Some Abouts About me About this course About the project About the examination About grading
Text Structure Introduction to global marketing The global marketing environment Global market opportunities Global marketing strategy Global marketing program Global marketing management
List of Questions What is global marketing? Do we have to go global? Why? Where shall we go? What shall we know before plunging ourselves into the storming sea? How can we survive and thrive in a foreign market?
Global Marketing -- Introduction
What is Global Marketing?
What is marketing? The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services, organizations, and events to create and maintain relationships that will satisfy individual and organizational objectives.
The Three Principles of Marketing Customer Value Value Equation: V=B/P Differential Advantage Focus
What is global marketing? Practicing marketing in the global environment. An organization that engages in global marketing focuses its resources on global market opportunities and threats
Globalization An open economic system Non-discrimination Global brands Global structures
Exports % share of world production
Annual % Growth of trade and GDP 1959 96 GDP
Effects of globalization on business Cheap offshore production Reduced transport costs Virtual communication Standardization of logistics Global marketing
Export & Import By Regions 2002/01-10
Corporate Globalization -Chinas Case Walmart World Women Basket Ball Games Haier in USA Tsingdao Beer
Global Marketing VS Domestic Marketing More difficult: language, law, culture, trade and non-trade barriers, market research, and communication; More complicated: currency, measures and weights, customs, monetary exchange, transportation, insurance, and counter-claim More risky: credibility, currency exchange, political risk, transportation, and pricing More opportunities and more profitable, hopefully.
Should we go global? Internal analysis Resources, managerial mindset, strengths, weaknesses,etc. External analysis Competition, opportunities, threats, benefits, risks, etc. Cost VS Income
Management Orientation Managements assumptions or beliefs-both conscious and unconscious-about the nature of the world Ethnocentric Polycentric Regiocentric Geocentric
Ethnocentric Home country is superior. Domestic Company: No opportunities outside the home country; International Company Products and practices that succeed in the home country will be successful anywhere; Foreign operations are secondary or subordinate Nissan
Polycentric Each country is unique. Multinational Company: Each subsidiary should develop its own business and marketing strategies according to the specific situation in that country. Problem: Cost, control, headquarter out of game
Regiocentric & Geocentric Regiocentric: Each region is unique and an integrated regional strategy is to be developed to serve that region. Geocentric: The entire world is a potential market and integrated world market strategies should be developed. Global or transnational company. Global Localization: Think globally, act locally.
Philips VS Matsushita Philips Electronics Polycentric: 7 models of TV based on 4 chassis, Variety Matsushita Geocentric: global strategy, 2 models of TV based on a single chassis, low price
Driving and Restraining Forces Affecting Global Integration and Global Marketing
Driving Forces Technology Internet, Satellite Dish, Globe Spanning TV Regional Economic Agreements NAFTA, EU, ASEAN, GCC, APEC Market Needs and Wants Converging, Global Brand, Transportation and Communication Improvements Jet Plane, Large Cargo Ship, email, fax, videoconferencing, cost deduction
Driving Forces Cont. Product development costs Quality World Economic Trends More opportunities Less resistance World-wide deregulation and privatization
Driving Forces Cont. Leverage Experience transfers Scale economies Resource utilization Global strategy The Global/Transnational Corporation
Restraining Forces Management Myopia Organization Culture Integrate global vision and perspective with local market initiative and input Mutual respect National controls and barriers Tariff barriers and non-tariff barriers
The Global Economic Environment
Changes in The World Economy Emergence of global markets Economic integration Global companies, global brands Capital movements far exceed the volume of global merchandise and services trade $4 trillion VS. London Eurodollar Market, $100 trillion, VS. Foreign exchange $250 trillion
Changes in The World Economy Productivity VS. Employment Application of new technologies Increase in production efficiency Plant emigration Internal reforms
Changes in The World Economy World economy becomes the dominant economic unit The end of the cold war Collapse of USSR, ISC, E. European China, Vietnam, Cuba, North Korea
Economic Systems Market Allocation Market economy Role of the state Command Allocation Planned economy Role of the state Mixed System Which plays the leading role?
Stages of Market Development Based on GNP Per Capita Lower-Income Countries $2000 Upper-Middle-Income Countries $3036-$9386 High-Income Countries >$9386
Low-Income Countries Preindustrial countries, less than $766 Limited industrialization, high percentage of population in agriculture and farming High birth rates Low literacy rates Heavy reliance on foreign aid Political instability and unrest Africa, south of Sahara
Lower-Middle-Income Countries Less developed countries (LDC) Early stage of industrialization Consumer markets expanding Low labor cost Labor-intensive products manufacturing
Upper-Middle-Income Countries Industrializing countries Percentage of people in agriculture dropping sharply Degree of urbanization increasing High literacy Relatively low wage costs
High-Income Countries Industrialized Countries Sustained economic growth Knowledge-based Service sector New products and innovations
Income and PPP Purchasing Power Parity Real Income Standard of Living The concentration of income Regional, nationally, and within nations Triad: US, Canada, EU, and Japan Income inequality in developing countries
Implication for Marketers Profitability Chances and challenges Marketings Role Market potential evaluation
Emerging Markets Evaluation
Social and Cultural Environments Differences Similarities Marketers two-folded task. Recognize difference Find similarities
Culture Culture includes both conscious and unconscious values, ideas, attitudes, and symbols that shape human behavior and that are transmitted from one generation to the next. Culture is learned, not born with. Culture can be changed.
Implications for Global Markers Food, drink preferences KFC, Colgate, Coco-cola, Green Giant Foods, and soy sauce Color, flower, and other preferences White, green, chrysanthemum, Corbie, dog, Converging global attitudes Cultural universals Be culturally sensitive!
High and Low-Context Cultures Low-context: messages are explicit, words carry most of the information in a communication. I mean what I say. High-context: much more information resides in the context of communication, including background, associations, and basic values of the communications rather in the verbal message. Guess what I really mean.
High and Low Context Cultures FactorHigh ContextLow Context LawyerLess importantVery important SpacePeople breath on each other Bubble of private space, no intrusion TimePolychronic, things dealt simultaneously Monochronic, linear Negotiati ons Lengthy, get to know each other Quick, get things done CountriesJapan, Middle East,US, Northern Europe
Communication and Negotiation Language barriers Its a yes or no? You are invited to take advantage of the chambermaid. Ease your bosoms. This coffee has carefully selected high quality beans and roasted by our all the experience. The lift is being fixed for the next day. During that time we regret you will be unbearable. Nonverbal communication Verbal VS. Nonverbal
Social Behavior Sneeze, belch, sharing food Saudi: Dont ask the host about the health of his spouse. Dont show the soles of your shoes. Dont touch or deliver with the left hand. Japan, Korea, China, India Venezuela, Indonesia Africa Madam or maam
Analytical Approaches to Cultural Factors Dont assume you know everything. Dont judge others by the culture you are from. There are no perfect cultures in this world, or there is no such culture superior than another. Try to understand the beliefs, values, and motives of another culture Be open, be understanding.
Maslows Hierarchy of Needs Physiological Safety Social Esteem Self-actualization
Hofstedes Cultural Typology Power distance Individualism or Collectivism Masculinity or Femininity Uncertainty avoidance
Power Distance The extent to which the less powerful members of a society accept or expect that power to be distributed unequally. High power distance Low power distance
Individualism or Collectivism Individualistic culture: Each member of society is primarily concerned with his or her own interest and those of the immediate family. Collectivist culture: All of societys members are integrated into cohesive in-groups
Masculinity of Femininity Masculinity A society in which men are expected to be assertive, competitive, and concerned with material success while women fulfill the role of nurturer and take care of the family Femininity A society in which the social roles of men and women overlap, with neither gender exhibiting overly ambitious or competitive behavior
Uncertainty Avoidance The extent to which the members of a society are uncomfortable with unclear, ambiguous, or unstructured situations.
Environmental Sensitivity The extent to which products must be adapted to the culture-specific needs of different national markets. Product Adaptation High Low Environmental Sensitivity Low High Integrated Circuit Computer Food
Impact on Marketing Consumer behavior Campbell in US VS in Italy Instant coffee in UK VS. in Sweden Cake in US VS. in UK Personal aspect of international business
Suggested Solutions Stake: expatriate failure averages $75,000, loss of business: $2.5 billion Research Training in cross-cultural competency Boot camp International exposure Workshop
The Political, Legal, and Regulatory Environments of Global Marketing
The Political Environment Sovereignty Political risk Taxes Dilution of Equity Control Expropriation
Sovereignty The supreme and independent political authority. Control the flow of goods across borders Stage of development The political and economical system Protectionism: Agriculture Privatization dilutes the command portion of a mixed economy Global market integration erodes national economic sovereignty.
Political Risk The risk of a change in government policy that would adversely impact a companys ability to operate effectively and profitably. HK, Argentina, Venezuela,
Taxes Diverse geographic activities of MNC Host country tax avoidance Bilateral tax treaties
Dilution of Equity Control Control ownership of foreign-owned companies. Equity percentage in local projects or joint ventures Become an insider
Expropriation Governmental action to dispossess a company or investor. Compensation Nationalization: Ownership of the property or assets in question is transferred to the host government. Confiscation
Expropriation Creeping expropriation: limitations on repatriation of profits, dividends, royalties, or technical assistance fees from local investments or technology arrangements. Tariff and non-tariff barriers Intellectual property restrictions Remedies: buy insurance, follow the law
International Law Rules and principles that nation-states consider binding upon themselves. Public law, international commercial law Common law VS code law
Which Law Applies? Be explicit in the contract The place of the domicile or principal place of business of one of the parties The place where the contract was entered The place of performance of the contract
Intellectual Property Patents and Trademarks Registration Protection Counterfeiting: The unauthorized copying and product of a product. Imitation: Use of a product name that differs slightly from a well-known brand Piracy: The unauthorized publication or reproduction of copyrighted work.
Intellectual Property Protection The Paris Union: International Convention for the Protection of Industrial Property. The Patent Cooperation Treaty European Patent Convention TRIPs: Trade Related Intellectual Property Rights
Antitrust To combat restrictive business practices and to encourage competition. Constens case, Grundig Ruling: Territorial protection proved to be particularly damaging to the realization of the common market. IBM and Microsoft in Europe
Licensing Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology, or other intangible assets in return for royalty payments or other forms of compensation. What assets? At what price? The right to make, use, or sell? Sublicense? Exclusive or nonexclusive? Creation of competitor.
Trade Secrets Confidential information or knowledge that has commercial value. TRIPs requires signatory countries to protect against acquisition, disclosure, or use of trade secrets in a manner contrary to honest commercial practices.
Bribery and Corruption - A World-wide problem
Conflict resolution Litigation Differences in language, legal systems, currencies, traditional business customs and patterns, discovery procedure, and enforcement. Complex, time consuming, costly
Arbitration International Chamber of Commerce The New York Convention AAA and China Beijings Conciliation Center. Swedish Arbitration Institute International Council for Commercial Arbitration UN Conference on International Trade Law
The Regulatory Environment Governmental and nongovernmental International Economic Organizations Price control, valuation of imports and exports, trade practices, labeling, food and drug regulations, employment conditions, collective bargaining, advertising content, competitive practices, etc.
Regional Economic Organizations WTO EU NAFTA
Global Markets and Buyers
Trends of Global Market Markets in almost every world region are expected growing. The fastest growing markets are the developing countries. The fastest growing regions in the developing world are East Asia The fastest growing country in East Asia is China.
The Boom Countries1974-19931994-2003 Developed Countries2.9%2.7% Developing Countries3.0%4.8% East Asia7.5%7.6% South Asia4.8%5.3% Latin America2.6%3.4% East Europe1.0%2.7% Sub-Saharan Africa2.0%3.9% Middle East, North Africa1.2%3.8%
Economic Cooperation & Preferential Trade Arrangements International economic cooperation Free Trade Area (FTA) Customs Union Common Market Economic Union WTO and GATT
Regional Trade Areas
Free Trade Area (FTA) A group of countries that have agreed to abolish all internal barriers to trade among themselves. Certificates of origin
Customs Union Member countries agree to the establishment of common external barriers. The Central American Common Market, Southern Cone Common Market (Mercosur), and the Andean Group
Common Market Removal of internal barriers Establishment of external barriers Elimination of barriers to flow of factors (labor and capital) within the market Free markets not only for product, but also for services and capital.
Economic Union Creation of a unified central bank; Usage of a single currency-a struggle; Common policies on agriculture, social services and welfare, regional development, transportation, taxation, competition and mergers Political unity, a central government;
From GATT to WTO GATT: A treaty between 125 nations who agreed to promote trade among members. Trade-disputes settlement, no power of enforcement WTO: A forum for trade-related negotiations. A system to settle trade disputes Service industry: Market-entry barriers in banking, insurance, telecommunications, etc.
Regional Economic Organizations APEC: Asian Pacific Economic Cooperation North American Free Trade Agreement Central American Common Market Andean Group Southern Cone Common Market Caribbean Community and Common Market
Regional Economic Organizations Association of Southeast Asian Nations The European Union Cooperation Council for the Arab States of the Gulf Economic community of West African States South African Development Coordination Conference
Global Marketing Information Systems and Research
Acquire Global Information Superabundance in developed countries Scarcity in LDC and underdeveloped countries Where and how to get the right information Scanning
Global Marketing Information System MIS defined Gathering, analyzing, classifying, storing, retrieving, and reporting EDI: Electronic Data Interchange Benetons MIS Timely, cost-efficiently, actionable
Subject Agenda for a Global MIS Markets Competition Foreign exchange Prescriptive information Resource information General conditions
Markets Demand estimates Consumer behavior Products Channels Communication media availability and cost Market responsiveness
Competition Corporate strategies Business strategies Functional strategies
Foreign Exchange Balance of payments Interest rates Attractiveness of country currency Expectations of analysts
Prescriptive Information Laws, regulations, rulings concerning taxes, earnings, dividends in both hose countries and home country
Resource Information Availability of human, financial, information, and physical resources
General Conditions Overall review of sociocultural, political, technological environments
Scanning Modes Surveillance Informal information gathering Viewing and monitoring Search Formal information gathering Investigation and Research
Rule of Thumb Create an efficient and effective scanning system in both the home country and the host countries Create a MIS system Expanding information coverage to other regions of the world
Sources of Marketing Information Human sources Overseas executives Friends, acquaintances, professional colleagues, consultants, and prospective new employees Personal relationship Direct perception Seeing, feeling, hearing, smelling, or tasting The design of Lexus
Formal Marketing Research Project-specific, systematic gathering of data in the search scanning mode. Identify the research problem Develop a research plan Collect data Analyze data Interpret and report findings
Step 1: Problem Definition A problem well defined is half solved. Assess the nature of the market opportunity. Existing Potential
Existing Market Market size, level of demand, rate of product consumption Self-evaluation: competitiveness, product appeal, price, distribution, promotional coverage and effectiveness
Potential Market Latent market Undiscovered segment. Prime move advantage P&G in China Incipient market Market booms when a particular economic, technological, political, or sociocultural trend continues.
Step 2: Developing a Research Plan How much can I get from the information? How much do I have to spend for the information? Research objective, methodologies, budgets, time.
Step 3: Data Collection Primary data Observation Survey research Experiment Secondary data Internal, external
Observation Method Counting Watching People meter Videotaping Virtual reality
Survey Method Interviews and Questionnaires Telephone Interviews Focus Groups Mail Surveys Fax Surveys Online Surveys
Telephone Interviews Spoken instead of visual Quick, inexpensive Results could be biased Random dialing Answering machines and caller ID
Personal Interviews Face to face interaction Detailed information Sensitive question Slow Expensive Mall intercepts
Focus Groups Information-gathering procedure in marketing research that typically brings together 8 to 12 individuals to discuss a given subject. Quick and inexpensive Participants interaction Moderator Video taping, one-way mirror, videoconferencing
Mail Surveys Low-cost, Anonymity Low response rate, slow Not suitable complex questions Who filled out the questionnaire? Bias due to difference between respondents and nonrespondents
Fax Surveys Similar to mail surveys
Online Surveys Web Survey Email Survey Online focus group Speedy, higher response rates, cost reduction, truthful answers Probability sample? Groups underrepresented on the Internet, ownership of computers Authenticity of the respondent
Experimental Method Scientific investigation in which a researcher manipulates a test group(s) and compares the results with those of a control group that did not receive the experimental controls or manipulations. Test marketing Experiment group VS Control group
Sampling Probability sample Nonprobability sample Sample size Standard statistical test
Step 4: Data Analysis Demand pattern analysis Income elasticity measurements Engels Law Market estimation by analogy Comparative analysis Intra-company cross-national comparison Cluster analysis
Market Estimation by Analogy Cross-sectional analysis Xa/Ya=Xb/Yb Xa=demand for product X in country a Ya=factor that correlate with demand for product X in country a Xb=demand for product X in country b Yb=factor that correlate with demand for product X in country b.
Market Estimation by Analogy Displacing a time series Xa1/Ya1=Xb2/Yb2 Xa1=demand for product X in country a during time period 1 Ya1=factor associated with demand for X in country a during time period 1 Xb2=demand for X in country b during time period 2 Yb2=factor correlating with demand for X in country b during time period 2.
Step 5: Interpreting and Reporting Clear Concise Actionable Management oriented, no technical jargons
Current Issues in Global MR Data availability Data deflation or inflation Comparability Response rate
Does MR really work? Its late. I dont know what I want. Differentiation-Coke VS. Pepsi in Israel There is no market for fax. Really?
Integrated MIS Systemize the collection and analysis of competitive intelligence to serve the needs of the organization as a whole. Are top executives well informed? Do middle managers fully understand the competitive situation? Do managers in different functional areas share intelligence regularly?
Integrated MIS Does the company encounter marketing blunders due to lack of intelligence? Do we have an intranet where every employee can have access to online database? Overload of data or underload of analysis
Segmentation, Targeting, and Positioning
Segmentation & Targeting Segmentation Division of the total market into smaller, relatively homogeneous groups according to various characteristics. Global Market Segmentation Targeting Evaluation the segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond.
Criteria for Effective Segmentation The market segment must present measurable purchasing power and size. Marketers must find a way to effectively promote to and serve the market segment. Marketers must identify segments sufficiently large to give them good profit potential. The firm must target a number of segments that match its marketing capabilities.
Types of Segmentation Geographical Demographical Psychographical Behavioral characteristics Product benefits
Geographical Segmentation Dividing an overall market into homogeneous groups on the basis of population locations. Population distribution Wealth distribution Urbanization Climate Food preference Terrain
Demographic Segmentation Dividing consumer groups according to characteristics such as sex, age, income, occupation, education, household size, and stage in the family life cycle. Income Gender Age: Cohort effect Education Family Life Cycle
Psychographic Segmentation Dividing a population into homogeneous groups on the basis of psychological and lifestyle profiles. Lifestyle Peoples decisions about how to live their daily lives, including family, job, social, and consumer activities. VALS: Values and Lifestyles http://future.sri.com
Behavior Segmentation Usage rate: Light users, medium users, heavy users User status: Potential users, nonusers, ex-users, regulars, first-timers, users of competitors products 80/20 rule Brand loyalty
Global Targeting Evaluating, comparing, and select Criteria for Targeting Current segment size and anticipated growth potential Competition Compatibility and feasibility
Global Target Market Strategy Standardized global marketing Create the same marketing mix for global operation. Extensive distribution in the maximum number of retail outlets. Concentrated global marketing Devise a marketing mix to reach a single segment of the global market. Differentiate global marketing Target two or more distinct market segments with different marketing mixes.
Global Product Positioning The location of your product in the mind of your customer. Global positioning Pierre Cardin Audi Ikea
Positioning Sony: Unit sale: 1 million, Profit: 1 billion RMB. Domestic brands combined: Market share of color TV: 80%, 90% for DVD; Profit: 0.54 billion. Changhong: unit sale 7,500,000 Toshiba: unit sale 500,000 Profit: equal
High Tech Positioning Based on technological features Computers, video and stereo equipments, automobiles Technical products Special-interest products Products that demonstrate well
High-Touch Positioning Less emphasis on specialized information, more on image Products that solve a common problem Global village products Global brands Products that use universal themes Materialism, heroism, recreation, procreation
Sourcing: Exporting and Importing
Export Selling or Export Marketing Export selling Does not involve tailoring the marketing mix to suit the requirements of global markets, only place is changed Export marketing Targets the customer in the context of the total market environment.
Export Marketing An understanding of the target market environment The use of marketing research and the identification of market potential Decisions concerning with every elements of the marketing mix
Buy Chinese Nationalism Customer value Harley Davidson
Roles of Global Marketing Strategy Configuration of marketing Coordination of marketing activities across countries Tapping opportunities in product development and R & D
Sourcing Decision Criteria Factor costs and conditions Logistics Country infrastructure Political risk Market access Exchange rate, availability, and convertibility of local money
Factor Costs Land, labor, material, and capital costs Can lower wage rates justify relocation? VWs approach and SMHs approach Availability and abundance Three tiers of manufacturing factor costs Drive direct labor costs down Migration of low factor costs
Logistics Transportation cost RTAs cut down cost Value chain management Video
Country Infrastructure Power, transportation, communication, service and component suppliers, labor pool, civil order, effective governance, foreign exchange
National Policies Governing Exports and Imports Schizophrenic Encouraging export Restricting imports Government programs supporting exports Tariffs Nontariff barriers
Government Programs Supporting Export Tax incentives Tax exemption or lower tax rate on export earnings Tax refund Subsidies Direct or indirect financial contributions Governmental assistance Information, trade fairs, trade missions
Tariffs Customs duties levied on imported goods Brussels Tariff Nomenclature (BTN), 1959 The Harmonized Tariff System (HTS), 1989 Export and import classification number
Non-Tariff Barriers Any measure, other than a tariff, that is a deterrent or obstacle to the sale of products in a foreign market. Quotas and trade control Discriminatory procurement policies Restrictive customs procedures Selective monetary controls and discriminatory exchange rate policies Restrictive administrative and technical regulations
Quotas and Trade Control Government imposed- limits or restrictions on the number of units or the total value of a particular product or product category
Discriminatory Procurement Policies Government rules and administrative regulations, company policies that discriminate against foreign suppliers Buy American Act
Restrictive Customs Procedures Classifying and valuing commodities as a basis for levying import duties
Restrictive Administrative & Technical Regulations Anti-dumping regulations, size regulations, and safety and health regulations Japanese restrictive technical regulations Double standards
Choosing Export Markets Create a product-market profile Potential market size Competitor activities Overall marketing mix Target one or more export markets
Market Selection Criteria Market potential Market access Shipping cost Potential competition Product fit Service requirements
Visiting the Potential Market Confirm or contradict assumptions regarding market potential Gather additional data Develop a marketing plan in cooperation with the local agent or distributor
Market Access Considerations Tariff systems Preferential tariffs Duties
Tariff Systems Single column tariff Tariff schedule in which the duty rate applies to imports from all countries on the same basis Two-column tariff The initial single column of duties is supplemented by a second column showing reduced rates as determined through tariff negotiations with other countries (MFN) Preferential tariff A reduced tariff rate applied to imports from certain countries
Types of Duties Ad Valorem Duties Specific Duties Alternative Duties Compound or Mixed Duties Antidumping Duties Countervailing Duties
Ad Valorem Duties Duty is expressed as a percentage of the value of goods HTS: Customs value is landed CIF cost at the port of entry
Specific Duties Duties expressed as a specific amount of currency per unit of weight, volume, length, or number of other units of measurement.
Alternative Duties Both advalorem and specific duties are used to calculate the tariff, usually the one that yields the higher amount of duty is chosen
Compound or Mixed Duties Duties provided for specific, plus ad valorem, rates to be levied on the same articles.
Antidumping Duties Dumping The sale of merchandise in export markets are unfair prices. Injury is caused to the domestic producers Special additional import charges equal to the dumping margin
Countervailing Duties Additional duties levied to offset subsidies granted in the exporting country.
Other Import Charges Variable import levies When the prices of imported products would undercut those of domestic products Temporary import surcharges Provide additional protection for local industry in response to balance-of-payments deficits Compensatory import taxes Value-added tax
Organizing For Exporting Organizing in the home country Organizing in the target market country
Organizing in the Home Country In-house export organization External independent export organizations
In-House Export Organization The companys appraisal of the opportunities in export marketing Its strategy for allocating resources to markets on a global basis
External Independent Export Organizations Export trading companies Market information gathering Communication with markets Setting prices Ensuring parts availability
Organizing in the Market Country Direct market representation Control and communication Independent representation Small sales volume Find good local distributor Piggyback marketing Arrangement where by one manufacture obtains distribution of products through anothers distribution channels.
Export Financing/ Methods of Payment Currency availability in the buyers country Creditworthiness of the buyer Sellers relationship with the buyer Letter of Credit Documentary Collections
Letter of Credit Assurance of being paid Payment obligation: buyers bank instead of the buyer The documents instead of the goods
Documentary Collections Bill of exchange (draft) A negotiable instrument which is easily transferable from one party to another
Counter Trade Alternative finance methods for international trade other than money Scarcity of hard currency Exchange control Inability to finance imports through bank loans Barter and mixed forms of counter trade
Simple Barter Direct exchange of goods and services between two parties Exchange fluctuation, shadow price
Counterpurchase Each delivery in an exchange is paid for in cash Two separate contracts
Compensating Trading Two contracts The supplier agrees to build a plant or provide plant equipment, patents or technology The supplier agrees to take payment in the form of the plants output equal to its investments
Entry & Expansion
Entry Decision Process Sourcing Marketing organization Distribution Marketing strategy Strategy implementation
Ownership & Control Licensing Joint ventures Investment/Ownership
Licensing Contract Patent, trade secret, brand, trademark, company name, technical know-how Pros and cons Cross-technology exchange
Joint Ventures Ownership partition Sharing of risk and competitive advantage Pros and cons
Ownership/Investment Foreign direct investment 100% ownership; WFOE (wholly foreign owned enterprise) Acquisition VS. direct expansion
Expansion Strategies 1 Narrow Focus 2 Country Focus 3 Country Diversification 4 Global Diversification ConcentrationDiversification Concentration Diversification Market Country
Alternative Strategies Stages of development Domestic International Multinational Global Transnational
Competitive Analysis & Strategy
Forces Influencing Competition Threats of New Entrants Rivalry Among Existing Competitors Threat of Substitute Products or Services Bargaining Power Of Suppliers Bargaining Power Of Buyers
Threat of New Entrants Economies of scale Product differentiation Capital requirement Switching costs Access to distribution channels Government policy Cost advantages Expected competitor response
Threat of Substitute Products Availability of substitute products Price
Bargaining Power of Suppliers Size and number Input importance, differentiation, switching costs Availability of alternative products Supplier product or brandname
Bargaining Power of Buyers Bulk purchase Undifferentiated suppliers products Portion of cost Backward vertical integration
Rivalry Among Competitors Mature industry, market share High fixed cost industry Lack of differentiation or absence of switching cost High strategic stakes in an industry
National Competitive Advantage Factor conditions Demand conditions Related and supporting industry Firm structure and rivalry
Factor Conditions Human Physical Knowledge Capital Infrastructure
Demand Conditions The composition of home demand The size and pattern of growth of home demand The means by which a nations home demand pulls the nations products and services into foreign markets
Related & Supporting Industries Value chain Proximity
Firm Strategy, Structure, and Rivalry Strategy Structure Domestic rivalry
Other Forces Chance Government Non-market factors
Competitive Advantage Customer value Competitive advantage Successful strategy
Models of Competitive Strategy Generic Business intent
Market Skimming Set a high or premium price relative to competitive offerings Introduction stage No or limited competition Distinguishing, segmentation based on price Revenue maximization Demand control
Penetration Pricing Set a low entry price to secure market acceptance Entry into another industry Saturate the market Lure customers to new stores Highly elastic demand
Cost Plus/Price Escalation Price=Unit Cost+shipping+Ancillary+Profit Transportation, duty, distributor margins and taxes Sourcing Local production and marketing
Dumping Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin. Price, damage, causal effects Uruguay Round GATT Anti-Dumping Agreement (ADA)
Similar Products Product definition Product differentiation Raw material
Normal Price Market Economy Market price in domestic market Exporters price to a third country Structural price Non-market Economy Selling price in a substitute country Structural price Price of a third country
Price Determination FOB or CIF? Domestic price Selling at loss Affiliation, Strategic Alliance Structural cost Direct inputs, indirect inputs, profits Export price to a third country Distributor dumping
Damage Determination Amount of sales of the dumping product Selling price of the dumping product Related economic indicators Profit margin Price trend Market share Employment rate Usage of the productivity
Causal Effect Voluntary price cut by domestic manufacturers Dumping caused by other non-dumping imports Small market share Realistic damage VS. potential damage
China: The TARGET 500 cases, 4000 products, $10 billion Export-oriented economy Competing over price Lack of organization Reluctance to respond and defend
What Should We Do? What can the government do? What can companies do? Absence is no rescue! 375% duty on Chinese garlic, Chain effects Find a good attorney Work with local importers and distributors Stop fighting against each other! Tracking the market Product differentiation Foreign direct investment instead of exporting
Currency Fluctuations A strong RMB Exchange rate clauses Exchange rate review period Comparison basis Fluctuation range
Global Pricing Alternatives Extension/Ethnocentric Price be the same around the world Importers absorb freight and duties Adaptation/Polycentric Up to subsidiary managers Gray markets Invention/Geocentric
Channel of Distribution An organized system of marketing institutions and their interrelationships that promotes the physical flow of goods and services, along with title that confers ownership, from producer to consumer or business user.
Flows Physical flow Title flow Payment flow Information flow Promotion flow
Channel Objectives Creation of utilities Place Time Form Information
Global Distribution Barriers A new market, no direct presence Separation of production and markets Little knowledge of the local distribution system and distributors Government regulations Bargaining power of the local distributors
Forms of Presence Direct involvement Company-owned or franchised sales force, retail stores, etc Sales office and sales branch Indirect involvement Independent agents, distributors, wholesalers or retailers Title and ownership of goods, commission
Direct Selling Manufacturer selling direct to the end customer Door-to-door sales Mail order Telemarketing TV selling Internet selling Manufacture-owned stores
Marketing Intermediaries A business firm, either wholesaler or retailer, that operates between producers and consumers or business users, also called a middleman. Wholesaling intermediary A comprehensive term that describes wholesalers as well as agents and brokers. Retailer A marketing intermediary selling goods and services to the ultimate consumer
Distribution Intensity The number of intermediaries through which a manufacturer distributes its goods. Intensive distribution Selective distribution Exclusive distribution
Intensive Distribution A channel policy in which a manufacturer of a convenience product attempts to saturate the market. Place products or services in as many outlets as possible Cigarettes, snack foods, gums, candy, soft drinks, household chemicals Location convenience Coverage and sales
Selective Distribution A channel policy in which a firm chooses only a limited number of retailers to handle its product line. Cost reduction Control over marketing programs Shopping products
Exclusive Distribution A channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area. Automobiles, fitness equipments, specialty products Loss in coverage, gain in prestige Close cooperation between the producer and distributor, more control
Closed Sales Territory An exclusive geographic selling region defined and enforced by a manufacturer for a distributor. Distributor competition
Tying Agreements An arrangement that requires a marketing intermediary to carry a manufacturers full product line in exchange for an exclusive dealership.
Customer Factors Number, geographic distribution, income, shopping habits, promotion sensitivity Number of customers VS. Number of channel intermediaries Retailer selling volume or average order size
Product Factors Degree of standardization Business or consumer Perishable or durable Size Service requirements Technology intensive or not? Unit value
Producer Factors Resources Specialization Length of product line Channel control or channel power
Middleman Factors Cherry picking Demand, selling cost, profit margin, commission Direct first, then through middleman Subsidize the cost of distributors sales reps
Competitive Factors Competition intensity High Short channel Low Long channel Goal Market share Long channel Market penetration Short channel
Long Channel Big single order size Easy account collection and dispatch Easy to maintain due to limited number of accounts Close relationship Difficulty in market penetration Blind market spot Low profit margin Less information about market and customers Too many stakes on wholesalers
Short Channel Deep market penetration More control over sales terminals and marketing programs High gross profit margin Fast market feedback Less control by distributors Big number of orders adds to difficulty of order processing and payment collection Difficult to maintain and help Less distributor loyalty due small single order size
Evaluating The Alternatives Direct distribution Manufactured owned sales force Finding, hiring, training, motivating sales force Rent, utility, deco Dedication Product knowledge Base salary plus 1% commission Less market access Independent intermediary Well trained sales force Big Client base No base salary, 5% commission Product knowledge Competing products More knowledge and access to the market
Criteria Economic criteria Control criteria Adaptability criteria
Economic Criteria Selling Costs ($) Level of Sales ($) Independent Intermediary Direct Distribution A $50,000$30,000 $4,000 $75,000
Control Criteria Wholesaler Less control Less product technical knowledge Carrying competing brands Sales Office More control
Adaptive Criteria Adaptability of the channel Flexibility to respond to market changes, consumer purchasing pattern changes
Channel Management Process Marketing research on target market, competitors, available distributors, media Determining channel structure; Recruiting and training distributors; Evaluation, negotiation, and signing contracts; Terminal design and development; Promotion, sales assistance, terminal maintenance; Management, training, adjustment, reward, and improvement
Selection Home countrys trade department Home countrys embassy or consulate in the host country, Business Counselor Local chamber of commerce or local trade organizations Local distributor commitment
Selection Network resource; coverage, depth; Control over price, assortment Terminal and sales force management; Credibility; payment reliability; Service capability; Financial resources; Warehousing and transportation Commitment to the product is the key.
Terms and Responsibilities Price policy Price list, schedule of discounts, allowances Conditions of sales Payment terms, producer guarantees, Distributors territorial rights Performance and cancellation Mutual services and responsibilities
Distributor Evaluation Sales volume Sales increase speed Percentage of product sales of the total distributor sales; Selling cost against sales Inventory level Number of product lines carried Terminal display and price execution Service provided to downstream distributors and customers
Motivating Channel Members Coercive power Reward power Legitimate power Expert power Referent power
ProducerDistributor Relationships Enemies Customers or clients Partners Conflict Competition Cooperation
Trends In Global Distribution Flattened channel Involve as few intermediaries as possible Short channel preferred Channel power moving from producers to retailers; Booming of super-large retail chains and disappearance of small stores Application of high-tech in physical distribution of goods or services