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Slide 6.

GLOBAL

MARKETS

Slide 6.2

The global marketplace

International trade is booming Number of multinational corporations in the 14 richest countries has more than tripled. These companies control one third of all private-sector assets and world sales of $6trillion. World trade now accounts for 29% of world GDP.

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A Global Industry is an industry in which the strategic positions of competitors in major geographic & national markets are fundamentally affected by their overall global positions. A Global Firm is a firm that operates in more than one country & captures R&D, production , logistical, marketing & financial advantages in its costs & reputation that are not available to purely domestic competitors.

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Assessment of the global marketing environment Deciding whether to go international Deciding which markets to enter How best to enter those chosen markets Developing the global marketing programme Deciding upon the structure of the global marketing organisation

Major decisions in global marketing

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1. Deciding whether to Go Abroad

Traditional Motivation Key suppliers Seeking new markets Lower cost of production New Motivation Ballooning R&D investments Shorter production life cycle

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1. Deciding whether to Go Abroad

Risks when going abroad... Most companies would prefer to remain domestic businesses Major concerns of going abroad: Unstable governments Foreign-exchange problems Foreign-government entry requirements and bureaucracy Tariffs and other trade barriers Corruption Technological Pirating High cost of product and communication adaptation

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2. Deciding which Markets to Enter

Company must also decide on the types of countries to consider Pre-selection of highest potential markets (candidate selection) Therefore, it has to analyse: Market potential (macro-economic view) Foreign country strategy

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Analysis of Market Potential(Phase 1)


Macroenvironmental Factors Population and income of target country Structure of Consumption producer vs. consumer goods luxury vs. necessity Production indicators of key industries, cars, steel, etc. Prices of raw materials, financing, etc. Economic Systems

2. Deciding which Markets to Enter Slide 6.10 Analysis of Foreign Country Strategy (Phase 2)

Info needed for this analysis: Consumer decision making process Use of product Who buys? When? Why? Where? How often? Competitor analysis Barriers of entry? PLC analysis Product launch possible in appropriate stage of foreign country`s PLC?

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Review of global market

Companies need to understand the international marketing environment thoroughly. Unprecedented global growth, increased complexities and volatility of international markets especially the emergent markets such as Africa, Asia and South America.

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The international trade system

Tariffs
levied on certain products, designed to raise revenue and protect domestic markets.
Limit on product categories to conserve foreign exchange and protect local industry and employment. Imposed to limit foreign exchange with other countries and on its exchange rate against other currencies.

Quota systems

Exchange controls

Non-tariff trade barriers

Biases against foreign companys bids or product standards.

Slide 6.13

The World Trade Organisation


The General Agreement on Tariffs and Trade (1948) designed to:

promote world trade by reducing tariffs and other international trade barriers.

144 member states and is empowered to enforce the trade agreements.

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Regional free-trade zones: Groups of nations organised to secure common international trade goals
European Union (EU)
25

member states (April 2004) Approx 450 million consumers Diverse cultures, languages and economic strength

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Regional free-trade zones: Groups of nations organised to secure common international trade goals
North American Free Trade Agreement (NAFTA)
USA,

Canada and Mexico 360 million people $6.7 trillion market Talks in progress to form the Free Trade Area of the Americas (FTAA)

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MERCOSUR
Argentina,

Regional free-trade zones: Groups of nations organised to secure common international trade goals
Chile More than 200 million population $1 trillion market Paraguay, Uruguay, Bolivia, Brazil,

Economic factors reflect the attractiveness of the market: industrial structure and income distribution.
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Industrial structure:
Subsistence

economies Raw material exporting countries Industrialising economies


China,

India, Brazil, Egypt, the Philippines

Industrial

economies

Economic factors reflect the attractiveness of the market: industrial structure and income distribution.
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Income distribution:
Low

income distribution in subsistence economies Medium income in raw material exporting countries and industrialising economies High income in industrial economies

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Political-legal environment

Attitudes towards international buying Government bureaucracy Political stability Monetary regulations

Counter

trade

Bartering
Compensation

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Cultural environment

The learned distinctive way of life of a society based upon the basic values, perceptions, wants and behaviours learned by a member of society from the family and other important institutions.

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3. Deciding how to Enter the Market Indirect Export

Occasional exporting Active Exporting Indirect Exporting Domestic based export merchants Domestic based export agents Trading companies Co operative organizastions EMCs

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3. Deciding how to Enter the Market Direct Export

Domestic based export deptt. or division Overseas sales branch or subsidiary Traveling export sales representatives Foreign based distributors or agents

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3. Deciding how to Enter the Market Licensing

The international company (= licensor) agrees to make available to another company abroad (=licensee) use of its patents and trademarks, its manufacturing know-how, its trade secrets and its managerial and technical services. The foreign company agrees to pay the licensor a royalty or other form of payment

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Deciding how to Enter the Market Licensing


Cons.: Danger of establishing a future competitor less control over licensees operations, which could result in damage to the licensors reputation limited licensing returns

Pros: A way of getting a foothold in a foreign market without a large capital investment most attractive to firms that are new to the international business area fewer exchange rate risk circumvent trade barriers (e.g. no duties) circumvent production restriction in the domestic market test foreign markets

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3. Deciding how to Enter the Market Franchising

Another form of licensing Usually: a company initially establishes a brand name for its products, service, quality etc. in the home market and a standardized business system to operate the business. It then franchises the entire business system in a foreign country Examples: McDonalds, Pizza Hut, Dominoes

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3. Deciding how to enter the Market Joint Ventures

Foreign investors join local investors to create a JV Shared ownership and control JVs often necessary or desirable for economic or political reasons Characteristics: Direct control of distribution channels: company owned points of sales International business is critical part of headquarter strategy Joint ownership may lead to management conflicts

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3. Deciding how to Enter the Market : Direct Investment

Direct ownership of foreign-based assembly or manufacturing facilities Advantages: Cost economies (e.g. cheaper labor or raw materials, freight savings) Better relationship with foreign government, customers, local suppliers, etc. Full control of marketing mix Disadvantages: Country-specific economic and political risks Investment (also in time and education)

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3. Deciding how to Enter the Market Timing of Market Entry

After deciding HOW to enter the market: WHEN should the selected markets be entered? Two strategies: sprinkler approach waterfall approach

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3. Deciding how to Enter the Market Timing of Market Entry

Advantages of the Waterfall-approach possibility to grow with its foreign business in terms of organization and resources less resources required than with the sprinkler approach less risky than the sprinkler approach extension of the product life cycle

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4. Deciding on the Marketing Program

Companies must decide how much to adapt their marketing to local conditions Two Extremes Standardized marketing worldwide Differentiated marketing (adjustment to each target market)

Slide 6.36

Standardisation or Adaptation for international markets?


Standardisation
International

marketing strategy for using the same marketing mix in all the companys international markets.
marketing strategy that adapts the marketing mix elements to each international target market.

Adaptation
International

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Slide 6.38

Slide 6.39 FIVE INTERNATIONAL PRODUCT & COMMUNICATION

STRATEGIES

C O

PRODUCT

M
M U

Do not change product Do not change communications Adapt communications Straight extension

Adapt product Product adaptation

Develop new product

N
I C A T I O N

Product Communic- Dual ation adaptation adaptation Invention

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Product and promotional strategies for Foreign markets


product extension adaptation invention adaptation

Straight Product

no adaptation: Coca-Cola Adapted to meet local needs or wants in the market: mutton used in burgers in India Specifically designed and made for the new market Marketing messages adapted to the local market

Product

Communication

Dual

strategy
Marketing message and the product are changed to meet the needs of the consumers in the international market

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Global Branding

Understanding similarities & differences in the global branding landscape Do not take short cuts in brand building Establish a marketing infrastructure Embrace IMC Establish brand partnerships Balance Standardization & Customization Balance global & local control Establish operable guidelines Implement a global brand equity measurement system Leverage brand elements

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Barriers to Standardization Legal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertising Technological barriers: media diffusion Linguistic barriers: knowledge of foreign languages, understanding and interpretation of words, symbols, color and music Image barriers: link between media characteristics and product quality Consumption patterns: media usage Competitive situation: e.g. average advertising budget, cost for media, typical forms of communication

4.Deciding on the Marketing Program Communication Policy

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4.Deciding on the Marketing Program Pricing Policy

Determinants of international pricing Internal determinants international organizational structure cost structure way of transfer pricing decisions on other parts of the marketing mix External determinants political, legal and economical framework behaviour and preferences of customers competitive structure and behaviour exchange rate volatility occurrence of gray markets

Slide 6.45

Global Pricing issues


Increased marketing and distribution costs.
Price charged to subsidiaries. If prices too high their is a risk of parallel importing. Is when the transfer price is too low and less than the cost of production. New anti-dumping laws have been introduced in the EU.

Price escalation

Transfer pricing

Dumping

Global prices are in the public domain because of the Internet

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4.Deciding on the Marketing Program Distribution Policy


Issues of an international distribution policy Distribution structure: structure of distribution channel through which goods pass from producer to user key issues: characteristics of middlemen, selection criteria of distributors, contractual producer-distributor relationship Distribution process: - physical handling and distribution of goods - passage of ownership - buying and selling negotiations (producer-middlemen, middlemen-customer) key issues: choice of locations, choice of logistic partners, technical and organizational handling

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Global distribution channel structures

Organisation needs to adopt a whole-channel concept for international distribution and marketing.

Seller-> Sellers Headquarters organisation for international marketing->Channels between nations->Channels within nations->Final user or buyer.

Careful selection of distributors

Based upon local knowledge and expertise as well as customer base and robustness of the existing marketing channels.

Slide 6.48

Structure of the global marketing organisation

Export department
Comprises a sales manager and a few assistants whose job is to organise the shipping out of the products to foreign markets. Division handles all of the firms international activities.
Corporate management and staff plan worldwide operational and marketing policies, financial flows and logistical systems.

International division

Global organisation

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