Lecture 1

Transition to Global Marketing

●​ Domestic marketing only till the early 1990s
-Under a different brand name
●​ Changed name to Canada Goose before entering the European market

Definitions
●​ Marketing: the process of planning and executing the pricing, promotion and distribution of
products (i.e, ideas, goods and services) to create exchanges that satisfy individual and
organizational goals
●​ Global/Internation Marketing:
-Focuses resources on global market opportunities and threats
-The scope of activities is wider
-Companies become more competitive by integrating and leveraging operations on a worldwide
scale

Globalization
●​ “The unstoppable integration of markets, nation-states, and technologies to a degree never
witnessed before”
-In a way that enables individuals, corporations, and nation-states to reach around the world
farther, faster, deeper and cheaper than ever before…
-Thomas Friedman

The Importance of Global Marketing

●​ For US-based companies, 75% of sales potential is outside the US
-About 90% of Coca-Cola’s operating income is generated outside the US
●​ For Japanese companies, 85% of potential is outside Japan
●​ For German and EU companies, 94% of potential is outside of Germany

Global Brands: Who owns them?

●​ Firestone: Japan (Bridgestone)
●​ Ray-Ban: Italy (Luxottica)
●​ Budweiser: Belgium (Anheuser-Busch)
●​ Jaguar: India (Tata Motors)
●​ Ben & Jerry’s: Netherlands/UK (Unilever)
●​ Holiday Inn: U.K. (Intercontinental Hotels Group)
●​ Thinkpad: China (Lenovo)

Global Marketing: What It Is & What It Isn’t

Additional Dimensions
●​ Concentration of Marketing Activities
-the extent to which activities related to the marketing mix (e.g. promotional campaigns or pricing
decisions) are performed in one or a few country locations
●​ Coordination of Marketing Activities
-the extent to which marketing activities related to the marketing mix are planned and executed
interdependently around the globe
●​ Integration of Competitive Moves
-the extent to which a firm’s competitive marketing tactics in different parts of the world are
interdependent

Forces Affecting Global Integration and Global Marketing

●​ Driving Forces:
-Regional trade agreements, converging consumer needs and wants, technology (IT),
transportation and communication improvements, product development costs, higher economic
growth in other regions, leverage*, etc…
●​ Restraining Forces:
-Management myopia (organization’s ethnocentric culture), protectionism, backlash against
globalization, pandemics
​ -US-China power struggle
​ ​ -Decoupling: “China-free” supply chain
​ ​ -De-risking: Diversifying over-reliance

Perils of Extending Domestic Marketing

●​ Subaru and Honda’s initial entry into the North American market
●​ Walmart’s unsuccessful entry into the German market
-Strong hard discounters (e.g. Aldi and Lidl) and their private brands
-German’s shopping habits and city layout
●​ Target’s exit from the Canadian Market

Leverage: Another Benefit of Global Operation

●​ Manufacturing and marketing in multiple countries are beneficial thanks to…
 -Transfers skills and experience across markets
-Economics of scale in manufacturing
-Optimally utilize human, financial and material resources across markets
-Can use global (not national or regional) strategies to best identify opportunities across the world

Value Propositions in the International Market

●​ “Think outside of the box”
-E.g. “Not worth trying to sell cars to people in underdeveloped countries”?
-Car markets in developing countries are not as saturated
​ -Consumers may not necessarily require up-to-date technologies
-Tata Motor’s $2,500 Nano
-Renault’s launching Dacia Logan at $10,000 or less for Eastern European countries

Standardization vs. Adaptation

●​ Standardization Approach
-Marketing standardized products worldwide with a standardized marketing mix
-Pros and Cons?
●​ Adaptation Approach
-Customizing products in response to differences across national markets
-Cons of extreme adaptation?
●​ Combinatory Approach
-Mixing standardization and customization in a way that minimizes cost while maximizing
satisfaction
-”Think globally, act locally”

Four Management Orientations

●​ Polycentric: Belief that each host country is unique enough to require different marketing
strategies (adaptation approach)
●​ Geocentric: Views the entire world as a potential market and develops integrated global strategies
(transnational/global approach)
●​ Ethnocentric: The home country is superior; ignores differences in foreign markets (standardized
approach)
●​ Regiocentric: Develops unique marketing strategies for major “Regions” (e.g. NAFTA, EU,
Asia-Pacific, Latin America)

Lecture 2

Coffee Drinking Across Cultures

●​ Different meanings of coffee drinking
-Young Muslim men
​ -Equivalent to ____ among Western young men
​ -Haram vs Halal
-Instant coffee sticks
​ -Sugar and non-dairy creamer
 ​ -Long working hours
​ ​ -A symbol of S. Korean office work culture and camaraderie

Culture
●​ Geert Hofstede (1980)
-”Culture is the collective programming of the mind that distinguishes the members of one human
group from another”
​ -Culture in this sense includes systems of value, and values are among the building
blocks of the culture (p.21)
​ -Culture includes shared beliefs, norms, roles and values
​ -Religion, language, perception of time, and place helps define culture

Characteristics of Culture
●​ Culture is learned
​ -Acquired over time through their membership of a group from generation to generation
​ -Group members internalize culture while…
​ ​ -Interacting with other members of their family;
​ ​ -Elicticing rewards and avoiding punishments;
​ ​ -Negotiating for what they wanted;
​ ​ -Causing and avoiding conflict
●​ Culture is interrelated
-With religion, language, social convention, business practice, etc.
●​ Culture is shared
-Cultural values are passed on to an individual by other members of the group

Tolerance of Voice Level in Public Transport

●​ Refrain from inconveniencing others
​ -Leads to social ostracizing
​ -Any downsides of tabooing meiwaku?

How many times do you decline before accepting a gift?

●​ None? Once? Twice? Three times?
-Decline unless you feel you feel comfortable to reciprocate by offering something of similar
value

Levels of Culture
●​ Culture exists on different “levels”
-A country, a region, an age group, a social class
●​ Must specify which level of culture we refer to
-Comparison of national cultures: Caveat!

Variability of “Dialects” within Chinese

●​ Phonetically: Not mutually intelligible
●​ Differences in grammar and vocabulary
 ●​ Difference in tone: 4 vs. 9
●​ Different expressions and idioms

-Ni hao vs Lei hou = How are you?

-Xie Xie vs Um goi = Thank you
-Meili vs Leng = Beautiful
-Dui bu qi vs Deoi mm ju = Sorry

Cultural Universals
●​ “Don’t cultural universals exist across cultures?” (Murdock, 1946)
-Bodily adornment, cleanliness, training, cooking, food taboos, seeking happiness, etc.
●​ Yes, but how we do each of these substantially varies across cultures
-E.g. “What makes you happy?”
-Good table manners vary across cultures

Four Manifestations of Culture

●​ Culture as Onion (Hofstede, 1991)

Manifestation (CONT’D)
●​ Symbols
-Words, gestures, pictures and objects that carry a particular meaning uniquely recognized by
group members
​ ​ -Words, colloquial expressions, flags, status symbols, national brands
​ ​ -Does McDonald’s symbolize the same thing across cultures?
●​ Heroes
-Persons, real or imaginary, who possess characteristics that are highly prized in a society
​ -Recognized role models
​ -Though globally known, the stories in which heroes play a part are local
●​ Rituals
-Collective activities considered socially essential within a culture
​ -E.g.. Ways of greeting, respecting others, social and religious ceremonies, wedding
ceremonies, funerals, etc.
 ​ -Symbols, heroes, and rituals are visible to an outsider, but their cultural meanings are
invisible
●​ Values
-”Broad tendencies to prefer a certain state of affairs to others”
​ -Values cannot be observed; only to be interpreted
​ -Learned implicity at a very early age; highly stable in culture
​ ​ -Individuals are not consciously aware of values; hard to verbalize

Is “telling the truth” a Universal Value?

●​ “Saving Face”
-Allowing oneself to maintain dignity in public or respect for others
-Covering up own weakness and/or appearing generous/respectable
●​ “Losing Face”
-Losing the respect of others (as well as one’s own pride)
-Avoiding the feeling of shame (public embarrassment)
​ -Vs. Westerners’ emphasis of on’s own conscience (avoiding guilt)
-Helping your counterpart save face (avoid losing face) is essential
●​ Tatemae means “the outer facade of a building”
●​ Honne means “inner voice”
-Honest opinion and desire
●​ Speaking out Honne to colleagues or outsiders is tabooed
-Protection of social harmony
-Avoiding embarrassment
-”(Cannot) read the air”
​ -”Understanding the situation without words”
●​ “Smile Mask Syndrome”

Cultural Stereotyping
●​ Placing people in rough categories
-Can be functional or dysfunctional
-Stereotypes are RELATIVE; they are in the eyes of the beholder’s culture
​ -E.g. “Going Dutch”, “A Dutch Treat” (only in English)
​ -Stereotypes of the French differs across cultures
​ -Risk of using American humor associated with their stereotypes of other countries in
international advertising

Signs, Symbols and Culture

●​ Preference for symbols and pictures vs texts
-Chinese ideographs/pictograms
-Preference for pictorial ads with minimal text
●​ Colour
-Different meanings in different cultures
​ -The colour of mourning
​ -The meaning of “green” in tropical regions
 ​ -The read and white coloured IKEA banner in Denmark
●​ Gestures
-Raising your eyebrows; Knocking on the table with finger knuckles (Germany)
-The North American OK sign means zero (France)

Proxemics and Culture

●​ Use of space as cultural artifacts
-The degree to which people want to be physically close to others or to touch others
-Hall (1969): invisible boundary around people in conversation
​ -Inviolate “personal bubble” (North America and Northern Europe)
​ -Shutting the bedroom door (North America vs. Spain)
​ -Distance between men and women in public places (Middle East)

Comparing Cultures
●​ Trap of Ethnocentrism
-A major source of unnecessary conflict and tension in international business
●​ Systematic understanding of cultural difference
-Etic approach: arranging cultures along interpretable dimensions
​ -E.g. Individualism - collectivism
-Emic approach: explaining values unique in a certain culture

Time Perspectives I
●​ “Linear Time” Concept
-Time is conceived as a line of sequential events
​ -Influence of Christianity
-It causes people to see time as compartmentalized, schedule-dominated
​ -E.g.. Timetables, deadlines, time-based productivity, etc
-Time is a resource: “tangible”
​ -Time can be saved, lost, found and wasted
●​ “Circular Time” Concept
-Time is conceived as cyclical
​ -Influence of Buddhism and Hinduism: Reincarnation
​ -”In my past/next life”: one of the “times” across my several lives
-Patience is valued; Relaxed time perspectives

Time Perspectives II
●​ Hall (1983): Different approaches in task scheduling
●​ Monochronism (M-Time) culture
​ -Believe in doing one thing at a time
​ -Adhering to pre-set schedules
​ -Start and end of a meeting in strictly planned and implemented
●​ Polychronism (P-Time) culture
-Believe in doing several things at the same time
​ -Free-Flowing time concept; improvisation
 ​ -Time concept is connected to “natural rhythms”
-Pre-set schedules are easily modified
-Time is not perceived as wasted
-P-Time people are more committed to persons (relationships) than to schedules
●​ M-timers stationed in Polychronistic cultures
-”There is no recognized order as to who is to be served, no cues or numbers indicating who has
been waiting the longest” (Hall, 1983, p.47)
-P-timers are foreign to the idea “Time is even viewed as a commodity that can be bought, sold,
saved, spent or wasted”
-Peculiarity of industrialized East Asian countries
​ -Monochronistic for business, but polychronistic for personal/family life
-Important in cross-cultural business negotiation, buyer-seller interactions, working with foreign
distributors, etc

High vs. Low-Context Cultures

●​ Hall (1960)
-Low-Context culture
-Verbal communication is explicit and specific
-Messages are expressed and accepted at face value
-Words carry most of the communication power
-Rhetoric (eloquent delivery of verbal messages)
-Everything needs to be in writing; legal documentation
●​ High-context culture
-Verbal communication is less explicit and indirect
​ -Rarely saying “no”
​ ​ -Messages are spoken and read between the lines (“implied”)
​ -Need to catch cues from voice tone and facial expression
​ -More information resides in the context of communication (i.e. symbols, background,
associations, posture)
-Shared feelings of obligation and honour are regarded as important
​ -”Telepathic” communication: “on the same wavelength”

High and Low-Context Cultures

A Quantitative (“Etic”) Approach to Comparing Cultures
●​ Geert Hofstede (1980)
-Arranged national cultures along 4+1 dimensions
​ -Power Distance (PDI)
​ -Individualism (IDV)/Collectivism
​ -Masculinity (MAS)/Feminity
​ -Uncertainty Avoidance (UAI)
​ -Long-term Orientation (LTO)
-Initially designed to explain differences in work-related values
-One of the most influential approaches to understanding cultural differences among nations

Power Distance
●​ The extent to which less powerful members of a society accept and expect that power is
distributed unequally
●​ High PDI
-Everyone has a rightful place in the hierarchy
-One’s social status is clearly designated
​ -Use of honorifics and titles expected
​ ​ -Levels of politeness in speech: Talk up, Talk par, Talk down
​ -Use of luxury products as status symbol
-Dependency relationship is common
​ -Being needed and idolized as a source of esteem
​ ​ -Boss vs. Subordinates; Parents vs Children
-Asia, Latin America, Africa, Southern Europe, France
●​ Low PDI
​ -Hierarchy is less pronounced
-Individuals are treated relatively equally regardless of rank
-Fewer layers of management
-First-name basis
-Equality in rights and opportunity is emphasized
-Subordinate-boss relationship
-Power distance between parents and children is lower
-Concept of Danish “Lego”: Not accepted well in France
-Scandinavia, Germany, Netherlands, UK, North America
Individualism/Collectivism
●​ IDV
-”People looking after themselves and their immediate family only, vs. people belong to in-groups
that look after them in exchange for loyalty”
●​ Individualistic cultures
-”I” - conscious
​ -Decisions are made by and for oneself
​ -Low dependence on extended family members
​ -Friendship is “created”
​ -High need for privacy
​ ​ -Strict division between private time and work time and between private space
and public domain
-UK, Netherlands, Scandinavia, France, North America
●​ Collectivistic Cultures
-”We” - conscious
​ -Identity is strongly shaped by in-groups
​ ​ -The sharper distinction between in-group and out-group members
​ ​ -In-group favouritism; Discrimination against out-group members
​ -Avoiding “loss of face”
​ ​ -”Shame” societies: identity as a rep. of ingroup
​ -Priority is given to “people” rather than task
​ ​ -Relationship and trust
​ ​ -Greater need for conformity: more sensitive to fads
​ -Less need for privacy
​ ​ -Spend lots of time in public domains (e.g. cafes)
​ -Corporate advertising (vs. product advertising)

Masculinity/Feminity
●​ MAS
​ -Achievement and success are valued (vs. caring for others and quality of life is valued)
●​ Masculine cultures
-Performance and achievement-oriented
​ -”Winner takes it all”
​ -Admiration of “Big”, “Fast”, and “Strong”
​ -”Real Man” (Machoism)
​ -Japan, Latin America, U.S., Southern Europe, Germany, UK, China
●​ Feminine cultures
-Striving for consensus
-Emphasis on modesty
-Sympathy for the underdog
​ -”Showing off” too much is frowned upon
​ -Jealousy for consistent top dogs is accepted
​ -Egalitarian mindset
​ ​ -E.g. The law of Jante: anti-exceptionalism
​ ​ -”You are not to think you are anything special”
-Gender role differentiation is less pronounced
​ -House chores and rearing children shared
​ -More men work part-time
-Scandinavian countries, Finland, Netherlands

Uncertainty Avoidance
●​ UAI
-The extent to which people feel threatened by uncertain and ambiguous situations, and try to
avoid these situations
●​ High uncertainty avoidance
-Strong need for rules and formality
-Higher level of anxiety and tension in individuals
​ -Talking loudly, using hands while talking, aggressive driving, emotional embracing,
showing emotion in public
-Strong need for certainty
​ -High regard for narrowly defined experts (e.g, “Professor Doktor”)
​ ​ -Stronger preference for purity attributes (e.g. 100% clean)
​ -Southern Europe, France, Germany, Latin America, Japan

Uncertainty Avoidance
●​ Low uncertainty avoidance
-Tendency to embrace uncertainty and ambiguity and to make the most of them
​ -Conflict and competition is perceived less threatening
 -Fewer rules and less ritual behaviour
-Less need for certainty
​ -Creativity and innovation valued
​ -Opportunistic entrepreneurship
-North America, UK, Scandinavia, Netherlands

Long-Term Orientation
●​ LTO
-”Fostering of virtues oriented towards future rewards, in particular, perseverance and thrift”
-Initially termed “Confucian Work Dynamism”
-Delayed gratification is accepted and even valued
​ -Frugality, saving, investing for the future
-Persistence is the desired personality trait
-Pragmatic future orientation
​ -Preference and pursuit of “what works” (vs. “what is true”)
-China, Korea, Japan, Taiwan, Vietnam
●​ Short-Term Orientation
-”fostering of values related to the past and present”
​ -Emphasis on quick results (impatience)
​ -Personal steadiness and stability is valued
​ -Belief in absolutes in good versus evil
​ -Pursuit of personal happiness is maximized
-Immediate gratification is expected
​ -Consumption and spending here and now
​ -Personal leisure is valued

Further Topics for reading

●​ Risk of using Self-reference criteria (SRC)
●​ Diffusion of innovation
​ -Characteristics of innovations
​ -The adoption process
​ -Hypothesis of faster rates of innovation adoption in Asian vs. Western Countries
 Lecture 3

The World Economy: New Realities since the 2000s

●​ Capital movements have replaced trade as the driving force of the world economy
-Trading of (foreign) currencies
●​ Production has become uncoupled from employment
-Increase in productivity without employment
-Employment in manufacturing is declining
●​ The world economy, not individual countries, is the dominating factor
-E.g., German and S. Korean companies’ performance
●​ Previous communist countries have embraced the market economy
-Government control of major industries and intervention is still rampant
●​ E-Commerce diminishes the importance of national barriers and forces companies to re-evaluate
business models
●​ China’s surge as a global economic power
●​ The U.S.-China power conflict and trade dispute

Market Capitalism
●​ Individuals and firms allocate resources
●​ Production resources are privately owned
●​ Driven by consumer choice and spending
●​ The government’s role is to promote competition among firms and ensure consumer protection
●​ The U.S.-style capitalistic system is not universal.
●​ (Potential) problems of market capitalism
-Monopoly or oligopoly of firms are common
-Prone to “boom and bust” in economic cycles
-Tend to lead to uneven distribution of wealth
-Externalities can damage the environment

Table 2-1 Western Market Systems

Stages of Market Development
●​ The World Bank has defined four categories of economic development using GNI per capita as a
base
●​ Low-income countries
-$1,005 or less
●​ Lower-middle-income countries
-Higher than $1,005 but $3,995 or less
●​ Upper-middle income countries
-Higher than $3,995 but $12,235 or less
●​ High-income countries
-Higher than $12,235

Low-Income Countries
●​ GNI per capita of $1,005 or less
●​ LDCs (Least developed countries)
●​ Characteristics
-Limited industrialization
-High percentage of the population in farming
-High birth rates
-Low literacy rates
-Heavy reliance on foreign aid
-Political instability and unrest
-Concentrated in Sub
-Saharan Africa
●​ Consider…
-Potentials of future economic development
-Unexplored mineral resources

Lower-Middle-Income Countries
●​ GNI per capita: $1,006 to $3,955
●​ The lower tier of “developing countries”
●​ India, Vietnam*, Bangladesh, Indonesia, etc.
●​ Former Soviet Union countries: Uzbekistan, Kazakhstan, etc.
●​ Characteristics
-Rapidly expanding consumer markets
-Numerous young consumers
-Cheap but motivated labour
-Mature, standardized, labour-intensive industries like footwear, textiles, and toys
-Presence of strong local competitors
-E.g., Tata Motors, Mahindra Motors
-Global companies active in exploring these markets with high growth potential
Upper-Middle-Income Countries
GNP per capita: $3,956 to $12,235
Middle and high tiers of “developing countries”
E.g., Brazil, Chile, Mexico, Malaysia, China, South Africa, etc.
Characteristics:
-Rapidly industrializing, less agricultural employment
-Increasing urbanization
-High literacy rates and advanced education
-Rapidly rising wages and living standards within one generation
-Lower wage costs than advanced countries with equivalent quality of workforce
-BRICS: Brazil, Russia, China, South Africa

Newly Industrializing Economies (NIEs)

●​ Collectively referred to Lower-middle and Upper-middle-income economies with the
highest sustained rates of economic growth
-Heavy manufacturing operations
-Exports of manufactured and refined products
-NIEs in the 1970’s and 1980’ were Four Asian Tigers (Taiwan, Singapore, HK, S. Korea)
-Current NIEs: Expected to grow more rapidly than other countries
-China, Malaysia, Mexico, Turkey, etc. (upper-middle income)
-Vietnam*, Indonesia, India, Philippines, etc. (lower-middle income)

Mistaken Assumptions about LDC and Developing Countries

●​ “The poor have no money.”
-Aggregate purchasing power; (PPP: Purchasing power parity)
●​ “The poor are too concerned with basic needs to “waste” money on non-essential goods.”
-Household electric goods, affordable luxuries, cosmetics, etc.
●​ “Goods sold in these markets are so inexpensive that there is no room for a new market entrant to
make a profit.”
-Local prices for many goods may not be so low due to inefficient distribution
●​ “Global companies doing business in BOP countries will be criticized for exploiting the poor.”
-Room for making profits while improving living standards by offering quality products at
reasonable prices
●​ “People in BOP (bottom of the pyramid) countries cannot use technology.”
-Faster adoption rate of mobile banking and payment via cell phones

High-Income Countries
●​ GNI per capita: $12,236 or more
●​ Also known as advanced, developed, industrialized, or post-industrial countries
Recent upgrades from “emerging”: S. Korea
●​ Characteristics:
-Sustained, albeit lower, economic growth rate through new product development and innovation
●​ Innovation is derived from the accumulation of research and science
-Graduate programs and research centres
 -E.g., Design of semiconductors in the US (vs. contract manufacturing)
●​ The high saturation level for basic household and electronic products, cars, etc.
-Frequent upgrade needs; planned obsolescence
●​ Service economy; information economy
●​ Reshoring of manufacturing of strategic importance

Marketing Implications of Stages of Development

●​ Product Saturation Levels
-The percentage of potential buyers or households who own a product
●​ Low in emerging markets
-Autos: 8 per 1,000 Indians, 200 per 1,000 in Russia (vs. 565 per 1,000 in Germany)
-Ample opportunities for international marketers
●​ More willing to embrace innovative products and services than high-income countries
-Not hung up on traditional products that precede innovative ones
-Still a low penetration of landline phones, but fast adoption of cell phones
-Mobile payments (electronic wallets) are more common than credit cards
-Electric cars and charging stations (vs. gasoline cars and gas stations)??

Further readings in Chapter 2

●​ Balance of payments
●​ Trade in merchandise and services
●​ International Finance
●​ Managing economic exposure
​ -Fluctuating foreign exchange rates
​ -Techniques such as hedging, forward contracts

Political & Legal Environment

●​ Home country environment
●​ Host country environment
●​ Political risk analysis procedure

Home Country Environment

●​ Political pressure
-Pressure from home country
-E.g., Canadian companies operating in South Africa
-Threats from third countries
-E.g., US gov’t vs. European companies operating in Cuba
-Should the home country be concerned about the firm’s bribery and corruption in host country?
-“Companies must be free to use the most common methods of competition in the host
country”
-Vs. “Bribes may open the way for shoddy performance and loose moral standards
among managers”
 -Balance between reasonable ways of doing business locally vs. outright bribery and
corruption

Home Country: Govt’s Promotional Activities

●​ Granting of Subsidies
-Export subsidies
-E.g., lower taxes on profits attributable to export sales, refunding of indirect taxes, direct
grants
-Popular in developing countries
●​ Financial activities
-Export credit insurance
-Helps exporting firms offer better payment terms and financing conditions to international
buyers
-Reduces certain commercial and political risk associated with international transactions

●​ Information services
-Government-owned research agencies
-Economic, social, and political data on foreign countries
-Individual reports on foreign firms
-Specific export opportunities in foreign markets
-Lists of potential foreign buyers, distributors and agents for various products
-Information on relevant government regulations abroad
-Information on export procedures
●​ Export facilitating activities
-Trade development offices in foreign countries
-Gov’t-sponsored trade fairs and exhibitions
-Sponsoring trade missions of business people in foreign countries
-Operating permanent trade centres in foreign countries that offer trade shows

Host Country Environment

●​ Types of political/legal risk in the host country
-Ownership risk
-Risk that exposes property and life
-E.g., confiscation, expropriation, nationalization, etc.
-Operating risk
-Interference with the ongoing operation in foreign market
-Transfer risk
-Risk associated with transferring capital between countries
-E.g., limitation on repatriation of profits

Risks in the Host Country

●​ Import restrictions
-Pressure to purchase more supplies within the host country and create markets for local industry
●​ Local content laws
 -E.g., EU: a 45% local content requirement for foreign-owned car assemblers
●​ Capital controls
-Controls levied over (unnecessary) movements of capital from the host country to home country
●​ Market control
-Controls imposed to prevent foreign companies from operating in third countries
-E.g., US’s Cuba policy: Canadian and EU firms
●​ Price controls
-Imposed to curb the cost of living in inflationary times
-E.g., pharmaceuticals, food, petrol, etc.
●​ Tax controls
-Tax increases without warning and in violation of formal agreements
●​ Labor restrictions
-Labor unions lobby to pass laws that support labour at a heavy cost
-Intended to make lay-offs and plant shutdowns difficult
●​ Change of ruling parties
●​ Expropriation
-Gov’t action to dispossess a foreign company in exchange for compensation
-Confiscation: no compensation
●​ Nationalization
-Gov’t take control of some or all of the enterprise in a particular industry
-E.g., Cuba’s nationalization of American sugar producers’ property
●​ Domestication (“Creeping expropriation”)
-Greater decision-making powers accorded to nationals
-More products produced locally for assembly
-Gradual transfer of ownership to nationals
-Promotions of a large number of nationals to higher levels of mgt.
-Limitations on repatriation of profits, dividends, royalties, and technical assistance fees

Trade Barriers: Tariffs

●​ Tariffs
-Direct taxes and charges imposed on imports
-Reasons for levying tariffs
-To protect domestic producers
-Long-term benefits for domestic companies?
-To generate revenue
-Common forms of tariffs
-Specific: imposed on specific products by weight or volumes
-Ad valorem: a straight percentage of the value of the good
-Discriminatory: charged against goods coming from a particular country (e.g., trade
imbalance or political purpose)

Non-Tariff Barriers
●​ Quotas
 -A restriction on the amount of a good that can enter or leave a country during a certain period of
time
-More widely used than before; harder for companies to deal with
-Reasons for imposing import quota
-To protect domestic producers
-Losers: consumers and some domestic companies
-To force foreign companies to compete against one another for the Limited Amount of
imports allowed
-Reasons for imposing an export quota
-To maintain adequate supplies of a product in the home market
-To restrict supply to world markets
-E.g., OPEC’s attempt to increase the international price of crude oil
●​ Embargoes
-A complete ban on trade in one or more products with a particular country
●​ Administrative delays
-Bureaucratic rules to impair the rapid flow of imports into a country
-E.g., purposeful understaffing of customs offices to cause unusual delays;
-Requiring a special license that takes a long time to obtain
●​ Local content requirement

Resolving Conflicts in Host Country

●​ Litigation in foreign courts is a risky business
-Legal environment in the host country may be very different
-May not expect fair rulings against insiders with strong ties to important people (“guanxi”)
-Alternatives to litigation
-Arbitration
-Build good relationships with stakeholders in advance
-With government
-Lobbying; personal relationship with officials
-With local customers
-With employees
-With the local community

Topics from Chapter 5

●​ Protecting intellectual properties
​ -Patents
​ -Trademarks
​ -Copyrights
●​ Anti-trust laws in home/host countries
●​ Licensing and trade secrets
 Lecture 4

Importance of Segmentation in Domestic Marketing

●​ A new “power snow shovel” brand
●​ Segmentation
●​ Targeting
●​ Positioning

Peloton’s Expansion into Asia Pacific? : STP Considerations

●​ Cramped houses
-The average size of an owned residence in Japan is 1,310 sq ft; even smaller in Tokyo (980 sq ft)
-No basement, no spare room
●​ Diverse local languages
●​ Perceived need for strenuous physical exercise
-Low car ownership rates in cities

Deciding Foreign Markets to Enter

Issues
●​ International Market Selection
-Segmentation
-Process of dividing markets into relatively homogeneous groups of potential customers
likely to respond similarly to our marketing mix
-Select target market(s): Targeting
-Positioning

A Model for International Marketing Selection

 ●​ The firm: Degree of internationalization, Size/amount of resources, Type of industry/nature of
business, Internationalization goals, Existing networks of relationships
●​ The environment: International industry structure, Degree of internationalization of the market,
Host country: Market potential, competition, distance, market similarity

●​ What are international markets?

-A country or a group of countries
-Vs. A group of consumers with similar characteristics in several countries
​ -National data are more easily available
​ -Distributors/agents and media operate on a national basis

International Market Segmentation

Bases of Segmentation
●​ Criteria to be used for segmentation
●​ Demographic segmentation
-Income, population, age distribution, gender, education, occupation, etc.
-Demographic trends in select countries
-India: 2/3 of the population is younger than age 35
-EU: The median age will increase from 43 years old in 2019 to 52 years old by 2050
(US: 38 → 41)
-France: dual income families are more common to cope with rising living expenses
●​ Segmentation by income
-GNI per capita
-North America, Northen and Western Europe
-Vs. countries with low or medium-income
-Caveat: needs to be PPP-adjusted
-Actual purchasing power of the local currency
-Low living expenses; undervalued currency
-51,645 yuan is only $8,250, but rise to $15,500 after PPP adjustment
-May afford surprising purchasing power

Bases of Segmentation
●​ Segmentation by income: Considerations
-Market potential
-Population needs to be considered as well
 -Norway and Sweden vs. China, India and Indonesia
-Trap of “average income”
-National income figures hide a dramatic variation of income distribution income
segments
-Coastal vs. interior provinces in China
-“New super rich” in Tier -1, 2 cities
-Consumers in Tier 3 cities with lower local prices
-Top 10% Indian households own 77% of wealth
-Regional differences in % upper middle income people
-Further segmentation within a country is required!
●​ Segmentation by age distribution
-Products/services primarily for babies, youths vs. elderly
-% of respective age group across countries and its growth/decline
-Age segments across border
-Unified marketing program
-Global teens
-Young global elite in developing countries
●​ Psychographic segmentation
-Grouping consumers based on attitudes, values and lifestyles
-Consumers of the same age or from same location do not necessarily share similar
preferences
-Adaptation of SRI’s VALS
-Porsche’s segmentation of US car buyers
-Different values, lifestyles and needs
-VALS adapted to other countries
●​ Behaviour segmentation
-Usage rates and user status may be substantially different across countries/regions
-E.g., Espresso machines: first time buyers in China; heavy users, % of ppl bought
competitors’ products
●​ Benefit segmentation
-“What problems are solved or what benefits are offered by a product in question?”
-Oatly’s segmentation: environmentalists vs. non-dairy vegans vs. lactose intolerance
(across countries) vs...
●​ Segmentation by ethnicity, language or religion
-E.g., rising Muslim pop. in some European countries
●​ Segmentation by cultural factors
-Power distance
-Indiv/Coll
-Uncertainty avoidance
-MAS/FEM
-LTO
●​ Suitable for products that are sensitive to cultural factors
-Luxury products (for social status): countries with high power distance
Steps 1 & 2: Segmentation
●​ Criteria for effective segmentation
-Are your segmentation variables high or low?
-Measurability
-The degree to which the size and the purchasing power of segments can be
measured
-Accessibility
-The degree to which the segments can be effectively reached and served
-Substantiality/Profitability
-The degree to which segments are sufficiently large and/or profitable
-Actionability
-The degree to which the company has sufficient resources to formulate effective
marketing programs for the segments

Step 3: Screening of Segments

●​ Assessing the market potential of segments
-Current size of segments and growth potentials
-High vs. medium vs. low?
-Potential competition in segments
-Avoid segments entrenched by strong competitors
-Micro-segments in such a country may be doable
-Feasibility of entrance and compatibility between our product/business model and the market
segment
-Will adaptation be required? Is this financially justifiable?
-Will the price of the product be driven up by import restrictions or other local factors?
-How many parts can be sourced locally vs. imported?
-May adaptation required for the market negatively affect the brand image or our
operation in other countries?

Create Product-Market Profile: 9 Questions

●​ Who is likely to buy our product?
●​ Who may not buy it?
●​ What need or function does it serve to locals?
●​ Is there a market need that is not being met by current product/brand offerings?
●​ What problem does our product solve?
●​ What are customers buying to satisfy the need for which our product is targeted?
●​ What price are they paying?
●​ When is the product purchased?
●​ Where is it purchased?
International Market Segmentation

Step 3: A Systematic Approach

●​ Two-step screening of markets/countries
-First, preliminary screening (Macro)
-Use external screening criteria to exclude markets that disqualify
-Then, fine-grained screening (Micro)
-Search for segments that are compatible with the firm’s competitive power

Preliminary Screening
●​ Macro-oriented criteria
-Public consumption of the product being sanctioned
-Restrictions on the import of essential parts or ingredients (from certain countries)
-GDP per capita (country, region)
-Number of people whose annual income is higher than $XXX
-Political risk

Dimensions of Market/Country Attractiveness

●​ Market size, Market growth, Buying power of customers, Market seasons, Average industry
margin, Competitive conditions, Market prohibitive, Government regulations, Infrastructure,
Economic and political stability, Psychic distance

Dimensions of (our) Competitive Strength

●​ Market share, Marketing ability and capacity, Products to fit market demands, Price, Contribution
margin, Country/brand image, Technology position, Product quality, Market support from local
distributors, Quality of distributors, Financial resources, Access to distribution channels

International Market Segmentation

Step 4: Selection & Targeting
●​ Use two-stage selection
-Step 1: By country/countries
-Step 2: Segmentation within countries
●​ Criteria
-Geographical factors
-Demographic/economic factors
-Lifestyles and psychographics
●​ Segmenting solely on the basis of countries??
-The risk of ignoring the differences between consumers within a country and similarities across
borders
-China/India; Spanish-speaking Central American countries
-Identify meaningful cross-national segments
●​ Cluster of southeast Asian Countries
-Largely based on religion and dominant local customs
-Caveat: A single religion may not be dominant in indonesia

Strategies for Targeting

●​ Standardized (undifferentiated) global marketing
-Mass marketing in multiple countries with a single marketing mix
●​ Concentrated global marketing strategy
-Targeting a single segment across multiple countries with the same single marketing mix
-A profitable niche across countries
●​ Diversification strategy
-A.k.a. Differentiated global marketing (multi-segment targeting)
-Targeting multiple distinct segments/countries with substantially different marketing mixes
-Wider market coverage but requires substantial investment

Market Expansion Strategies

●​ Should we enter markets incrementally or simultaneously?
●​ Will entry be concentrated or diversified across international markets?
Selecting Target Markets: Concentration vs Diversification
●​ Market concentration
-Selecting a small number of target markets that are similar to one another
●​ Market diversification
-Selecting target markets that are quite different from one another
●​ Factors to consider
-Company factors; Product factors; Market factors; Marketing factors

Company Factors
●​ Diversification
-High management risk consciousness
-Object of growth through market development
​ -Skimming small profitable segments
-Unable to pick ‘best’ market due to uncertainty
●​ Concentration
-Low management risk consciousness
-Objective of growth through penetration
​ -Seeking high market share
-Ability to pick ‘best’ markets fitting our core competence

Product Factors
●​ Diversification
-Limited specialist use
-Low volume
-Non-repeat purchase
-Early or late in the product life cycle
-Standard product
-Radical Innovation
●​ Concentration
-General uses
-High volume
-Repeat purchase product
-Middle of product life cycle
-Requires adaptation to different markets
-Incremental innovation

Market Factors
●​ Diversification
-Small markets
-Unstable markets
-Many similar markets
-Low growth rate
-Established competitors with a large share
-Low loyalty
 -High synergy between countries in the region
●​ Concentration
-Large markets
-Stable markets
-Limited number of markets
-High growth rate
-Not excessively competitive
-High loyalty
-Low synergy effect expected from entering neighbouring countries

Marketing Factors
●​ Diversification
​ -Low communication costs
​ -Low order-handling costs
​ -Low physical distribution costs
​ -Standardized communication
●​ Concentration
-High communication costs
-High order-handling costs
-High physical distribution costs
-Communication requires adaptation

Positioning
●​ Ries and Trout (1969)
-“the act of differentiating a brand in consumers’ mind in relation to competitors in terms of
attributes and benefits that the brand does or does not offer”
-The process of developing strategies for “staking out turf” in target consumers’ mind
-Positioning of a brand in a new target market segment vs. in the home market
-Stella Artois’ positioning in Belgium vs. North America
●​ Position an attribute/benefit of the brand
-E.g., Volvo–safety
●​ Position quality/price of the brand
-E.g., Heineken in US market
●​ Position use/user of the brand
-Dove–old/feminine consumers
●​ Position by making reference to a competitor
-Cola Turka’s comparative advertising

Cultural Positioning Strategies

●​ Three codes for identifying a brand available in international marketing
 ●​ Global consumer culture positioning (GCCP)
-Identifies the brand as a symbol of a particular global culture or segment
-Global teens, Cosmopolitan elites
-High-touch and high-tech products
-Use of English in advertising in non-English speaking countries
●​ Foreign consumer culture positioning (FCCP)
-Associates the brand’s users, use occasions, or product origins with a foreign country or culture

Positioning Strategies
●​ Local consumer culture positioning (LCCP)
-Identifies with local cultural meanings
-Consumed by local people
-Locally produced for local people
-Used frequently for food, personal, and household nondurables
-E.g., Shanghai Disney Resort’s local content: Mulan, Chinese architecture and customs
 Lecture 5

Export Selling vs Export Marketing

●​ Export Selling
-Launching the same product as in the domestic market, at the same price, with the same
promotional tools for foreign markets
-Assumption: “What worked here will also work there”
●​ Export Marketing
-Tailoring the marketing mix to match demands and situations in international markets; requires
-An understanding of the target market environment
-The use of market research and identification of market potential
-Decisions concerning product design, pricing, distribution and channels, advertising, and
communications
-Personal visits to know the market and local intermediary candidates

Organizational Export Activities: Stages

1. The firm is unwilling to export; it will not even fill an unsolicited export order.
2. The firm fills unsolicited export orders but does not pursue unsolicited orders. [an export seller]
3. The firm explores the feasibility of exporting.
4. The firm exports to one or more markets on a trial basis.
5. The firm is an experienced exporter to one or more markets.
6. The firm pursues country- or region-focused marketing based on certain criteria.
7. The firm evaluates global market potential for the “best” target markets.
Management’s Commitment to Internationalize

Government Policies Toward Exports and Imports\

●​ Commonalities
-Most governments encourage exports and discourage imports
-Esp. in countries with heavy trade deficits and developing countries that need foreign exchange
reserve
-Export-driven economies
-Japan in 1950s-70s
-South Korea, Taiwan, Singapore since 1960s
-China since 1980s [Shenzhen]
-Vietnam and other ASEAN countries since 1990s

Government Programs That Support Exports

●​ Tax incentives
-Applying lower rates to earnings from export
-Refunding taxes already paid on income associated with exporting
●​ Subsidies
-Direct or indirect financial contributions that benefit producers that export (e.g., farm subsidies
in US)
-Gradual reduction of subsidies in developed countries
-e.g., overhaul of Common Agricultural Policy in EU
●​ Governmental assistance to exporters
-Informational services on export markets and credit risks
●​ Free trade zones
-Simplified customs procedures, relaxed regulations for export manufacturers
-E.g., Shenzhen and Zhuhai in China
Governmental Actions to Discourage Imports and Block Market Access
●​ Tariffs: 3 Rs
-Rules, Rate schedules (duties), & Regulations
-Straight-forward and clear
●​ Nontariff barriers (hidden trade barriers)
-Quotas
-Discriminatory procurement policies
-E.g., Buy American Act
-Restrictive customs procedures
-To delay customs clearance of imported goods
-Arbitrary monetary policies
-E.g., an artificially weak currency in China
-Restrictive administrative & technical regulations
-E.g., Federal motor vehicle safety standards in US

Examples of Trade Barriers

Harmonized Tariff System

●​ Developed by the World Customs Organization
●​ Meant to simplify tariff procedures
●​ Adopted by most trading nations
●​ Need to determine the correct classification number for any product imported/exported
-Harmonized Tariff Schedule B
●​ Classification number may differ depending on how the item is used or what its main ingredients
are
-Are X-men action figures a doll or a monster toy?
-12% duty for dolls vs. 6.8% for toys

Tariff Systems
●​ Single-column tariff
-The simplest type of tariff
-Schedule of duties in which rate applies to imports from all countries on the same basis
●​ Two-column tariff
-General duties plus special duties apply
●​ Normal Trade Relations [NTR]
-Countries in the WTO apply the Column 1 rates (most favorable or lowest rates) to all member
states (with exceptions)
-Column 2 rates are for non-WTO countries
-Iran, North Korea, Algeria, Belarus, etc.
Custom Duties
●​ Ad valorem duty
-Expressed as percentage of value of goods
●​ Specific duty
-Expressed as specific amount of currency per unit of weight, volume, length, or other unit of
measurement

Other Duties and Import Charges

●​ Anti-dumping Duties
-Dumping is the sale of merchandise in export markets at unfair prices
-Special import charges equal to the dumping margin
●​ Countervailing Duties
-To offset subsidies of the exporting country
●​ Variable Import Levies
-Apply to agriculture
●​ Temporary Surcharges
-To protect local industries and are used to adjust balance of payment deficits

Major Types of Exporting

Indirect export and Direct export

Indirect export modes

●​ Def.
-Independent organizations located in the home country perform exporting activities for the
manufacturer
●​ Advantages of using exporters
-Involves little cost and risk associated with transporting and distributing products
-Most appropriate for firms with limited international expansion objectives
-And for firms with minimal resources to devote to international expansion
●​ Disadvantages
-The firm has little or no control over marketing its products
-The firm gains little or no knowledge about foreign markets

Indirect Entry Modes

●​ Foreign purchasing agent
●​ Export Broker
●​ Export merchant
●​ Export management company
●​ Manufacturers export agent
●​ Export distributor
●​ Cooperative exporter
●​ Freight forwarder

Foreign Purchasing Agent

●​ FPA
-A representative of foreign buyers residing in the Manufacturer’s home country
–A commission is paid by the overseas buyer (principal)
-The terms of purchase is worked out between the FPA and the buyer
-FPA often handles export packing and shipping
-The volume of business is often not stable
●​ Advantages and disadvantages
-An easy way to export
-Little direct control over the global marketing of products

Export Merchants
●​ EM (a.k.a. Jobbers)
-Buys unbranded products from a manufacturer brands them and exports them to be distributed in
other countries
-E.g., Footwear (boots, slippers) and basic t-shirts from Bangladesh manufacturers for EU or
North America

Export Broker
●​ Def.
-A specialist in matching a seller and an overseas buyer and performing the contractual function
-Does not take title to the products sold or bought
-Specializes in particular (classes of) products, esp. commodities (e.g., beans and peas
from SK)
-A commission is usually paid by the overseas buyer but maybe paid by the seller

Export Management Company

●​ EMC
-Specialist companies that act as the “export department” for multiple manufacturing companies
-A commission paid by manufacturer (principal)
-Economies of scale achieved
-EMC usually receives exclusive rights from a manufacturer to sell in all/many foreign
markets
●​ Advantages
-EMCs offer manufacturers wider exposure of their products at lower cost
●​ Disadvantages
-EMCs’ specialization in a geographic area, product or customer type may not coincide with the
client’s export objectives
-EMCs may be tempted to concentrate on products with immediate sales potential
-The client’s products may not receive the necessary attention if EMCs carry too many product
ranges
-EMCs may carry products that are potentially competitors of a particular firm’s products.
-The risk of becoming overly dependent on EMCs
-Difficulty of withdrawing from contract with the EMCs

Manufacturer’s Export Agent

●​ MEA
-Similar to EMCs, but with limited responsibilities
-acts as an agent for manufacturers
-Solicit orders from foreign customers in the name of manufacturer
-Does not perform the functions of an export department
-Paid a commission on export sales
-Does not take titles to goods
-The principal has the final say on accepting orders and pricing
Export Distributor
●​ ED (a.k.a. combination export managers)
-Has exclusive rights to sell a manufacturer’s products in many foreign markets
-Represents multiple manufacturers
-Takes title for the products and assumes all financial risks associated with shipping and
distributing them
-Sells at the manufacturers’ list price abroad
-Compensated in the form of agreed percentage of the list price

Cooperative Exporter
●​ a.k.a. Piggyback exporter
-a larger company’s (“carrier”) international distribution organization operating as export
distributors of small manufacturers (“riders”)
-Act on behalf of products from unrelated companies that are non-competitive and
complementary
-Often retains the brand name of the rider
-Method of payment
-A commission paid by the rider, or
-The carrier buys the product from the rider

Piggyback Considerations for the Carrier

Freight Forwarder
●​ FF
-Licensed specialists in traffic operation, customs clearance, shipping tariffs and schedules
-“Travel agents for freight”
-Often handle freight from port of export to the overseas port of import
-May also transport freight from the factory to the port of export and from the port of import to
the customer
-Receives brokerage fees or rebates from shipping companies for booked space

Direct Entry Modes

●​ Direct marketing representation (in-house)
●​ Hire distributors in host country
●​ Hire agents in host country

Direct Market Representation

●​ In-house export personnel, department, or subsidiary
-High priority to export business
-Advantages: control of operation in foreign markets and relay of feedback from market
-Initial phase: have a domestic sales employee to handle export
-A low-cost arrangement
-the employee must be competent in product and customer knowledge
-Competence must be applicable to target foreign markets
-Would work only when domestic market is similar to home market

Distributors
●​ Def.
-The exclusive representative of the company in a certain country
●​ Characteristics
-Independent merchants
-Distributors take title to the goods, finance the inventories and bear the risk of their
operations
-Own and operate wholesale and retail establishments, warehouses, and service facilities
-Payment
-Distributors are paid according to the difference between the buying and selling prices
-Seek exclusive rights for a sales territory
-Represents the manufacturer in all aspects of sales and servicing in the territory

Agents
●​ Def.
-An independent company that sells products to wholesalers and retailers on behalf of the
manufacturers
-Do not take title to the goods
-Exclusive agents are common
-Paid a commission
-Used when sales volume is small
Advantages/Disadvantages of Hiring Agents and Distributors

How to Select an Intermediary

●​ Things to check
-Candidate firm’s knowledge of the product and local market
-Prior experience and expertise
-Required margins
-Credit ratings
-Customer care facilities
-Ability to promote the exporter’s products in an effective manner

What to look for in an Intermediary

Principles of the Law of Agency

●​ An agent should not take delivery of the principal’s goods at an agreed price and resell them for a
higher amount without the principal’s knowledge and permission
●​ Agents must maintain strict confidentiality regarding their principal’s affairs and must pass on all
relevant information
●​ Principal is liable for damages to third parties for wrongs committed by an agent

Ways of Maintaining Intermediaries’ Motivation

●​ Significant local advertising and brand awareness development by the exporting firm
●​ Participation in local exhibitions and trade fairs
●​ Regular field visits to the intermediary
●​ Regular meetings of agents/distributors arranged and paid by the manufacturer
●​ Provision of technical training to intermediaries
●​ Active seeking of feedback from intermediaries
 ●​ Briefing about current activities, new product developments and marketing plans

Export Financing & Methods of Payment

●​ Letter of Credit
●​ Documentary Collection

Trade Financing and Methods of Payment

●​ Cash with order
-Exporter sends “pro-forma invoice”
-Importer sends purchase order with prepayment
-Risks to Importer
●​ Open account
-No assurance of payment for shipped goods
-Risks to exporter
●​ Documentary credits (letter of credit)
●​ Documentary collections (bill of exchange)

Letter of Credit (L/C)

●​ Banking system helps manage risk through a L/C
●​ Importer’s bank is the issuing bank
-Opens an L/C in favor of the exporter (beneficiary)
-Charges 1/8 to 1% of the total credit specified in L/C
-May require deposit of funds by the importer; maybe waived
●​ L/C is sent to the Exporter’s bank (advising bank)
●​ Most common type is an irrevocable letter of credit
-Issuing bank must pay the exporter unless changes are approved from buyer and seller.
-Even if the importer cancels the order or fails to pay
●​ Confirmed irrevocable letter of credit
-Extra layer of protection (fees are charged)
-Advising bank guarantees the payment for the L/C

Letter of Credit: Procedures

●​ Exporter produces and ships product to the importer
●​ Exporter assembles documents listed in the L/C that show evidence of promised performance
-Invoice, drafts, packing lists, certificates of insurance
-Ocean bills of landing (represents title to the shipment)
-Sent to the importers’ bank
●​ If using asight draft, issuing bank transfers payment to the beneficiary right away
●​ If using a time draft, bank would pay at the agreed upon time.
●​ Opening bank arranges for the buyer to pay or to sign a promissory note
●​ Then the bank releases the documentary package to the buyer so it can get the goods from the
freight carrier.

Documentary Collections
●​ A simpler, less-complicated form of payment than L/C
●​ Used when the exporter and importer have a good working relationship
-No guarantee of payment or credit; risky
●​ Sight draft (documents against payment)
-Documentary package is sent to the importer’s bank branch
-The bank releases the title to goods when receiving payment from the buyer
●​ Time draft (documents against acceptance)
 -The exporter receives document packages in exchange for signing a time draft; pays the amount
at a future date
●​ Higher risk for exporter; the buyer may cancel order or refuse to pay

Outsourcing
●​ Outsourcing
-Moving functions and activities out of an organization
●​ Subcontractor
-A person or firm that agrees to provide semi-finished products or services needed by another
party to perform another contract to which the subcontractor is not a party
-Products supplied by subcontractors are usually part of the end product, but not the end product
-Subcontractors do not have contact with end customers

Reasons for International Sourcing

●​ Concentration on in-house core competences
●​ Lower product/production costs
-Economies of scale
-Lower wage costs
●​ General cost efficiency
●​ Increased potential for innovation
●​ Fluctuating demand
●​ Fluctuations in exchange rate

Buyer-Seller Relationships: Contractor Perspective

​
Buyer-Seller Relationships: Sub-Contractor Perspective
 Lecture 6

Which Strategy Should Be Used?

●​ It depends on:
○​ Management’s vision
○​ Attitude toward risk
○​ How much investment capital is available
○​ How much control of foreign operations is desired

Factors Favouring Foreign Market Production (vs. Export)

●​ Desirability of being close to foreign customers
●​ Foreign production costs are lower
●​ Transportation costs may render heavy products non-competitive
●​ Tariffs can prevent entry of an exporter’s products
●​ Government preference for “local” suppliers

Licensing (Broad Sense)

●​ Contract manufacturing
●​ Franchising
●​ Licensing (narrow sense)

Contract Manufacturing
●​ Def.
○​ Outsourcing of manufacturing to an external partner in a foreign country, one that
specializes in production and production technology
○​ Preferred by firms that lack resources or are unwilling to build its own plants in foreign
countries
○​ The firm still controls R&D, marketing, distribution, sales, and servicing of its products
○​ Payment is usually on a per-unit basis
○​ The produced product may be sold in its country of manufacture, its home country, or
third countries
●​ Advantages
○​ Investment in plants not necessary
○​ Flexibility
■​ No long-term commitment to the contract manufacturer
■​ Exiting the market involves little loss
●​ Disadvantages
○​ Control of product quality
○​ Potential problems with delivery, product warranties, or fulfilling additional needs
○​ The contract manufacturer may not turn out to be cost-efficient.

Licensing
●​ Def.
○​ Awarding of a right to manufacture a certain product based on a patent in exchange for
some agreed royalty
■​ Longer term than contract manufacturing
■​ Greater responsibility is assumed by the manufacturing firm (“licensee”) in
foreign markets
Rights That Are Offered In A Licensing Agreement
●​ A patent covering a product or process
●​ Manufacturing know-how not subject to a patent
●​ Technical advice and assistance
●​ Marketing advice and assistance
●​ Use of a trademark/trade name

Components of Royalty Fees

Motives for Seeking Licensees (1)

●​ Licensor wants to concentrate on its core competencies (e.g., R&D)
●​ Licensor does not have enough resources to make foreign direct investments and operate
manufacturing in many markets
●​ The product is at the end of the product life cycle in advanced countries but stretching the product
life cycle is possible in less developed countries
(2)
●​ Direct royalty income may not be high
○​ Margins on key components are high
●​ Government regulations may restrict foreign direct investment
○​ if political risks are high, licensing may be the only realistic entry mode
●​ Constraints may be imposed on imports
○​ E.g., High import tariffs

Caveat for Licensor

●​ Over-licensing
○​ Awarding the rights to use trademarks on products to too many manufacturers
○​ Short-term: high income due to licensing fee
○​ Long-term: may result in brand dilution

Franchising
●​ Def.
○​ Selling the right to use a total business concept and system, including use of trademarks,
in exchange for some agreed management fees
●​ Why popular?
○​ Expansion of service sectors
○​ Desire for self-employment
○​ Transfer of a standard business concept to individuals with little prior business experience
Types of Franchising
●​ Product and trade name franchising
●​ Business format ‘package’ franchising

Business Format ‘Packages’

●​ Trademarks/trade names/designs
●​ Patents and copyright
●​ Business know-how/trade secrets
●​ Geographic exclusivity
●​ Store design
●​ Market research
●​ Location selection

●​ Production and service functions are transferred to the franchisee

●​ Central R&D and marketing functions are controlled by the franchisor
●​ “Assistance” includes
○​ Site selection, financing, lease negotiation, cooperative advertising, training
●​ “Support” includes
○​ Central data processing, central purchasing, field training, field operation evaluation,
newsletters, regional and national meetings, a hotline for advice and a
franchisor-franchisee advisory committee

Interdependence Between Franchisor-Franchisee

Key Success Factors in the Franchisor-Franchisee Relationship

●​ Integrity of business system: Standardization
○​ Provision of a well-developed, proven business concept
○​ Motivation to follow the system “as is”
●​ Capacity for renewal of the business concept
○​ “Are franchisees willing to share innovative ideas with the franchisor?”
●​ A franchise culture and shared values
○​ Intensive communication between franchisor and franchisees
(Foreign) Investment
●​ Greenfield strategy
○​ Foreign direct investment
●​ Outright acquisition of a foreign firm
○​ Full ownership
○​ Acquiring equity stakes in a foreign firm
●​ Joint ventures
●​ Strategic alliance

Greenfield Investment
●​ Def.
○​ Establishing operations in a foreign market from the ground up
○​ Used when…
■​ Production logistics is a key to success
■​ Need to integrate operations across countries
■​ Need to incorporate the latest production technology and equipment
■​ No appropriate acquisition targets are available
■​ The acquisition is too costly
■​ Anticipation of difficulty of changing the established local firm’s corporate
culture

Acquisition of Local Firm

●​ Advantages
○​ Rapid entry to foreign market
○​ Access to distribution channels
○​ Access to brand names and company reputation in the local market
○​ Opportunity to get familiar with the local market environment
○​ Desirable in entering highly competitive, saturated markets
○​ The only feasible way when markets are protected with substantial entry barriers
●​ Vs. Equity Stake

Joint Ventures
●​ Def.
○​ An equity partnership between two partners in creating a “child” company
●​ Motives of joint ventures
○​ Complementary technology or management skills can lead to new opportunities
○​ Attempt to increase the speed of foreign market entry with the local partner’s help
○​ Less developed countries may restrict foreign ownership
○​ Costs of global operations in R&D and production can be shared
Principal Objectives for Forming a Joint Venture
●​ Entering New Markets
●​ Reducing Manufacturing Costs
●​ Developing and Diffusing Technology

Strategic Partnerships
●​ Participants remain independent following the formation of the alliance
●​ Participants share benefits of the alliance as well as control over performance of assigned tasks
●​ Participants make ongoing contributions in technology, products, and other key strategic areas

Five Attributes of Strategic Partnerships

●​ Two or more companies develop a joint long-term strategy
●​ Relationship is reciprocal
●​ Partners’ vision and efforts are global
●​ Relationship is organized along horizontal lines (not vertical)
●​ When competing in markets not covered by alliance, participants retain national and ideological
identities

Types of Value Chain Partnerships

1. Upstream-based collaboration
●​ Companies collaborate on R&D and production
2. Downstream-based collaboration
●​ Companies collaborate on marketing, distribution, sales, and servicing.
3. Upstream/downstream-based collaboration
●​ Complementary or “asymmetric” core competences
●​ Aka “X coalition” (Porter & Fuller, 1986) rather than “Y coalition)
●​ Partners divide the value chain activities so that one company does R&D and manufacturing and
the other company markets the product.

Sources of Potential Conflict

●​ Diverging goals
●​ Double management
●​ Repatriation of profits
●​ Mixing cultures
●​ Shared equity
●​ Developing trust
●​ Providing an exit strategy
●​ Short life span of alliances and joint ventures
●​ Advantages of “learning” organizations
●​ A stepping stone to acquisition

More About Strategic Partnership

●​ Success factors of alliances
●​ Alliances with Asian companies with manufacturing skills
○​ “Not invented here” syndrome
○​ Asian companies learn faster than Western partners
○​ How do you control sharing “too much” with partners?
 Lecture 7

Product Concepts in International Contexts

●​ Considerations
○​ Tangible vs. Intangible attributes
■​ E.g., reputation, perceived quality, after-sale support, etc.
○​ Product warranties
■​ Hyundai Motor’s extremely generous warranty program in [Link]
○​ Packaging (experiential packaging)
■​ Must engage the senses, make an emotional connection, & enhance brand
experience (e.g., Vodka bottles; Fridge packs)
■​ Corona Extra bottles vs. other imported beer in [Link]
●​ Labeling
○​ Provides consumers with various types of information
○​ Regulations differ by country regarding various products
■​ EU requires labels on all food products that include ingredients from genetically
modified crops
■​ Different regulations for use of light, natural on food labels
●​ Aesthetics
○​ Aesthetic styles differ across countries (e.g., degree of complexity)
○​ Popular vs. disliked colours in different country/culture
○​ Expected “attention to details” in product exterior and packing is substantially higher in
some countries

Branding Concepts: Distinction/Differentiation

●​ Local brands
○​ Those that are marketed in a domestic market only
●​ International brands
○​ Those that are offered in several markets in a particular region
■​ E.g., “Euro brands”
●​ Global brands
○​ Those that are introduced in all world regions
■​ The same brand name and a similar brand image and positioning throughout the
world
■​ Economies of scale; leverage
■​ E.g., BMW (“The Ultimate Driving Machine”)
■​ May not work for food, beverages, etc.: Emotional links

Translation of Brand Names

●​ Using the same brand name
○​ Vauxhall Nova (GM)
○​ “J” pronounced differently
■​ E.g., JANSSEN, GIJONA
●​ Phonetic approximation
○​ “TH”, “F”, “V” sounds not present
○​ フォード (Huodo); 포드 (Podu)
○​ マクドナルド (makudonarudo)
○​ 맥도날드 (maekdonaldu)
●​ Phonetic approximation in ideographic language
○​ 麦当劳 (Mak dang lo) (Mai dang lao)
○​ 肯德基 (Ken de ki) (Ken de ji)
 ○​ 达能 (Da neng)

Translating Brand Names for Chinese Market

●​ Meaning ascription
○​ 雀巢 (Que/Chwe Chao)
○​ 7喜 (Qi xi)
○​ 宝 马 (Bao ma)
○​ 大 众汽 车 (Dazhong Qiche)
○​ 通用汽车 (Tong-Yong Qiche)
●​ Phonetic approximation plus meaning ascription
○​ 汉堡 王 (Hanbao Wang)
○​ 星巴克 (Xing ba ke)
○​ 联合 利华 (Lianhe lihua)
○​ 可口可 乐 (Kekou kele)

Global Brand Development

●​ Typical approach to standardizing product world-wide
●​ Questions to ask when management seeks to build a global brand:
○​ Does this move fit the company and/or its markets?
○​ Will anticipated economies of scale materialize?
○​ How difficult will it be to develop a global brand team?
○​ Can a single brand be imposed on all markets successfully?

Needs-Based Approach to Marketing in Asia

●​ Different needs are considered important in collectivistic cultures
○​ E.g., need for status and admiration within a group in E. Asia
○​ How do you fill these important needs? Affordable luxuries?

“Country of Origin” Effect

●​ Def.
○​ Perceptions about particular countries extend to products that originate from there
○​ E.g., Made in Germany vs. Italy vs. China
○​ French wine: blind test?
○​ “Made in Europe”?
●​ “Foreign-ness” of brand names
The Big Question
●​ Standardize or Adapt the product?
●​ Standardization strategy (a.k.a., extension)
○​ Cost savings
○​ Assumption:
●​ Adaptation strategy
○​ Cost of changing product or its design (or formulation)
○​ Obligatory product design adaptations due to laws and regulations in foreign markets
●​ Product Invention strategy

Global Product/Comm. Planning: Strategic Alternatives

Product-Communication Extension
●​ Advantages
○​ Economies of scale in production
○​ Elimination of R&D costs associated with adaptation
○​ Cost savings due to standardized communication
●​ Risks
○​ Substantial differences in consumer wants, needs, and tastes
●​ Appropriate for industrial products or high-tech, high touch products (GCCP often used)

Product Extension - Communication Adaptation

●​ Used when
○​ Product fills a different need, appeals to a different segment or serves a different function
○​ Local consumer perception of the brand differs
●​ Advantages
○​ Relatively low cost
○​ Comm. strategies that best appeal to local consumers and are perceived as appropriate
●​ “Product transformation”
○​ The same product ends up serving a different function or use in foreign markets

Product Adaptation - Communication Extension

●​ Used when…
○​ Product formulations are altered to meet local characteristics but serve the same function
●​ Examples
○​ Oreo reformulated as less sweet, four-layer wafer (and cheaper)
○​ Exxon’s reformulation of gasoline for extreme weather regions
Product-Communication Adaptation
●​ More common in
○​ Decentralized org. structure of the MNE
○​ Example: CIF spray cleaner in Italy reformulated to remove grease better; advertising
also emphasized strength
●​ Advantages and disadvantages
○​ Most expensive
○​ Potentially the best way of targeting different needs, wants, and tastes in different markets

Product Invention
●​ Used when
○​ A need for a product exists but the existing or adapted product is beyond the local
purchasing power
○​ A product needs to be completely redesigned to enter more affluent markets with
high-cost labour

Developing New Products in Global Marketing

●​ New product development for global marketing
○​ Identifying new product ideas
○​ New product development for global marketing
○​ International new product department
○​ Testing new products

Lecture 8
Global Integrated Marketing Comm.
●​ Global advertising
○​ Communication messages whose art, copy, headlines, visuals, taglines and other elements
have been developed for their worldwide suitability
■​ E.g., De Beers (“Diamond is forever”)
●​ Considerations
○​ Unified themes across markets helps to build coherent long-term brand identities
○​ Cost savings associated with executing separate promotion strategies for different
markets
○​ Complete standardization of a campaign across the world not possible

Factors Influencing the Communication Situation

Communication Tools

Major International Advertising Decisions

Message: Standardize or Adapt?

 ●​ “One world, one voice” ad approach
○​ Tastes and preferences are converging worldwide (“same needs”)
○​ Economies of scale
●​ Localized ad approach
○​ Advertising tailored to each country/region
○​ Consumers still differ across countries
■​ Acceptability and local sense of humor; Different stage of product life cycle
●​ Pattern advertising
○​ Middle ground
○​ A basic global (or pan-regional) “platform” is developed, then copy, artwork, etc. are
adapted as required by individual country markets

Message Decisions
●​ USPs: key message (What one says in ad)
●​ Advertising appeal
○​ Rational appeal
■​ Focus on functional benefits/attributes
○​ Emotional appeal
■​ Evoking an emotional response → Favourable brand attitudes
●​ Creative Execution: How one says in ad
○​ May choose from a variety of executions: straight sell, scientific evidence, demonstration,
comparison, testimonials, slice of life, fantasy, dramatization, etc.
○​ Cultural considerations
●​ Two essential components of advertisements
○​ Art direction (visual/graphic presentation)
■​ Choose graphics, images, type styles, etc. that appear in ad
■​ Does provocative art direction sell here?
○​ Copy-writing (verbal presentation)
■​ Language specialists developing headlines, body copy and scripts for ads
■​ Writing a new copy for a foreign market in local language
■​ Vs. Translating the original into the target language
●​ “Lost in translation”; Humor and colloquialisms may differ
■​ Vs. Leave some copy elements in the home country language

Cultural Considerations in Ads: Japanese vs. American

●​ Indirect rather than direct forms of expression are preferred in the messages
●​ There is often little relationship between ad content and the advertised product
●​ Only brief dialogue or narration is used in television commercials, with minimal explanatory
content
●​ Humor is used to create a bond of mutual feelings
●​ Famous celebrities appear as close acquaintances or everyday people
●​ Priority is placed on company trust rather than product quality

Media Decisions
●​ Reach
○​ The total number of consumers in a target market exposed to at least one ad in a given
time period
●​ Frequency
 ○​ The average number of times within a given time period that each potential customer is
exposed to the same advertisement
●​ Gross Rating Points
○​ Reach * frequency
○​ Indicates the “critical mass” of a media effort over a certain periodCost of running a
media campaign is assessed with CPM GRPs
●​ International considerations in media decisions
○​ Differences in the firm’s market objectives across countries
○​ Differences in media effectiveness across countries

Types of Ad Media
●​ TV
●​ Radio
●​ Newspaper
●​ Magazines
●​ Outdoor advertising
●​ Web
●​ Social Media

Agency Selection
●​ Alternatives
○​ In-house agency
○​ Local agencies
○​ Global agencies
●​ Considerations
○​ Decentralized companies leave the decision to the local subsidiaries
○​ Is the global agency familiar with local culture and buying habits in a particular country?
If not, local agency is needed.
○​ Does the candidate agency cover all relevant markets?
○​ Does the brand need a strong local identification or a coherent brand image worldwide?

Non-Advertising Marketing Communication Tools

Public Relations
●​ Def.
○​ A set of coordinated comm. programs between a company and its public, designed to
improve, maintain, or protect a company product or image
○​ To generate favourable publicity
○​ To deal with public relations crisis
●​ PR in the international context
○​ A foreign firm is susceptible to nationalistic sentiment
○​ Responding to local criticism in crisis situations
●​ Corporate advertising
○​ Compensates for lack of control over publicity
○​ Calls attention to the company’s other communication efforts
●​ Image advertising
○​ Enhances the public’s perception, creates good will
●​ Advocacy advertising
○​ Presents company’s point of view on a social, environmental or cultural issue
●​ Things to avoid
○​ Using arguments that are not understood by locals
○​ Conveying messages about local people and culture that are perceived as negative
●​ Things to emphasize
○​ Local citizenship

Sales Promotion
●​ Includes
○​ Discounts or rebates of various kinds
■​ Coupons, in-pack money-off, reimbursement offers
○​ Competitions (e.g., games, contests, lotteries, sweepstakes)
○​ Frequency marketing
■​ Collection devices oriented towards increasing the frequency of purchase and
building customer loyalty
■​ Rewards or “freebies”
○​ Free samples
○​ Gifts
■​ In-pack gifts, reusable packaging, etc.

Sales Promotion: International Considerations

●​ Who should be the target of sales promotion?
○​ End customers?
○​ Store owner/personnel?
●​ Is a sales promotion technique considered ethical / heavily regulated?
○​ Concern for price increase
○​ Anglo-Saxon vs. continental Europe (e.g., Nordic)

Cross-Cultural Issues for Sales Promotion Techniques

●​ Coupons
○​ Levels of literacy; consumer and retailer sophistication
○​ Low social status implied
●​ Contests/Sweepstakes
○​ Legal requirements, prizes must suit target market tastes
 ●​ Price-offers
○​ Absence of price labelling and display?
○​ Bargaining/ Trade misuse
●​ Stamps or mobile rewards
○​ Future orientation needed; high inflation; level of channel sophistication
●​ Free samples
○​ Misinterpreted as evidence of low quality?
●​ Gifts
○​ Legal requirements; theft by channel employees

Personal Selling
●​ Person-to-person communication between a company representative and a prospective buyer
○​ Esp. important for industrial products/services
●​ Focus is to inform and persuade prospective buyers
●​ Short-term goal: make a sale
●​ Long-term goal: build a relationship
●​ SKIP : The Strategic/Consultative Selling Model

Personal Selling: Cross-Cultural Considerations

●​ Seller’s status varies
○​ Low social status of salespeople in Asian countries
■​ Door-to-door sales prevalent
○​ Unequal buyer-seller relationship
■​ “Master-servant relationship”? in Japan
●​ Cateora (1983)
○​ East Asian: modesty, avoidance of arguments (loss of face)
○​ Germany vs. UK: hard sell vs. soft sell

Sales Force Nationality in International Salesforce

●​ Expatriates
○​ Often preferred by a company with ethnocentric orientation
●​ Host-country nationals
○​ Polycentric orientation
●​ Third-country nationals
○​ Regio-centric orientation
■​ E.g., salespeople trained in European headquarters

Expatriates
Host Country Nationals

Third Country Nationals

Direct Marketing
●​ Any communication with a consumer or business recipient that is designed to generate a response
in the form of:
○​ An order
○​ Request for further information
○​ A visit to a store or other place of business
●​ Subtypes
○​ Direct mail/Telemarketing/Catalogs
○​ Infomercials, teleshopping
○​ Social media sites, mobile apps
○​ E-commerce platforms
●​ Four steps of One-to-One Marketing
○​ Identify customers and accumulate detailed information about them
○​ Differentiate customers and rank them in terms of their value to the company
○​ Interact with customers and develop more cost efficient and effective forms of interaction
○​ Customize the product/service offered to the customer
Direct Marketing vs Mass Marketing

Special Forms of Marketing Communications

●​ Support media
○​ Billboards, posters in public transits, digital out-of-home (DOOH) ads
●​ Event sponsorship
○​ Concerts, sporting events, religious events
○​ Mentioned by on-air or public-address commentators
●​ Product placement in movies and TV shows
○​ Often results in better recalls than TV ads
■​ Local TV shows/dramas being watched by viewers in other countries
■​ Unique opportunity for local brands with limited international promotion budget
○​ May dictate product standardization approach
■​ Once repeatedly seen in a movie/drama by viewers all over the world, the
product gets “frozen” in their memory.
 Lecture 9

Pricing in International Markets

●​ The law of one price?
○​ E.g., crude oil, commercial aircrafts, computer processors (Intel, AMD chips)
●​ Different prices set for different countries?
○​ Many consumer products (e.g., food, drinks, cosmetics)
○​ Reflecting transportation cost, duties, regulations, competitions
○​ Purchasing power of local target consumers
○​ Stages in product life cycle

Pricing Follows Positioning

●​ Pricing often depends on positioning of a product in a given market
○​ As an everyday product
○​ vs. As a premium product

Objectives for Pricing and Global Pricing Strategies

●​ Objectives for pricing
○​ Financial objectives
■​ Return-on-investment, recovery of product development cost; maintenance of
profit or margins
■​ Market skimming pricing strategy
○​ Non-financial objectives
■​ Gain or maintain market share;
■​ Market penetration pricing strategy

Major Pricing Strategies

●​ Market skimming pricing
○​ Charging a premium price and reaching a segment willing to pay extra for a brand
○​ May occur at the introduction stage of product life cycle
■​ Innovators
■​ Early adopters
○​ Starts to cut price in growth stage and on
●​ Market penetration pricing
○​ Charging a low price in order to secure market share quickly
○​ Willing to selling at a loss in the initial phase of entry
○​ Requires scale efficient plants and low-cost labour
○​ Attempt to saturate market prior to imitation by competitors

Captive Pricing
●​ A.k.a. “razors and blades” pricing
●​ Used for “companion products”
●​ Sell razors at below-cost prices
○​ Printers, Nintendo game consoles, mobile service providers selling smart phones
●​ Make profits from selling replacement blades
○​ Ink cartridge, game softwares, apps, long-term contracts, etc.
Target Costing
●​ A.k.a. Design-to-cost
○​ Opposite of “cost-plus pricing”
○​ First determine target consumers’ willingness to pay (and competitors’prices) before
setting price
●​ 1. Determine the target segment(s) and target price
●​ 2. Compute overall target costs plus required margin
●​ 3. Allocate target costs to product’s various functions
○​ Calculate and close gap between target cost and estimated production cost
●​ Obey the cardinal rule: If the design team can’t meet the targets, ?
○​ Reduce the content if necessary?

Cost-Plus Pricing
●​ Internal cost
○​ Materials, labour, testing
●​ Plus External cost
○​ Transportation, duties, insurance, margin for intermediaries
●​ Plus Desired profit margin for manufacturer
●​ Rigid cost-plus pricing (i.e., full absorption cost method) may lead to export price escalation
○​ May lead to non-competitve price in target market
○​ Solution: local production
●​ Flexibility is necessary in using cost-plus pricing
○​ Need to ensure competitive pricing for target markets
○​ Eight questions considered
○​ Estimated future cost may also need to be included if the price of major ingredients are
expected to rise

Eight Questions for Export Manufacturer

1. Does the price reflect the actual/perceived product’s quality?
2. Is the price competitive given local market conditions?
3. Should the firm pursue market skimming, market penetration, or some other pricing objective?
4. What type of discount (trade, cash, quantity) and allowance (advertising, trade-off) should the firm
offer its international customers?
5. Should prices differ with (country) market segment?
6. What pricing options are available if the firm’s costs increase or decrease? Is demand in the country
market elastic or inelastic?
7. Are the firm’s prices likely to be viewed by the host-country government as reasonable or exploitative?
8. Do the foreign country’s anti-dumping laws pose a problem?

Activities Required for Exported Products Crossing International Border *

●​ Obtain export license if required
●​ Obtain currency permit
●​ Pack goods for export
●​ Transport goods to place of departure
●​ Prepare a land bill of lading
●​ Complete necessary customs export papers
●​ Prepare customs or consular invoices
●​ Arrange for ocean freight and preparation
●​ Obtain marine insurance and certificate of the policy
●​ Who is responsible for performing each? → Incoterms
Incoterms
●​ International Commercial Terms
○​ Ex-works-E-Term
■​ Seller places goods at the disposal of the buyer at the time specified in the
contract; buyer takes delivery at the premises of the seller and bears all risks and
expenses from that point on.
○​ Delivery duty paid-D-Term
■​ Seller agrees to deliver the goods to the buyer at the place he or she names in the
country of import with all costs, including duties, paid
●​ FCA (free carrier)
○​ Sale occurs when goods are delivered to the carrier
●​ FAS (free alongside ship) named port of destination
○​ Seller places goods alongside the vessel or other mode of transport and pays all charges
up to that point
●​ FOB (free on board)
○​ Seller’s responsibility does not end until goods have actually been placed aboard ship
●​ CIF (cost, insurance, freight) named port of destination
○​ Risk of loss or damage of goods is transferred to importer once goods have passed the
ship’s rail (shipping insurance is paid by the exporting firm)
●​ CFR (cost and freight)
○​ Similar to CIF but shipping insurance is paid by the importer

Environmental Influences on Pricing Decisions

●​ Currency fluctuations
●​ Inflationary environment
●​ Government controls, subsidies, regulations
●​ Competitive behavior
●​ Foreign sourcing

Inflationary Environment
●​ A persistent upward change in price levels
○​ Caused by an increase in the money supply or currency devaluation
○​ Caused by crop failure or reduced production of raw materials
●​ What to do?
○​ Protect from drastic increase of raw materials by commodity hedging
○​ Reduce content of product while maintaining price [shrinkflation]
○​ Price adjustment is often necessary to maintain operating margins

Government Controls, Subsidies, and Regulations

●​ Types of policies and regulations that affect pricing decisions include:
○​ Anti-dumping legislation
○​ Resale price maintenance legislation
○​ Price ceilings
○​ General reviews of price levels
●​ Need to develop contingency plans for local government’s actions:
○​ May require funds to be noninterest-bearing accounts for a long time
○​ May restrict profits taken out of the country and limit funds paid for imported material
○​ May restrict price competition
Competitive Behaviour
●​ What if
○​ Competitors do not adjust their prices in response to rising costs?
○​ Competitors moved manufacturing facilities to or sourced from a lower cost country?
●​ Using foreign sourcing as a strategic pricing tool
○​ Consider transportation costs as well as quality/reliability issues
●​ Audit of distribution structure in target markets
○​ Are our existing intermediaries charging too high margin?
○​ Select new intermediaries?
○​ Direct marketing or set up our own retail outlets?

Global Pricing: Three Strategy Alternatives

●​ Extension (ethnocentric pricing)
●​ Adaptation (polycentric pricing)
●​ Geocentric pricing

Extension
●​ Ethnocentric pricing
●​ Per-unit price of an item is the same across markets
○​ Importer must absorb freight and import duties
●​ Fails to respond to situations in each national market
○​ May lead to overpricing in some markets
○​ May be substantially more expensive than competitors
○​ May be beyond local consumers’ purchasing power

Adaptation
●​ Polycentric pricing
●​ Permits affiliate managers or independent distributors to set price as is most desirable in their
circumstances
○​ Competition may differ across countries
○​ Local consumers’ purchasing power
●​ May create potential for arbitrage
○​ E.g, Textbooks
○​ Pharmaceuticals
○​ Small electronics
○​ Cosmetics

Geocentric
●​ Intermediate course of action
●​ Price coordination from headquarters after consulting with affiliate managers in each country
●​ Recognizes that several factors are relevant to pricing decision
○​ Local costs
○​ Income levels
○​ Competition
○​ Local marketing strategy

Gray Market Goods

●​ A.k.a. Parallel importing
●​ Occurs
 ○​ When skimming prices are used in some markets while lower price is used for other
markets,
○​ When product is in short supply,
○​ When goods are subject to substantial markups

Grey Market: Adverse Consequences

●​ Dilution of exclusivity
●​ Free riding
●​ Damage to channel relationships
○​ Distributors complain to manufacturer
○​ Distributors may become less loyal
●​ Undermining segmented pricing schemes
○​ May end up having to give up differential pricing
●​ Loss of reputation and legal liability
○​ Grey products may not be as effective in unintended markets
○​ Different ingredients or lower content that may be justified in intended markets, but not
in others
●​ How do manufacturers identify grey market goods?
●​ What can be done to reduce parallel importing?

Other Global Pricing Issues

●​ Dumping
○​ Trade wars between countries
●​ Price fixing (horizontal vs. vertical)
○​ Violation of anti-competition laws
●​ Transfer pricing
○​ May cause trouble with tax authorities with higher tax rates
●​ Countertrade
○​ Barter
○​ Counterpurchase
○​ Offset
○​ Compensation trading
○​ Switch trading

Lecture 10

Global Distribution
●​ Physical flow of goods from the manufacturer to the end-user through channels
●​ Channels are made up of a coordinated group of individuals or firms that perform functions that
add utility to a product or service
○​ Own distributing subsidiaries
○​ Distributors/Agents/Brokers
○​ Wholesalers/Retailers

Basic Questions for Planning Distribution Channel

●​ Who are our target consumers in this country?
●​ Where are they located?
●​ What information do they require before purchase consideration?
●​ What are their preferences for service?
●​ How sensitive are they to the product’s price?
 ●​ How much does it cost to establish our own subsidiary versus use local intermediaries?

Establishing Channels in Foreign Markets

●​ Direct involvement
○​ The company establishes its own sales force or operates its own retail stores in a foreign
market
○​ Requires huge financial investment and training in the short term
○​ Often takes several years to develop market
○​ Should be ready to underwrite initial losses due to low volume
○​ Tight control of distribution of our products, promotion and pricing
●​ Indirect involvement
○​ The company utilizes independent agents, distributors, and/or wholesalers
○​ Tends to be cheaper at beginning of market entry
○​ Risk and financial exposure is shared
○​ Local partners pursue their own interests over ours
■​ Cherry picking
■​ May not prioritize distributing our products
○​ Lower control
○​ Contracts with intermediaries may be difficult to terminate

Selecting Channel: Considerations

●​ Shorter channels are justified when
○​ Small customer base
○​ High unit price
○​ Bulky products
■​ Shipping distance needs to be minimized
●​ Mass market products?
●​ Manufacturers’ own sales force (MSF)
○​ May deal with local retailers
○​ Door-to-door and snowball personal selling
○​ Long-term relationship with customers
○​ In cultures that value personal relationship
●​ Buy-in-bulk mentality may not be so universal outside of North America
○​ Small storage space available at home
○​ Stores are close to home or downtown: Frequency
○​ Purchasing single use products may be the norm

A New Trend in Big Box Retail

●​ Boutique stores in downtown locations are increasingly more common

CPG Brands Knew it All Along

●​ High-frequency retail stores are valuable for driving sales in developing countries
○​ E.g., P&G’s Golden Store program in Mexico
○​ Own sales reps regularly visit GS; stock up products and place promotional materials in
prominent places
○​ Later replaced by independent agents

Case Study: Working with a Locl Distributor

●​ MNE approached by a foreign distributor
○​ Carrying similar foreign products; working with well-known retailers
●​ MNE views local distributor as a short-term market entry vehicle
 ●​ Avoided risk in new market, making minimal financial investment
●​ Delegated sales and marketing responsibility to the distributor
●​ The distributor’s performance was above expectation in the first 2 years, but did not rise
afterwards
●​ Dissatisfied with performance, MNE bought back distribution rights from the distributor at much
higher cost than expected
●​ MNE eventually sets up an own distribution subsidiary, but the former distributor dumps
inventory to the market, bringing down the price of our product....

7 Rules of Managing Local Distributors

1. Select distributors; don’t let them select you
2. Look for distributors capable of developing markets, rather than those with a few
good customer contacts
3. Treat local distributors as long-term partners, not temporary market-entry vehicles
4. Support market entry by committing money, managers, and proven marketing ideas
5. From the start, maintain control over marketing strategy used in the local market
6. Make sure distributors provide you with detailed market and financial performance
data
7. Build links among national distributors at the earliest opportunity

Working with Local Channel Intermediaries

●​ Cherry-picking
○​ Left to own devices, intermediaries may accept orders for brands/products with
established demand
○​ Neglecting less familiar products requiring market development
○​ Solutions:
■​ Provide leadership and subsidize the cost of sales reps for our products
■​ Set up own distribution network; expensive

Classifying Global Retailers

Global Retailing: Market Expansion Strategies
●​ Organic growth
○​ Company uses its own resources to open a store on a greenfield site or acquire one or
more existing retail facilities
●​ Franchise
○​ Appropriate when barriers to entry are low yet the market is culturally distant in terms of
consumer behavior or retailing structures
●​ Chain acquisition
○​ Buying up a local retailer with multiple existing outlets and customer base
○​ Difficult-to-enter markets
●​ Joint venture
○​ Advisable when culturally distant, difficult-to-enter markets are targeted
○​ Sharing of risk with a local counterpart

Retailing: Adapting to Local Markets

●​ IKEA China
○​ IKEA furniture was a lot more expensive than furniture sold at local stores
●​ Target market and positioning had to be changed
○​ How?
●​ Devising ways of cutting prices
○​ Import duties in China
○​ Modification of sourcing/logistics
○​ Imported materials vs. local production
●​ Store locations
○​ Public transportation
●​ Hesitant about “DIY” concept
○​ Solution?

Supply Chain Definitions

●​ Supply chain
○​ Includes all the firms that perform support activities by generating raw materials,
converting them into components or finished products, and making them available to
customers
●​ Logistics
○​ The management process that integrates the activities of all companies to ensure an
efficient flow of goods through the supply chain