country-specific advantages? Any
disadvantages?
• Why was the German market so difficult for
Daloon to enter? What was required to
make entry successful?
• How well did Daloon adapt its marketing
organization to the requirements in the
German market? How did Daloon try to
create a strong relationship with and loyalty
among its customers?
• How did Daloon gain McDonald's Germany
as a customer? How is Daloon leveraging
this foothold into becoming a supplier for
McDonald's in other European countries?

Case 2.3 Illycaffee Company

¾ DISCUSSION QUESTIONS:
1. What created the problems
with the existing distribution
strategy in the German
market? Was the distribution
alliance with Hag ill-advised?
2. To what extent do you think
the pan-European strategy
shift well-founded? For
example, one question is
whether the espresso market
is global or multi-domestic.
3. What would be your
recommendation to Mr. Illy?

18
Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing

WEEK 2: Market Entry Options

WEEK 3: Local Marketing


Segmentation
Discuss how to create and
Mature Markets Text: Chapter 7-10
implement local marketing
Case 3.2: Levi Strauss Japan
activities
New Growth Markets KK

Emerging Markets
WEEK 4: Global Marketing (I) Brand and Product Strategies

WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

Assignment for International Marketing

¾ Please write a profile on one of the mentioned companies with


special regard to their international operations. Please consider
the following:

• What are the company´s mission statements and objectives?


• How has the company become international? Was it successful?
• What is their international brand and product strategy?
• What is the company´s philosophy concerning their employees and
leadership style in general and specifically for their sales force?

• BASF, Aldi, Carrefours, Walmart, K-Mart, Ikea, GAP, Toys R Us, McDonalds, Starbuck´s
Coffee Shop, 7-Eleven, Subway, Walt Disney World, Ritz Carlton Hotel, Emirate Airlines,
Lufthansa, Marriott, UPS, Siemens, Caterpillar, Xerox, BASF, Coca Cola, Unilever, Universial
Studios, Harley Davidson, Dell Computers, McKinsey, Boston Consulting, Becks Bier, Fosters
Beer

19
Master of Business Administration
International Marketing
Paper 488914

Part 3
Local Marketing

Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing

WEEK 2: Market Entry Options

WEEK 3: Local Marketing


Segmentation
Discuss how to create and
Mature Markets Text: Chapter 7-10
implement local marketing
Case 3.2: Levi Strauss Japan
activities
New Growth Markets KK

Emerging Markets
WEEK 4: Global Marketing (I) Brand and Product Strategies

WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

1
The beer market

Can Beer be an
international, global
product?

Johanson, Page 225

The beer market

¾ Corona
• Became most popular imported beer in the US in 1999
• Mexicans regard Corona as a relatively low-class beer
• Targets two niche markets
- Mexicans living in the US
- Young American beer drinkers, many of whom vacationed on Mexican
beaches
• Export all over the world

¾ Heineken
• Available in 170 countries
• Most international beer in the world

¾ Germany
• Over 3.500 beer brands
Johanson, Page 225

2
Local Microsegmentation

¾ Segmentation Criteria
• Economic
- the most basic local segmentation criterion is still
economic development
• Demographic
- the age and family structure in different countries
play an important role in determining global
segments
• Culture
- people care about their identify even though a lot
has been said in the media about the emergence of
global segments of people
• Benefits
- the most clearcut segmentation criteria are those
which focus on the benefits sought
• Lifestyle
- consumers start developing their own lifestyle with
buying behavior involving more than simple
necessities

Segmentation and Positioning

Uniform Nike
The same Ikea
accross countries Young boys and
aspiring athletics
Mobile phones

Positioning

Adapted Volvo Levi´s


Differs from
country to country Pampers Honda

Universal Unique
the same Differs from
across countries country to country

Local market segment

3
Local Marketing in Mature Markets

¾ Local marketing in
• mature markets
• new growth markets
• emerging markets

Three Local Marketing Environments

¾ Mature markets
• Show slow growth apart from some high-technology markets. The
customers in these mature markets are pampered by strong domestic
and global companies who compete intensely for customer satisfaction

¾ New growth markets


• Show greater purchasing power and more demanding consumers than
emerging markets. Possess a rapidly developing marketing
infrastructure

¾ Emerging markets
• Characterized by low levels of product penetration, weakly established
marketing infrastructure, relatively unsophisticated consumers with weak
purchasing power, and weak domestic competitors

4
Three Local Marketing Environments

Emerging New growth Mature


Barriers High Medium Low
Domestic competition Weak Getting stronger Strong
Foreign competition Weak Strong Strong
Consumer markets Embryonic Strong Saturated
Political risk High Medium Low
Distribution Weak Strong In store promotion

Strategic focus Market development Participation in Compete for share


growth
Product range Low Limited wide
Product design Basic Advanced adapted
Pricing Affordable Status Value

Local Marketing in Mature Markets

¾ Local marketing in ¾ Mature markets


• mature markets • Show slow growth apart from
• new growth markets some high-technology markets.
The customers in these mature
• emerging markets
markets are pampered by strong
domestic and global companies
who compete intensely for
customer satisfaction

5
Ultra-Heat-Treated Milk

¾ Ultra-Heat-Treated Milk requires no refrigeration

¾ US
• Large refrigerators, therefore buy milk by gallon or half-gallon
• Prefere cold and fresh milk (= healthy)
• Assume technologically sophisticated food must be artificial
• Not well accepted

¾ EU
• Little room in their refrigerators and pantries prefere small cartons
• More accepted

Mature Markets

¾ Competition
• In many mature markets intense competition has produced a
management focus on customer satisfaction
• There exists a need to make sure that existing customers will stay loyal
Two factors make customers satisfied in mature markets
- Product quality including functional performance factors
• Emotional factors or a matter of pleasing the customer

¾ Segmentation
• customers are increasingly particular with well-developed preferences
• The fragmentation of mature markets presents an opportunity that there
will often be a part of the market that has yet to find the kind of product
desired

6
Marketing Mix in Mature Markets

¾ Product Policies
• Many Third World countries tend toward selling a low-cost “me-too” product in a mature market
- A “me-too” product is basically a copy of another product, often with simpler features and at a lower price
• The global marketer introducing a new kind of product to a local market has the advantage of little
or no competition

¾ Pricing
• In mature markets it is common to think of pricing in terms of selecting a target position and then
using temporary deals and offers to attract customers in the short term

¾ Distribution
• In mature markets, the distribution system is usually well developed
• One distribution strategy is “piggybacking”
- An existing network controlled by another company, often a potential competitor, in which the product is
distributed through contracting with the competitor to move products on a fee or commission basis

¾ Promotion
• In many mature markets where market share is the criterion of success s
- Sales promotions are used to break the habitual choice of the loyal customer

Pan-European Marketing
¾ Europe becoming a very
large single market
¾ Approaching 400 million
consumers
¾ Single currency (EURO €)
¾ 15 members
• Belgium, Germany, France,
Italy, Luxembourg,
Netherlands. Denmark,
Ireland, United Kingdom,
Greece, Spain, Portugal,
Austria, Finland, Sweden
¾ New members in May 2004
• Cyprus, the Czech Republic,
Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, the
Slovak Republic, and
Slovenia
• Negotiation process
- Bulgaria, Romania , Turkey.

7
Pan-European Marketing

¾ Competition
• The integration forced large European corporations to start
coordinating previously independent national operations
• For smaller European companies and even the many large firms,
the threat from these foreign entrants has been met by the
creations of larger and stronger companies
• At the corporate level, there seems to be only one strategic
response possible for European firms: Get bigger and go pan-
European

¾ Product Positioning
• There are very few products today that can maintain different
images in different countries of Europe
• In pan-European marketing, product positioning is the same across
countries

Pan-European Marketing-Mix
¾ Product Policies
• The marketing mixes of the European marketers have moved toward uniformity as the
pan-European strategies are implemented
• Most packaged goods in Europe feature packaging in at least four languages: English,
French, German, and Spanish

¾ Pricing
• Pan-European pricing is a particularly complicated issue
• As the single euro currency is introduced and companies have to set a common euro
price throughout the region
• Price differentials on the same product and brand in different countries are being
minimized to avoid inducing customers to buy in a neighboring country

¾ Distribution
• Retail and wholesale distribution is gradually being transformed from locally based
smaller units to large integrated organizations resembling those common in North
America

¾ Promotion
• There is increasing use of pan-European TV advertising, taking advantage of the
satellites beamed across previously closed borders

8
Marketing in North America

¾ Regional Trade Agreements


• The 1994 NAFTA agreement has created increased
exchange between
- Canada
- the U.S.
- Mexico

¾ Background
• Ethnic Diversity
- A fundamental cultural factor is the region’s
ethnic diversity
• Religion
- In North America, church and state are
separated by law
• Decentralization
- In North American, firms are spread all over the
world and even into small towns

Marketing in North America

¾ Competition
• The U.S. is one of the most competitive markets in
the world

¾ Market Segmentation
• For segmentation purposes cultural identity can
serve as a useful criterion

¾ Product Positioning
• When positioning in the U.S., premium is placed on
direct and straightforward explanations
• The Canadian approach treats differences in
cultural norms with more sensitivity and more soft
sell

9
Marketing-Mix in North America

¾ Product Policies
• Market size, affluence, and diversity have meant that the
North American market offers a dizzying array of choices
of product and services
¾ Pricing
• The attractiveness of the North American market has
made it a very competitive arena for many domestic and
foreign producers
¾ Distribution
• The great size of the North American continent and the
wide spread of its people seems to be the main cause for
a very efficient distribution system in the U.S.
¾ Promotion
• North American communications media are similar to
media elsewhere, but the use of advertising and
commercials is greater in North America

Increased Credit Use in the USA

• More and more consumers are fueling their affluent lifestyles with credit that is
easily available, and accepted, as a normal way of life in the United States.

Source: www. Economy.com

10
Local Marketing in Growth Markets

¾ Local marketing in ¾ New growth markets


• mature markets • Show greater purchasing power
• new growth markets and more demanding consumers
than emerging markets. Possess
• emerging markets
a rapidly developing marketing
infrastructure

Growth Markets

¾ Two Kinds of Markets


• Markets that are relatively rich in natural raw materials
• Markets that have turned toward Western-style capitalism more recently, with the
help of foreign direct investment

¾ The Role of Trade Blocs


• Membership in trade blocs plays a very important role for two reasons
- It makes the country more attractive to foreign investors
- It creates an trading region with an enlarged market potential

¾ Market Segmentation
• New growth markets are in the growth phase of the PLC
• Market segmentation in these countries differs from that in the developing
countries primarily in the degree to which a core middle class is developed

¾ Product Positioning
• In new growth markets it is easy to observe the attention given to well-known
brand names

11
Marketing-Mix in Growth Markets

¾Marketing Tactics
• Product
- Basic localization to make sure the product functions well is necessary in these
markets, and customers can be as demanding as elsewhere
• Pricing
- Pricing is important but can largely reflect the same considerations as in the
advanced markets—demand, costs, competitive conditions
• Distribution
- Distribution is very important and warrants larger margins and more support
services than elsewhere
• Promotion
- Promotional support, tie-ins with local representatives, and an open mind in
regard to trusting locals will be more justified in the future

Megatrends in Asia

¾ From Government driven to market-driven economies

¾ From villages to supercities

¾ From agricultural society to information age

¾ From labor-intensive to high-technology instustries

¾ From west to east, as Asia becomes the center of the


world

Source: John Naisbitt, Megatrends Asia, 1995)

12
Population in New Asian Growth Markets
(year 2000, in millions)

1400
1260
1200
1003
1000

800

600

400 282
211
200 127
82
47 22
0 ea
an

SA

y
na

an
ia
ia

an
d

es

or
p

iw
hi

U
In

m
Ja
on

K
C

Ta

er
th
d

G
In

u
So

GDP in New Asian Growth Markets


(year 2000, US$bill)

9870
10000

8000

6000
4800

4000

1900
2000 1100
474 457 310
153
0
ea
an

SA

y
na

an
ia
ia

an
d

es

or
p

iw
hi

U
In

m
Ja
on

K
C

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er
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G
In

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13
Marketing in the New Asian Growth Markets

¾ Market Environment
• Several of these countries are ethnically homogeneous while others are populated by
several racial groups

¾ Regional Trade Agreements


• The Association of South East Asian Nations (ASEAN) was created in 1967
• APEC (Asia-Pacific Economic Cooperation) is a large association that spans both sides
of the Pacific
• In 1992, ASEAN countries met to formalize a far-reaching trade agreement forming the
ASEAN Free Trade Area (AFTA)

¾ Market Segmentation
• The economic upswing in the Asian high-growth markets has led to the emergence of a
significant middle class in Thailand known as the “have somes”
• However justified from an economic perspective, avoiding the rural areas where people
tend to be less well off can create some political problems

¾ Product Positioning
• The Asian markets’ desire for global identification has made many multinationals with
more mundane products use global standardization in their positioning strategies

Marketing-Mix in the
New Asian Growth Markets

¾ Product
• Policies: The emphasis on these markets as followers of global mature markets
makes standardized product policies natural
• Design: The Asian consumer is generally more eager to achieve “a harmonious
whole” than Western individuals
• New Products: The buyers in Asian markets are basically eager to get access to
the products they see available in mature foreign markets

¾ Pricing
• In Asia as elsewhere, the global marketer faces a choice between a high
skimming price strategy and a lower penetration price strategy

¾ Distribution
• Many observers agree that the most visible sign of economic growth in the Asian
markets is the dynamism of the urban retail sector

¾ Promotion
• By and large the promotional strategies employed by multinationals in Asian
markets have been only minimally adapted from elsewhere

14
Local Marketing in Emerging Markets

¾ Local marketing in ¾ Emerging markets


• mature market • Characterized by low levels of
• new growth markets product penetration, weakly
• emerging markets established marketing
infrastructure, relatively
unsophisticated consumers with
weak purchasing power, and weak
domestic competitors

Local Marketing in Emerging Markets

¾ The macroenvironment in the typical developing market is


characterized by uncertainty

¾ Consumer needs tend to be basic and easy to identify

¾ Market Segmentation
• In these markets, income level represents the basic segmentation
criterion
- Effective income measures are defined in terms of access to convertible
currency

15
Marketing-Mix in Emerging Markets

¾ Product Positioning
• product policy a key issue
• Customer needs tend to be basic and domestic alternatives weak

¾ Pricing
• The balance between affordability and upper-end positioning
• The lack of purchasing power means that the marketer often must find
ways of offering a simpler product

¾ Distribution
• Unless effective ways of distributing the product can be found or
created, market entries might be thwarted and economic growth of the
developing countries will not take off

¾ Promotion
• Promotion in developing markets is initially limited because of lack of
broadcast media

Marketing in China

¾ China has a population of 1.2 billion people which is


the largest in the world
• With its underlying strength in natural resources and able
and disciplined worker the Chinese economy has so far
been relatively untouched by the Asian Crisis
• Despite the size and potential of the Chinese market its
fast-growing purchasing power is still low
• Market Segmentation
- Geographic region
- Urban/rural split in the typical emerging market pattern
• Product Positioning
- The China market is open for global brands and
standardized campaigns

16
Entry Barriers in China

¾ Import License Controls


• The Ministry of Foreign Trade and Economic
Cooperation (MOFTEC)

¾ Protective Tariffs
• With the entry into the WTO, the government
has promised to continue tariff reductions to
meet the level of the other WTO members

¾ Foreign Exchange Control


• Foreign exchange is controlled by the State
Administration of Foreign Exchange Control

¾ Foreign Trading Companies


• With ongoing reform, and WTO entry, the
government-controlled trading companies
have lost their monopoly

Marketing in China

¾Product Policies
• Chinese consumer buy foreign products
because of no availability of similar products
and the superior quality of foreign products

¾Pricing
• Most Chinese customers are price-oriented
out of habit and are not willing to pay more for
alleged superior quality

¾Distribution
• Most distribution channels are controlled by
the government
• Guanxi: Mutual good feeling and trust

¾Promotion
• Strictly controlled by the government

17
Westernization of Chinese Consumers

¾ Christmas shopping is
becoming more important than
Spring festival

¾ Department stores use


x-mas decoration like Santa
Clauses, trees with lights, bells
etc

¾ Trend across all generations


and social classes

Importance of Guanxi
(good relations or connections)

“Guanxi seems to be the lifeblood of the Chinese business


community, extending into politics and society. Without
guanxi one simply cannot get anything done … with
guanxi anything seems possible”
(Davis/Leung/Wong, Benefits of Guanxi, in: IMM, 1989)

¾ To overcome distrust among partners, Chinese develop


family-like links, more extensively than almost any other
nation
¾ Family is a system of contacts rather than purely an
emotional unit as in the West
¾ Individuals make decisions on the basis of family ties or
social connections rather than objective issues
¾ Long-term not short-term phenomenon
¾ Requirements for Guanxi
• Each party is fully committed to each other
• Honor your obligations
Source: Tang/Reisch; Erfolg in China-Geschäft

18
Cultural Differences

¾ Present yourself Highlight yourself Be part of a group


Self confident Enjoy respect
Be dynamic and pushy Be helpful, co-operative

¾ Discussion behaviour Offensive, direct Defensive, indirect, discreet


Inquisitive, active Hesitant, reactive
Engaged, emotional Relaxed, patient
Collegial Respectful, distanced

¾ Conflict management Confront conflicts Ignore


Be more specific Generalise
Dramatisize Relaxed attitide
Reject, deny Pull back;
no direct feedback
Source: Tang/Reisch; Erfolg in China-Geschäft

The Automotive Industry in China

19
China … land of extremes

China … land of extremes

20
The automotive boom will bring
problems

¾ People living in metropolitan areas


= 480 Mill (=EU + USA)

¾ Only 1% of city residents own a car,


though 32% intend to by one in the
next 5 years

¾ As a consequence
• Pollution
• Traffic jams
• Cities get bigger and cars will be
necessary to travel

Light Vehicle Sales in China

Goal for 2019: 30


Worldwide largest
Mio Units car market
Source: J.D. Power & Associates; in: www.awknowlege.com; June 2003

Over 1 mill passenger cars


4 in 2002 and over 3 mill in 2008

0
1990 1992 1994 1996 1998 2000 2002 2003 2008 2019
(est) (est) (plan)

21
Key figures of the Chinese car market

¾ Around 100 automotive manufacturers


• Most produce less than 100.000 units pa

¾ 40 to 50 new models introduced in 2003 by foreign joint ventures

¾ Intense price competition


• Price declined by about 8% in 2003, following 7-8% in 2002

¾ 90% of car purchases are done by cash


• China´s local consumer financing companies have yet to provide
sufficient and sophisticated lending services
• Chance: new consumer groups can afford a car

Source: J.D. Power & Associates; in: www.awknowlege.com; June 2003

Taxi companies are key customers

¾ Sales dominated by company (esp Taxi) and government


customers; sales to private customers increase strongly
• Meanwhile over 50% private sales

22
Impact of World Trade Organisation

¾ Opens the market and increases competition

¾ Classical Management functions become more important


• Marketing
• Human Resources Management
• Accounting

¾ Local Production vs. Import


• Less market entry barriers

¾ Wholly Foreign Owned Enterprises versus Joint Ventures

¾ Automotive impact
• Less import tariffs from 80-100% to 25% by 2006
• No import quotas by 2005
- Licensing law: a limited number of license plates are released every month, which must be bid
on at monthly auctions (ie October 2002 3,200 plates for an average price of US$ 3,500)
• Independent sales without Chinese Partners
• Foreign financial institutes are allowed to offer automotive finance
Source: M. Taube, Universität Duisburg-Essen

Volkswagen´s investment into China

1978 first meetings of Volkswagen in China


Toyota and General Motors were first choice partner of China; however, both decided not to invest at that stage

¾ 1984 Joint Venture ¾ 1991 Joint Venture


Shanghai Volkswagen Automotive Ltd First Automotive Works
• Sales 2002: 300.000 units Volkswagen Ltd
• Employees 2000: 11.000 pers • Sales 2002: 210.000 units
• Employees 2000: 7.000 pers

23
Challenges of co-operative
internationalisation strategies in China

Market Management

¾ Lack of efficient legal framework ¾ Different business styles and


¾ Closed market values
• High tariffs ¾ Corruption
• Import quotas ¾ Bureaucracy
• Chinese majority joint ventures ¾ Language problems
• Increasing local-content ¾ Different learning structures
¾ Difficult to find skilled staff

Source: Mercado Solutions Asia Ltd. 2000; Bennett 1998, p. 190; Posth/ Bergmann 1995

Joint Ventures from a non-Chinese car


manufacturer’s view

¾ Pros ¾ Cons
• Market entry into • Long starting process
protected market • Difficult to manage and lead
• Lower tariffs • Lack of skilled personnel
• Contact to local • Must buy parts locally
authorities
• Knowledge transfer
• Difficult to control sales and service
network
• Image of locally produced product
• Danger of know-how transfer not only
from foreign joint-venture to chinese
partner but also to other foreign
investors
- FAW: Volkswagen, Toyota, Mazda
- SAIC: Volkswagen, GM, Isuzu

24
Case 3.2 Levi Strauss Japan K.K.
Selling Jeans in Japan

¾ DISCUSSION QUESTIONS:
1. What are the key success factors (KSFs) in the
Japanese marketplace?
2. To what extent do the Levi Strauss' FSAs and
CSAs match the KSF's. How has Levi's been
able to leverage its country-of-origin to become
a leading brand? Can other American jeans do
the same?
3. How would you explain the apparent success of
LSJ's advertising campaign stressing American
values in Japan?
4. List the pros and cons of the different
distribution alterna-tives facing LSJ. Which one
do you think has the best chance of
succeeding?
5. Would you retain the premium positioning of
Levi's in Japan? Why/Why not?

Weekly Programme

Objective Topics Readings

WEEK 1: Introduction: Fundamentals of International Marketing

WEEK 2: Market Entry Options

WEEK 3: Local Marketing

WEEK 4: Global Marketing (I) Brand and Product Strategies


Standardization
Discuss the emergence of
ext: Chapter 11-12
standardized global brand and Brand Management
product marketing strategies
ase: Disney in France; in Hill,
Product Strategy
International Business
Global Services
WEEK 5: Global Marketing (II) Price, Distribution and Advertising Strategies

WEEK 6: Salesforce Management and Marketing Organisation

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