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Introduction to Global Marketing

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Reasons for Global Marketing

• Growth – Access to new markets – Access to resources

• Survival– Against competitors with lower costs (due to

increased access to resources)

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Global Marketing Vs. Marketing

• Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals.

• Global marketing focuses on global market opportunities and threats.

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Globalization• Globalization is the inexorable integration of

markets, nation-states, and technologies to a degree never witnessed before - in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper and cheaper than ever before, and in a way that is enabling the world to reach into individuals, corporations, and nation-states farther, faster, deeper, and cheaper than ever before.

» Thomas Friedman

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What is a Global Industry?

• An industry is global to the extent that a company’s industry position in one country is interdependent with its industry position in another country

• Indicators of globalization:– Ratio of cross-border trade to total worldwide

production– Ratio of cross-border investment to total capital

investment– Proportion of industry revenue generated by

companies that compete in key world regions

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Keys to Global Success

• Value creation

• Competitive advantage

• Focus

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Value Creation

• Value = Benefits/Price– Price is a function of money, time, and

effort– Benefits result from the product, promotion,

and distribution

• 2 methods of value creation• Improved benefits• Lower prices

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Competitive Advantage

• Success over competition in industry at value creation

• Achieved by integrating and leveraging operations on a worldwide scale

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Focus• Concentration and attention on core

business and competence– Nestle is focused: We are food and beverages.

We are not running bicycle shops. Even in food we are not in all fields. There are certain areas we do not touch…..We have no soft drinks because I have said we will either buy Coca-Cola or we leave it alone. This is focus.

» Helmut Maucher

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Globalization or Global Localization?• Globalization

– Developing standardized products marketed worldwide with a standardized marketing mix

– Essence of mass marketing• Global localization

– Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction

– Essence of segmentation– Think globally, act locally

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Where in the World?

• How does a company decide which markets to enter?– Company resources– Managerial mind-set– Nature of opportunities and threats in that

market

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Examples of Global Marketers• Coca-Cola• Philip Morris• Daimler-Chrysler• McDonald’s• Toyota• Ford• Unilever• Gillette• IBM

• USA• USA• Germany• USA• Japan• USA• UK/ Netherlands• USA• USA

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Why Go Global?

• 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 Germany.

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Management Orientations

• Ethnocentric

• Polycentric

• Regiocentric

• Geocentric

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Ethnocentric Orientation• Assumes home country is superior to the

rest of the world; associated with attitudes of national arrogance and supremacy

• Management focus is to do in host countries what is done in the home country– Sometimes called an international company– Products and processes used at home are used

abroad without adaptation

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Polycentric Orientation• Management operates under the

assumption that every country is different; the company develops country-specific strategies– Sometimes called a multinational company– Company operates differently in each host

country based on that situation

• Opposite of ethnocentrism

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Regiocentric Orientation

• Region becomes the relevant geographic unit (rather than by country)

• Management orientation is geared to developing an integrated regional strategy– European Union – NAFTA

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Geocentric Orientation

• Entire world is a potential market • Managerial goal is to develop integrated

world market strategies• Global companies serve world markets from

a single country and tend to retain association with a headquarters country

• Transnational companies serve global markets and acquire resources globally; blurring of national identity

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Forces Affecting Global Integration

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Driving Forces• Regional economic agreements• Market needs and wants• Technology• Transportation and communication

improvements• Product development costs• Quality• World economic trends• Leverage

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Restraining Forces

• Management myopia

• Organizational culture

• National controls

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International Trade Theory

• Classical trade theories:

– explain national economy conditions--country

advantages--that enable such exchange to happen

• New trade theories:

– explain links among natural country advantages,

government action, and industry characteristics that enable such exchange to happen

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Classical Country-Based Theories• Mercantilism (pre-16th century)– Takes an us-versus-them view of trade; othercountry’s gain is our country’s loss– Neo-mercantilism views persist today• Free Trade supporting theories– Show that specialization of production and freeflow of goods grow all trading partners’ economies– Absolute Advantage (Adam Smith, 1776)– Comparative Advantage (David Ricardo, 1817)• Free Trade refined– Factor-proportions (Heckscher-Ohlin, 1919)– International product life cycle (Ray Vernon, 1966)

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Mercantilism/Neomercantilism• Prevailed from 1500 to 1800– Export more to “strangers” than we import to amass

treasure, expand kingdom– Maximize exports and minimize imports: no

advantage in increased trade• Government intervenes to achieve a surplus in

exports – King, exporters, domestic producers: happy – Subjects: unhappy because domestic goods stay

expensive and of limited variety• Today neo-mercantilists=protectionists: some

segments of society shielded short term

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Absolute Advantage• Adam Smith: The Wealth of Nations, 1776

• Mercantilism weakens a country in the long run

and enriches only a few segments

• A country should specialize in and export products

for which it has absolute advantage; import others

• A country has absolute advantage when it is more productive than another country in producing a particular product

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Comparative Advantage• David Ricardo: Principals of Political

Economy, 1817

• Country should specialize in the production of those goods in which it is relatively more productive... even if it has absolute advantage in all goods it produces

• Absolute advantage is really a special case of comparative advantage

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Theory of Relative FactorEndowments (Heckscher-Ohlin)

• Factor endowments vary among countries• Products differ according to the types of factors that they need as inputs• A country has a comparative advantage in producing products that intensively use factors of production (resources) it has in abundance• Factors of production: labor, capital, land, human resources, technology

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Heckscher (1919)-Ohlin (1933) Theory• The pattern of international trade depends on differences

in factor endowments not on differences in productivity• Absolute amounts of factor endowments matter• Leontief paradox: – US has relatively more abundant capital yet imports

goods more capital intensive than those it exports – Explanation(?):• US has special advantage on producing new products

made with innovative technologies• These may be less capital intensive till they reach mass

production state

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International Product Life-Cycle (Vernon)• Most new products initially conceived and produced in the US in 20th

century• US firms kept production close to the market

• Aid decisions; minimize risk of new product introductions• Demand not based on price yet; low production cost not anissue

• Limited initial demand in other advanced countries• Exports more attractive than production there initially• With demand increase in advanced countries• Production follows there.• With demand expansion elsewhere• Product becomes standardized• production moves to low production cost areas• Product now imported to US and to advanced countries

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Classic Theory Limitations• Fundamentally: Free Trade expands the world “pie” forgoods/servicesTheory Limitations• Simple world (two countries, two products)• No transportation costs• No price differences in resources• Resources immobile across countries• Constant returns to scale• Each country has a fixed stock of resources and no

efficiency gains in resource use from trade• Full employment

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The New Trade Theory• In many industries, as output expands with specialization,

the ability to realize economies of scale increases and unit costs should decrease Because of such scale economies, world demand supports only a few firms in such industries (e.g., commercial aircraft, automobiles)

• Countries that had an early entrant to such an industry have an advantage in such an industry:

– Fist-mover advantage– Barrier to entry (Airbus overcame through governmentsubsidies?)

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New Trade Theory

• Global Strategic Rivalry

– Firms gain competitive advantage through:

intellectual property, R&D, economies of scale and scope, experience

• National Competitive Advantage (Porter,

1990)

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New Trade Theories

• Increasing returns of specialization due to

economies of scale (unit costs of prod. decrease)

• First mover advantages (economies of scale

such that barrier to entry crated for second or

third company)

• Luck... first mover may be simply lucky.

• Government intervention: strategic trade policy

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National Competitive Advantage(Porter, 1990)

• Factor endowments• land, labor, capital, workforce, infrastructure(some factors can be created...)• Demand conditions• Large, sophisticated domestic consumer base: offers aninnovation friendly environment and a testing ground• Related and supporting industries• Local suppliers cluster around producers and add to

innovation• Firm strategy, structure, rivalry, competition good, national

governments can create conditions which facilitate and nurture such conditions

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