Chapter 1

Nature of International Marketing

Challenges and Opportunities

Process of International Marketing International Dimensions of Marketing Domestic Marketing vs. International Marketing Multinational Corporations (MNCs)- Pros and Cons- Multinationality and Market Performance - Characteristics of MNCs The Process of Internationalization Benefits of International Marketing

Definition of marketing

‘Management process responsible for identifying, anticipating and satisfying customer requirements profitably’. Thus marketing involves:focusing on the needs and wants of customersidentifying the best method of satisfying those needs and wantsorienting the company towards the process of providing that satisfactionmeeting organisational objectives.

Definition of International Marketing

Multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services and to create exchanges that satisfy individual and organizational objectives

The example of International Marketing would be where an English company would like to enter Chinese market. It will be done by either developing marketing strategy in their home country that will be then introduced in new market or they will hire a company to create such a plan. Within the international marketing process the key elements of this framework still apply.

Dimensions of Marketing

Consumer Marketing vs. Business-to-Business Marketing

Domestic Marketing vs. Foreign Marketing Comparative Marketing International Marketing vs. Global/Multinational

Marketing Domestic Marketing vs. International Marketing- similar in nature but not in scope (scale)?- different in degree but not in kind?

Domestic vs Foreign marketing

Domestic marketing is concerned with the marketing practices within a researcher’s or marketer’s home country.

From the perspective of domestic marketing, marketing methods used outside the home market are foreign marketing.

Comparative Marketing

A study becomes comparative marketing when its purpose is to contrast two or more marketing systems rather than examine a particular country’s marketing system for its own sake. Similarities and differences between systems are identified.

International marketing vs Global

International marketing is a marketing done on international level. The International Marketing is based on strategy created in home country of company and distributed to its other offices/affiliations. International Marketing is very similar to Global marketing. The main difference will be the fact that Global Marketing is focusing on intercontinental point of view.

MNCs

A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries.

MNCs (MULTINATIONAL CORPORATIONS)

Cons

- Exploitation

- Erosion of a Nation's Sovereignty Pros

- Power and Prestige

- Social Responsibility

- Market Performance

Characteristics of MNCs

Definition by Size The term MNC implies bigness. But bigness

also has a number of dimensions.(see Table 1.1).

- market value

- sales

- profits

- assets

- number of employees

Definition by size

Characteristics of MNCs

Definition by Structure

- number of countries in which the firm does business

- citizenship of corporate owners and top managers

Definition by structure

According to Aharoni, an MNC has at least three significant dimensions: structural, performance, and behavioral. Structural requirements for definition as an MNC include the number of countries in which the firm does business and the citizenship of corporate owners and top managers. Pfizer, stating that it is a truly global company, does business in more than 150 countries. Citicorp satisfies the requirement for multinationalism through the citizenship of members of its top management. The company has done as much as other major American MNCs to diversify its management.

Characteristics of MNCs

Definition by Performance

- commitment of corporate resources to foreign operations

- amount of rewards from that commitment

Definition by performance

Depends on such characteristics as foreign earnings, sales, and assets. These performance characteristics indicate the extent of the commitment of corporate resources to foreign operations and the amount of rewards from that commitment. The greater the commitment and reward, the greater the degree of internationalization. Japanese and British firms have routinely shown willingness to commit their corporate resources to overseas assets.

Characteristics of MNCs

Definition by Behavior

- ethnocentricity

- polycentricity

- geocentricity

Definition by behavior

Behavior is somewhat more abstract as a measure of multinationalism than either structure or performance, though it is no less important. This requirement concerns the behavioral characteristics of top management. Thus, a company becomes more multinational as its management thinks more internationally. Such thinking, known as geocentricity, must be distinguished from two other attitudes or orientations, known as ethnocentricity and polycentricity.

Behavior/ Attitude

Ethnocentricity

- orientation toward home country

- centralization of decision making

- efficient but not effective

Etnocentricity

Ethnocentricity is a strong orientation toward the home country. Markets and consumers abroad are viewed as unfamiliar and even inferior in taste, sophistication, and opportunity. The usual practice is to use the home base for the production of standardized products for export in order to gain some marginal business. Centralization of decision making is thus a necessity.

Behavior/ Attitude

Polycentricity

- strong orientation to host country

- decentralization of decision making

- effective but not efficient

Polycentricity

Polycentricity, the opposite of ethnocentricity, is a strong orientation to the host country. The attitude places emphasis on differences between markets that are caused by variations within, such as in income, culture, laws, and politics. The assumption is that each market is unique and consequently difficult for outsiders to understand. Thus, managers from the host country should be employed and allowed to have a great deal of discretion in market decisions.

Behavior/ Attitude

Geocentricity

- world orientation

- centralization + decentralization + coordination

- efficient and effective

Geocentricity

Geocentricity is a compromise between the two ethnocentricity and polycentricity. It could be argued that this attitude is the most important of the three. Geocentricity is an orientation that considers the whole world rather than any particular country as the target market. As such, “international” or “foreign” departments or markets do not exist because the company does not designate anything international or foreign about a market. Corporate resources are allocated without regard to national frontiers, and there is no hesitation in making direct investment abroad when warranted.

THE PROCESS OF INTERNATIONALIZATION

Many companies may have begun as domestic firms concentrating on their own domestic markets before shifting or expanding the focus to also cover international markets. As they become more international, they are supposed to move from being sporadic exporters to being frequent exporters before finally doing manufacturing abroad. It is thus useful to investigate the stages of internationalization. One study found evidence to support the hypothesis that there are four identifiable stages in a firm’s internationalization. The four stages are: nonexporters, export in tenders, sporadic exporters, and regular exporters.

Based on his review of a number of the internationalization models which specify the various stages of internationalization, Andersen has proposed his own U-model which has received mixed empirical support. According to this model, there are four stages: (1) no regular export activities, (2) export via independent representatives (agent), (3) establishment of an overseas sales subsidiary, and (4) overseas production/manufacturing. The development is supposed to take place initially within a specific country before being repeated across countries.

Several Silicon Valley companies do not see the need to have a business model first for the US market before going overseas. Instead, their mission is global almost from birth. As such, from the beginning, they may employ engineers in India, manufacture in Taiwan, and sell in Europe. At present, there is no conclusive evidence to show that domestic firms have generally indeed progressed from one stage to another as prescribed on their way to becoming more internationally oriented.

Benefits of International Marketing

Survival and Growth Sales and Profits Diversification Inflation and Price Moderation Employment Standards of Living Understanding of Marketing Process

Survival and growth

For companies to survive, they need to grow. Because most countries are not as fortunate as the USA in terms of market size, resources, and opportunities, they must trade with others to survive. Since most European nations are relatively small in size, they need foreign markets to achieve economies of scale so as to be competitive with American firms. International competition may not be a matter of choice when survival is at stake. A study of five medical sector industries found that international expansion was necessary when foreign firms entered a domestic market.

Survival and growth

However, only firms with previously substantial market share and international experience could expand successfully. Moreover, firms that retrenched after an international expansion disappeared. Even American marketers cannot ignore the vast potential of international markets. The world market is more than four times larger than the US market. In the case of Amway Corp., a privately held US manufacturer of cosmetics, soaps, and vitamins, Japan represents a larger market than the USA.

Sales and profits

Foreign markets constitute a large share of the total business of many firms that have wisely cultivated markets abroad. The case of Coca-Cola clearly emphasizes the importance of overseas markets. International sales account for more than 80 percent of the firm’s operating profits. In terms of operating profit margins, they are less than 15 percent at home but twice that amount overseas. For every gallon of soda that Coca-Cola sells, it earns 37 cents in Japan – a marked difference from the mere 7 cents per gallon earned in the USA.

Sales and profits

The Japanese market contributes about $350 million in operating income to Coca- Cola (vs. $324 million in the US market), making Japan the company’s most profitable market. With consumption of Coca-Cola’s soft drinks averaging 296 eight-ounce servings per person per year in the USA, the US market is clearly saturated. Non-US consumption, on the other hand, averages only about forty servings and offers great potential for future growth.

Diversification

Demand for most products is affected by such cyclical factors as recession and such seasonal factors as climate. The unfortunate consequence of these variables is sales fluctuations, which can frequently be substantial enough to cause layoffs of personnel. One way to diversify a company’s risk is to consider foreign markets as a solution to variable demand. Such markets even out fluctuations by providing outlets for excess production capacity. Cold weather, for instance, may depress soft drink consumption. Yet not all countries enter the winter season at the same time, and some countries are relatively warm all year round.

Diversification

Bird, USA Inc., a Nebraska manufacturer of go-carts and minicars for promotional purposes, has found that global selling has enabled the company to have year-round production. A similar situation pertains to the business cycle: Europe’s business cycle often lags behind that of the USA. That domestic and foreign sales operate in differing economic cycles works in the favor of General Motors and Ford because overseas operations help smooth out the business cycles of the North American market.