Chapter 1Copyright (c) 2007 John Wiley & Sons, Inc.1 Global Marketing Management, 4e Chapter 1...

Chapter 1Chapter 1 Copyright (c) 2007 John Wiley & Sons, Inc.Copyright (c) 2007 John Wiley & Sons, Inc. 11

Global Marketing Management, 4eGlobal Marketing Management, 4e

Chapter 1Chapter 1

Globalization ImperativeGlobalization Imperative


Historical Perspective of Historical Perspective of U.S. Business Overseas. U.S. Business Overseas.

U.S. was the dominant supplier of worldwide demand for U.S. was the dominant supplier of worldwide demand for technology and industrial goods during 1950’s, 60’s and technology and industrial goods during 1950’s, 60’s and early 70’s.early 70’s.

This resulted in technological & cultural arrogance This resulted in technological & cultural arrogance complacency (US: complacency (US: manufacturing nation, trading was for inferior nations like Japan) - unprepared for competition like Japan) - unprepared for competition first from Europe, then Japan, then Korea, Taiwan, first from Europe, then Japan, then Korea, Taiwan, Singapore etc. & now from China and India.Singapore etc. & now from China and India.

Lost large shares of US markets for textiles, garments, Lost large shares of US markets for textiles, garments, shoes, toys, steel, electronics, small appliances, autos, shoes, toys, steel, electronics, small appliances, autos, and much more during the 1970’s, 80’s, and 90’s. Now: and much more during the 1970’s, 80’s, and 90’s. Now: worries about “outsourcing”.worries about “outsourcing”.

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The State of Business

US accounts for 5% & 18% of the world US accounts for 5% & 18% of the world population & economy respectivelypopulation & economy respectively

A great majority of world business is A great majority of world business is conducted outside the USconducted outside the US

Business conducted internationally entails Business conducted internationally entails considering far more variables & decisions considering far more variables & decisions than business conducted in the home than business conducted in the home countrycountry


The State of Business

Most firms die youngMost firms die young Avg. corporate life expectancy in Europe & Avg. corporate life expectancy in Europe &

Japan is roughly 13 yearsJapan is roughly 13 years Avg. life expectancy of a global 500 MNC is Avg. life expectancy of a global 500 MNC is

40 to 50 yrs.40 to 50 yrs. Few of the firms in the 1970 Fortune 500 are Few of the firms in the 1970 Fortune 500 are

around todayaround today


The World – 1.The World – 1. About 210 countries in all; out of which:

About 30 countries are classified as Developed Countries – Also called OECD (Organization for Economic Cooperation and Development) countries. Include U.S., Canada, most of Europe, Japan, Australia, New Zealand, Singapore, Turkey, etc.

Another 30 or so are Middle Income Countries: Korea, Taiwan, Malaysia, Mexico, South Africa, Brazil, Israel, Chile, several Eastern/Southern European countries, Russia, etc.

Another 15 or so are Major Oil Exporters : 11 OPEC members like Saudi Arabia, Kuwait, Iran, Iraq, Indonesia, Nigeria, Venezuela, etc. Plus non-members like Mexico, Russia, U.K., and Norway.

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The World – 2.The World – 2. Developing Countries: Most Asian and African

countries (A majority of the world’s countries belong here). Rapidly Developing Very Large Countries: China,

India, Brazil, Russia (BRICs) Poor Countries: Countries stagnant at very low levels of

development, e.g., Burma, Bangladesh, Afghanistan, Haiti, Nepal, most sub-Saharan African countries.

The Triad Region (North America, Western Europe, (North America, Western Europe,and Japan) collectively produced over 78% of worldand Japan) collectively produced over 78% of worldGDP in 2004.GDP in 2004.

Source: World Trade Organization (WTO)Source: World Trade Organization (WTO)

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The World – 3.The World – 3.

Big Emerging Markets (BEMs): In the next 10-20 In the next 10-20 years, BEMs such as the Chinese Economic Area years, BEMs such as the Chinese Economic Area (CEA: China + HK+ Taiwan), India, South Korea, (CEA: China + HK+ Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, Russia, and the Association of Southeast Turkey, Russia, and the Association of Southeast Asian Nations (ASEAN: Asian Nations (ASEAN: including Indonesia, Brunei, including Indonesia, Brunei,

Malaysia, Thailand, the Philippines, and Vietnam)Malaysia, Thailand, the Philippines, and Vietnam) will will provide major/dominant opportunities in global provide major/dominant opportunities in global business. business.


World’s Largest Countries(by population)

World 6.72 billion1. China 1.3billion2. India 1.1b3. U.S. 305million4. Indonesia 232m5. Brazil 188m6. Pakistan 164m7. Bangladesh 159m8. Nigeria 148m9. Russia 142m10. Japan 128


World’s Biggest Economies PPP World’s Biggest Economies PPP 2007 estimates.2007 estimates.

World $65.6 trillion EU $14.4 trillion 1 US $13.8 trillion 2 China $7.0 trillion 3 Japan $4.3 trillion 4 India $3.0 trillion 5 Germany $2.8 trillion 6 UK $2.1 trillion 7 Russia $2.09 trillion 8 France $2.05 trillion $2.05 trillion

9 9 Brazil $1.84 trillion 10 Italy $1.79 trillion 11 Spain $1.352 trillion 12 Mexico $1.346 trillion 13 Canada $1.266 trillion 14 South Korea $1.2 trillion 15 Turkey $888 billion16 Indonesia $838 billion17 Australia $761 billion18 Iran $753 billion $753 billion

Source: CIA World Fact BookSource: CIA World Fact Book


Nationalities of World’s Largest Nationalities of World’s Largest Companies Companies (2008).(2008).

1. U.S. - 1532. Japan - 643. France - 394. Germany - 375. Britain - 346. China - 297. South Korea -158. Canada - 148. Switzerland - 14

10. Netherlands - 1311. Spain - 1112. Italy - 1013. Australia - 814. India - 7 15. Sweden - 615. Taiwan - 617. Mexico - 5

Source: ForbesSource: Forbes

Also see Exhibit 1-1 in the text


International Trade.International Trade. Products have been traded across borders Products have been traded across borders

throughout recorded civilization, extending back throughout recorded civilization, extending back beyond the beyond the Silk Road that once connected East that once connected East with West from Xian (China) to Rome (Italy). The with West from Xian (China) to Rome (Italy). The North-South extension of the silk Road connected North-South extension of the silk Road connected India to this route. Also important were the North-India to this route. Also important were the North-South trade caravans in Africa.South trade caravans in Africa.

Total world trade volume in goods and services Total world trade volume in goods and services grew from $7.6 trillion in 2000 to nearly $14 trillion grew from $7.6 trillion in 2000 to nearly $14 trillion in 2007. in 2007.


World’s Largest Exporters/ImportersWorld’s Largest Exporters/Importers

World Exports $14+ trillion

1 Germany $1.334 trillion

2 China $ 1.217 tr.

3 United States $1.149 tr.

4 Japan $677 billion billion

5 5 France $548 billion

Source: CIA World Fact Book, 2007Source: CIA World Fact Book, 2007

World ImportsWorld Imports – 14+ trillion – 14+ trillion

1. United States $1.97trillion 1. United States $1.97trillion

2. Germany $ 1.09tr2. Germany $ 1.09tr

3. China $ 901million3. China $ 901million

4. United Kingdom $ 617b 4. United Kingdom $ 617b

5. France $ 600b5. France $ 600b

https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html


Why Global Marketing is ImperativeWhy Global Marketing is Imperative

Domestic Market Saturation, especially First World markets Intensifying Global/Domestic competition. Expanding market opportunities. Higher margins overseas Spreading the risk Customers moving abroad Need for global cooperation (Global competition brings

global cooperation). The Internet and e-commerce revolution

Etc.Etc.


Globalization of Markets: Convergence Globalization of Markets: Convergence and Divergenceand Divergence

Per capita income determines buying behavior. Per capita income determines buying behavior.

In lower per-capita-incomes countries much of the In lower per-capita-incomes countries much of the income is spent on food and other necessities. income is spent on food and other necessities. Very little discretionary spending.Very little discretionary spending.

In higher per-capita-income countries discretionary In higher per-capita-income countries discretionary portion of income increases dramatically portion of income increases dramatically → → increased convergent pressures on consumer increased convergent pressures on consumer buying behavior.buying behavior.



People with higher incomes tend to enjoy similar People with higher incomes tend to enjoy similar educational levels, desire for material positions, educational levels, desire for material positions, leisure time pursuits, and aspirations for the future.leisure time pursuits, and aspirations for the future.

Globalization liberates local cultures from Globalization liberates local cultures from ethnocentricity so consumers become more ethnocentricity so consumers become more receptive to new things and choose from a wider, receptive to new things and choose from a wider, more divergent “choice set” of goods and services.more divergent “choice set” of goods and services.

Divergence of consumer needs is taking place at Divergence of consumer needs is taking place at the same time.the same time.



International trade: exports and imports.International business: international trade and

foreign production.Global reach: extensive international penetration of extensive international penetration of

companies.companies.International trade and foreign production activities International trade and foreign production activities

are managed on a global basis.are managed on a global basis.Growth of Multinational Corporations (MNCs) and Growth of Multinational Corporations (MNCs) and

intra-firm trade is a major aspect of global intra-firm trade is a major aspect of global markets.markets.


Appendix: Theories of International Appendix: Theories of International Trade & the Multinational EnterpriseTrade & the Multinational Enterprise

── Absolute AdvantageAbsolute Advantage– Comparative AdvantageComparative Advantage– Commodity Terms of TradeCommodity Terms of Trade– Factor Endowment TheoryFactor Endowment Theory– International Product Cycle TheoryInternational Product Cycle Theory– Economies of ScaleEconomies of Scale– Supply Industry PositionSupply Industry Position


Absolute & Comparative Advantage.Absolute & Comparative Advantage. Absolute advantage Suppose country A is better than country B at

making automobiles, and country B is better than country A at making bread, then both would benefit if A specialized in automobiles, B specialized in bread and they traded their excess production.

But what if a country A is better than B at making everything? They would still benefit from trade because of the principle of comparative advantage which says that if A is much more superior at making automobiles and only slightly superior at making bread, then A should then A should still invest resources in what it does best — producing automobiles — still invest resources in what it does best — producing automobiles — and export the product to B. B should still invest in what it does best — and export the product to B. B should still invest in what it does best — making bread — and export that product to A even if it is not as making bread — and export that product to A even if it is not as efficient as A. Both would still benefit from the trade. A country does efficient as A. Both would still benefit from the trade. A country does not have to be best at anything to gain from trade. not have to be best at anything to gain from trade.

Sources of Comparative Advantage Sources of Comparative Advantage (Resource Endowment).(Resource Endowment).

(A)(A) Natural Resources (climate, size, location, topography,

flora & Fauna, minerals, etc.).

(B) Man-made Resources (Science, technology, engineering,

infrastructure, capital, etc.)

(C) Human Resources (number, age distribution, health, size,

etc.)

(D) Managerial know-how, education & training

(E) Traditions IKIK

TM 16 Factors of Comparative Advantage


Comparative Advantage – Example.Comparative Advantage – Example.U.S. vs. China

Both have 1,000lh (labor hour) resourcesUS: 1lh corn, 5lh microwave

China: 5lh corn, 2lh microwave

Without Trade:- U.S. – 500 corn + 100 microwave- China – 100 corn + 250 microwaveTotal = 600 corn + 350 microwave

With trade:- U.S. – 1,000 corn, China – 500 microwaveTotal = 1,000 corn + 500 microwave ovens


International Product Life Cycle TheoryInternational Product Life Cycle Theory



Chapter 2

Global Economic Environment


1. Intertwined World Economy1. Intertwined World Economy

Foreign direct investment (FDI): investment in investment in manufacturing and service facilities in a foreign manufacturing and service facilities in a foreign country.country.

In recent decades, companies from many countries In recent decades, companies from many countries have expanded into new markets around the world, have expanded into new markets around the world, thereby adding to the stock of foreign direct thereby adding to the stock of foreign direct investment.investment.

The increase in foreign direct investment has also The increase in foreign direct investment has also been promoted by the efforts of many national been promoted by the efforts of many national governments to woo multinationals.governments to woo multinationals.

Portfolio investment or indirect investment refers to refers to investments in foreign countries that are withdrawable investments in foreign countries that are withdrawable at short notice, such as foreign stocks and bonds.at short notice, such as foreign stocks and bonds.


1. Intertwined World Economy1. Intertwined World Economy Examples of severe currency fluctuations:Examples of severe currency fluctuations:

– Current US mortgage and credit meltdown Current US mortgage and credit meltdown →→ severe worldwide severe worldwide consequences.consequences.

– 1995 Mexican meltdown1995 Mexican meltdown– Asian financial crisis (1997-1999) Asian financial crisis (caused by Asian financial crisis (1997-1999) Asian financial crisis (caused by

China’s devaluation the yuan) China’s devaluation the yuan) →→Thai baht lost almost 60% of its Thai baht lost almost 60% of its purchasing power in dollar terms, Malaysian ringgit 40%, Korean purchasing power in dollar terms, Malaysian ringgit 40%, Korean won 50%.won 50%.

Argentina and Brazil financial crises (2001, 2002) Argentina and Brazil financial crises (2001, 2002) Argentina defaulted and lost 40%of its currency value. It Argentina defaulted and lost 40%of its currency value. It also effected Brazil.also effected Brazil.

The influence of these short-term money flows are The influence of these short-term money flows are nowadays far more powerful for exchange rates than an nowadays far more powerful for exchange rates than an investment by a Japanese or German automaker.investment by a Japanese or German automaker.


Forces Affecting Global Integration Forces Affecting Global Integration and Global Marketing.and Global Marketing.

Driving ForcesDriving Forces– Regional economic agreementsRegional economic agreements– Market needs and wantsMarket needs and wants– TechnologyTechnology– Transportation and Transportation and

communication improvementscommunication improvements– Product development costsProduct development costs– QualityQuality– World economic trendsWorld economic trends– LeverageLeverage

Restraining Forces– Management myopiaManagement myopia– Organizational cultureOrganizational culture– National controlsNational controls


Trade Barriers.Trade Barriers.- Tariffs

- Non-tariff Barriers (port charges, import deposits, consular fees, stamp taxes, etc.).

- Customs processing/administrative barriers (tariff calculation, customs formalities, administrative obstacles, certification, etc.).

- Quantitative restrictions (embargos, quotas, import licenses, bilateral agreements, etc.).

- State participation in trade (subsidies, government procurements, government monopolies, etc.).

- Technical norms/ standards/consumer protection (regulations: health/safety, product design, sizes/weights & measures, packaging, labeling, trademarks, etc.).

- Flag protectionism -IK

TM 20 Trade Barriers


2. Country Competitiveness2. Country Competitiveness

Country competitiveness refers to the refers to the productiveness of a country, which is represented productiveness of a country, which is represented by its firms’ domestic and international productive by its firms’ domestic and international productive capacity.capacity.

Country competitiveness is not a fixed thing.Country competitiveness is not a fixed thing. The role of human skill resources has become The role of human skill resources has become

increasingly important as a primary determinant of increasingly important as a primary determinant of industry and country competitivenessindustry and country competitiveness


2. Country Competitiveness (2007 Report).

Twenty Most Competitive1. United States 1. United States 5.675.672. Switzerland 2. Switzerland 5.62 5.62 3. Denmark 3. Denmark 5.55 5.55 4. Sweden 4. Sweden 5.545.545. Germany 5. Germany 5.51 5.51 6. Finland 6. Finland 5.49 5.49 7. Singapore 7. Singapore 5.45 5.45 8. Japan 8. Japan 5.43 5.43 9. United Kingdom 9. United Kingdom 5.41 5.41 10. Netherlands 10. Netherlands 5.40 5.40 11. Korea 11. Korea 5.40 5.40 12. Hong Kong 12. Hong Kong 5.37 5.37 13. Canada 13. Canada 5.34 5.34 14. Taiwan 14. Taiwan 5.25 5.25 15. Austria 15. Austria 5.23 5.23 16. Norway 16. Norway 5.205.2017. Israel 17. Israel 5.20 5.20 18. France 18. France 5.185.1819. Australia 19. Australia 5.175.1720. Belgium 20. Belgium 5.105.10

Twenty Least Competitive112. Burkina Faso 3.43113. Suriname 3.40 114. Nepal 3.38 115. Mali 3.37 116. Cameroon 3.37117. Tajikistan 3.37 118. Madagascar 3.36119. Kyrgyz Republic 3.34120. Uganda 3.33 121. Paraguay 3.30122. Zambia 3.29 123. Ethiopia 3.28124. Lesotho 3.27125. Mauritania 3.26126. Guyana 3.25 127. East Timor 3.20128. Mozambique 3.02129. Zimbabwe 2.88 131. Burundi 2.84 132. Chad 2.78

Source: World Economic Forum, Global Competitiveness ReportSource: World Economic Forum, Global Competitiveness Report


Evolution of Cooperative Global Trade Agreements

International Trade Organization (ITO): Agreed upon Bretton Woods (1944) but never ratified by the U.S.

GATT (General Agreement on Tariffs and Trade): agreed upon in Geneva and adopted by 23 countries in1947Purpose: provide an international forum to encourage free trade among member statesMeans: 1. regulation and reduction of tariffs on traded goods, 2. provision of a common mechanism for resolving trade disputesName: Changed to World Trade Organization (WTO) on January 1, 1995 (based in old GATT offices in Geneva)


Evolution of Cooperative Global TradeEvolution of Cooperative Global TradeAgreementsAgreements

WTO continues to supervise & liberalize trade betweennations (153 members as of 12/9/2008). It It deals with the rulesdeals with the rulesof trade between nations; negotiates and implements newof trade between nations; negotiates and implements newtrade agreements, and is in charge of policing membertrade agreements, and is in charge of policing membercountries‘ adherence to all the WTO agreements countries‘ adherence to all the WTO agreements Functions:• • Administers WTO trade agreements Administers WTO trade agreements • • Forum for trade negotiationsForum for trade negotiations• • Handles trade disputes (has the power to to enforce rulings)Handles trade disputes (has the power to to enforce rulings)• • Monitors national trade policies (countries found in Monitors national trade policies (countries found in violation of WTO rules are expected to change policies orviolation of WTO rules are expected to change policies or else face sanctions)else face sanctions)


4. Evolution of Cooperative Global Trade 4. Evolution of Cooperative Global Trade AgreementsAgreements

WTO’s ninth round---called the “Doha WTO’s ninth round---called the “Doha Development Agenda” Development Agenda” (Doha Round) was was launched in Doha, Qatar in November 2001. It launched in Doha, Qatar in November 2001. It facilitated the way for China and Taiwan to get facilitated the way for China and Taiwan to get full membership in the WTO.full membership in the WTO.

Interim deal in December 2005 to end farm Interim deal in December 2005 to end farm export subsidies by 2013 export subsidies by 2013 seemedseemed to prevent the to prevent the collapse of the this round of talks, but didn’t.collapse of the this round of talks, but didn’t.

The Doha Round negotiations are considered to The Doha Round negotiations are considered to have failed as of August, 2008.have failed as of August, 2008.


Information Technology and the Information Technology and the Changing Nature of CompetitionChanging Nature of Competition

Over the Internet, any piece of electronically Over the Internet, any piece of electronically represented intellectual property can be copied.represented intellectual property can be copied.

The Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement was concluded as part Agreement was concluded as part of the GATT Uruguay Round. Update to accord of the GATT Uruguay Round. Update to accord ensuring patent protection does not block ensuring patent protection does not block developing countries’ access to affordable developing countries’ access to affordable medicines is at the top of the agenda. medicines is at the top of the agenda.


Information Technology and the Information Technology and the Changing Nature of CompetitionChanging Nature of Competition

Proliferation of E-Commerce and Regulations: Countries’ regulators have not kept pace with the Countries’ regulators have not kept pace with the rapid proliferation of international e-commerce and rapid proliferation of international e-commerce and Internet-related activities.Internet-related activities.

In many countries, rules and regulations are vague In many countries, rules and regulations are vague regarding e-commerce transactions.regarding e-commerce transactions.

The United Nations Commission on International Trade Law (UNCITRAL) has formed a Working has formed a Working Group on Electronic Commerce to reexamine Group on Electronic Commerce to reexamine these treaties.these treaties.


Levels of Economic IntegrationLevels of Economic IntegrationRemoval of Common Free Flow Harmonize CoordinateInternal External Of Capital Single Economic Political

Level of Integration Tariffs Tariffs and Labor Currency Policies Syatems

Free Trade Area

Customs Union

Common Market

Monetary Union

Economic Union

Political Union


European Union.European Union.


EU Membership HistoryEU Membership History1952: Belgium, Netherlands Luxemburg, Germany,1952: Belgium, Netherlands Luxemburg, Germany, France & ItalyFrance & Italy1973: Denmark, Ireland, UK1973: Denmark, Ireland, UK1981: Greece1981: Greece1986: Portugal, Spain1986: Portugal, Spain1995: Austria, Finland, Sweden1995: Austria, Finland, Sweden2004: Cyprus, the Czech Republic, Estonia, Hungary,2004: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the SlovakLatvia, Lithuania, Malta, Poland, the Slovak Republic and SloveniaRepublic and Slovenia2007: Romania, Bulgaria (27 countries)2007: Romania, Bulgaria (27 countries)IKIK


EU’s Governing Bodies.EU’s Governing Bodies.

Council of European Union - Main decision-making body. One minister from each member country.

European Parliament (Legislative body)

European Commission (Bureaucracy)

Court of Justice - Ensures that Community laws are uniformly interpreted and applied

Court of Auditors - Checks EU’s receipts and expenses and manages the budget.

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Other Agreements.Other Agreements. North America: NAFTA Europe: EFTA (European Free Trade Association):

Iceland, Norway, Switzerland and Liechtenstein. Africa: Different agreements. Recent example:

ECOWAS (Economic Community of West African States)

Latin America: MERCOSUR (Southern Common Market), LAIA (Latin American Integration Association); CENCOM (Central American Common Market); ANCOM (Andean Common Market); CARICOM (Caribbean Community and Common Market)

Asia: ASEAN (Association of South East Asian Nations); SAARC (South Asian Association for Regional Cooperation)


Mercosur.Mercosur.



Chapter 3

Financial Environment


2. Development of Today’s International 2. Development of Today’s International Monetary SystemMonetary System

The 1944 Bretton Woods (New Hampshire) The 1944 Bretton Woods (New Hampshire) conference also established theconference also established the

IMF (International Monetary Fund) to to::

– promote international monetary cooperationpromote international monetary cooperation– expansion and balanced growth of international tradeexpansion and balanced growth of international trade– promote orderly exchange arrangementspromote orderly exchange arrangements– assist in the establishment of a multilateral system of assist in the establishment of a multilateral system of

payments in respect to current transactions between payments in respect to current transactions between member nations; to eliminate foreign exchange member nations; to eliminate foreign exchange restrictionsrestrictions


2. Development of Today’s 2. Development of Today’s International Monetary SystemInternational Monetary System

The IMF makes temporarily loans fund’s resources The IMF makes temporarily loans fund’s resources to members under adequate safeguards, to help to members under adequate safeguards, to help them correct balance of payment problems, andthem correct balance of payment problems, and

To shorten the duration and lessen the degree of To shorten the duration and lessen the degree of disequilibrium in the international balance of disequilibrium in the international balance of payments to memberspayments to members

IMF resources are in SDRs whose value is IMF resources are in SDRs whose value is determined by a weighted average of the U.S. determined by a weighted average of the U.S. dollar, the yen, the euro, and the British pound.dollar, the yen, the euro, and the British pound.


2. The World Bank Group.2. The World Bank Group.

IBRD (1945) International Bank for Reconstructionand DevelopmentIFC (1956) International Finance CorporationIDA (1960) International Development Association MIGA (1988) Multilateral Investment GuaranteeAgency, and ICSID (1966) International Centre for Settlement ofInvestment Disputes


4. Foreign Exchange and Exchange 4. Foreign Exchange and Exchange RatesRates

Spot versus forward exchange ratesSpot versus forward exchange rates Fixed exchange ratesFixed exchange rates Floating exchange ratesFloating exchange rates

– Free (no government intervention)Free (no government intervention)– Managed (some government intervention)Managed (some government intervention)

To avoid the risk of currency fluctuations, To avoid the risk of currency fluctuations, companies use hedging.companies use hedging.

Target exchange rateTarget exchange rate Exchange rate pass throughExchange rate pass through

Hedging ExampleHedging ExampleHedging involves engaging in 2 equal but opposite transactions in the Spot Hedging involves engaging in 2 equal but opposite transactions in the Spot

and Forward markets simultaneouslyand Forward markets simultaneously

Spot Market Forward Market

2/1/09 2/1/09Bought 10mm £ @ £10/$ Sold 10mm 5/31/09 £ @ £9/$

4/20/09 4/20/09Sold 10mm £ @ £11/$ Bought 10mm £ @ £10/$

Result: 1 £/$ loss Result: 1 £/$ profit Net result= +/- 0 (perfect hedge)

Hedging is made possible because prices in the spot and the forward markets almost always move in the same direction by the same amount and there are speculators on both sides of expected future price movements.


Foreign Exchange and Exchange Rates

Factors influencing Foreign Exchange Rates– Macroeconomic Factors: Relative inflation, balance of

payments, foreign exchange reserves, economic growth, government spending, money supply growth, and interest rate policy.

– Political Factors: Exchange rate control, election year or leadership change.

– Random Factors: Unexpected and/or unpredicted events, fear of uncertainty, etc.

Many countries attempt to maintain a lower value to maintain a lower value for their currency in order to encourage exports.for their currency in order to encourage exports.


Big Mac Earn Time.Big Mac Earn Time.Ten fastest earnedTen fastest earnedTokyo - 10 min Los Angeles - 11 min Chicago - 12 min Miami - 12 min New York City - 13 minAuckland - 14 minSydney - 14 minToronto - 14 minZürich - 15 minDublin - 15 min - 15 min

Ten slowest earnedTen slowest earnedSofia - 69 minBucharest - 69 min - 69 minBombay - 70 minManila - 81 minMexico City - 82 minCaracas - 85 minJakarta - 86 minLima - 86 minNairobi - 91 minBogotá - 97 min

http://en.wikipedia.org/wiki/Tokyo

http://en.wikipedia.org/wiki/Los_Angeles,_California

http://en.wikipedia.org/wiki/Chicago

http://en.wikipedia.org/wiki/Miami,_Florida

http://en.wikipedia.org/wiki/New_York_City

http://en.wikipedia.org/wiki/Auckland

http://en.wikipedia.org/wiki/Sydney

http://en.wikipedia.org/wiki/Toronto

http://en.wikipedia.org/wiki/Z%C3%BCrich

http://en.wikipedia.org/wiki/Dublin

http://en.wikipedia.org/wiki/Sofia

http://en.wikipedia.org/wiki/Bucharest

http://en.wikipedia.org/wiki/Manila

http://en.wikipedia.org/wiki/Mexico_City

http://en.wikipedia.org/wiki/Caracas

http://en.wikipedia.org/wiki/Jakarta

http://en.wikipedia.org/wiki/Lima

http://en.wikipedia.org/wiki/Nairobi

http://en.wikipedia.org/wiki/Bogot%C3%A1


Balance of PaymentsBalance of Payments

The balance of payment (BOP): summary of all transactions between a country & its residents and other countries (& their residents) over a specified time period (a month, quarter, or year).

The BOP transactions contain three categories– Current account– Capital account– Official reserves


Balance of Payments CategoriesBalance of Payments Categories

Current account = Balance of trade + Net factor income (fees, interest, dividends etc.) + net unilateral transfers from abroad

Financial account (IMF)/Capital account (economics)) == Increase in foreign Increase in foreign ownership of domestic assets - Increase in domestic ownership of ownership of domestic assets - Increase in domestic ownership of foreign assets (= FDI) + Portfolio investment + Other investmentforeign assets (= FDI) + Portfolio investment + Other investment

Official reserves = Stock of reserve assets at a country’s monetary authority (official gold reserves + foreign exchange reserves + (IMF) SDRs + any foreign property held by such central banks)

Net errors and omissions: any necessary corrections in the above three accounts

Source: Wikipedia


Responses to the Regional Financial Crises

Consumer response to the recession Consumer response to the recession (see Exhibit (see Exhibit 3-7 in your text)3-7 in your text)

– Corporate response to the recessionCorporate response to the recession Pull-outPull-out Emphasize a product’s valueEmphasize a product’s value Change the product mixChange the product mix Repackage the goodsRepackage the goods Maintain stricter inventoryMaintain stricter inventory Look outside the region for expansion opportunitiesLook outside the region for expansion opportunities Increase advertising in the regionIncrease advertising in the region Increase local procurementIncrease local procurement



Chapter 4Chapter 4

Global Cultural Global Cultural Environment and Environment and Buying BehaviorBuying Behavior


IntroductionIntroduction Culture drives buyer behavior & consumer needsCulture drives buyer behavior & consumer needs A culture influences consumption processes:A culture influences consumption processes:

1.1. Access (economic, physical)Access (economic, physical)2.2. Buying behavior (brand/country perceptions, loyalty, Buying behavior (brand/country perceptions, loyalty,

attitudes about marketing & consumption, etc.)attitudes about marketing & consumption, etc.)3.3. Consumption characteristics (products vs. service, Consumption characteristics (products vs. service,

cultural orientation - traditional vs. modern, social cultural orientation - traditional vs. modern, social influences, urban vs. rural, etc.)influences, urban vs. rural, etc.)

4.4. Disposal (resale, recycle, repair, social responsibility, Disposal (resale, recycle, repair, social responsibility, environmental orientation, etc.) environmental orientation, etc.) (see Exhibit 4-1 in your text).(see Exhibit 4-1 in your text).

Global business means dealing with consumers, Global business means dealing with consumers, strategic partners, distributors, and competitors strategic partners, distributors, and competitors with different cultural mindsets.with different cultural mindsets.


1. Definition of Culture1. Definition of Culture

Numerous definitions of culture. Numerous definitions of culture. Your text: culture culture (in a business setting) is defined as being a (in a business setting) is defined as being a learned, shared, compelling, interrelated set of learned, shared, compelling, interrelated set of symbols whose meanings provide a set of symbols whose meanings provide a set of orientations for members of society.orientations for members of society.

Cultures are often defined by national borders, Cultures are often defined by national borders, especially when countries are isolated by natural especially when countries are isolated by natural barriers.barriers.

Cultures contain subcultures that may have little in Cultures contain subcultures that may have little in common with one another but a lot in common common with one another but a lot in common with the mainstream culturewith the mainstream culture


2. Elements of Culture2. Elements of Culture

– Material life (technologies that are used to produce, distribute, and consume goods and services)

– Language (language has two parts: the spoken and the silent language)

– Social Interaction (social interactions among (social interactions among people; nuclear family, extended family; people; nuclear family, extended family; reference groups), reference groups), proxemics (differences in personal and public space), eye contact, body contact etc.


LanguageLanguage

Written/Spoken/Body LanguageWritten/Spoken/Body Language Forms of AddressForms of Address Direct/ContextualDirect/Contextual HierarchyHierarchy DiversityDiversity Etc.Etc.


2. Elements of Culture2. Elements of Culture

– Aesthetics (ideas and perceptions that a culture upholds in terms of beauty and good taste)

– Religion (community’s set of beliefs that relate to a reality that cannot be verified empirically)

– Education (One of the major vehicles to channel from one generation to the next)

– Value System (values shape people’s norms (values shape people’s norms and standards)and standards)


ReligionReligion

Religious Philosophies: Christian, Muslim, : Christian, Muslim, Hindu, Buddhist, Confucian, Shinto, Jewish, Hindu, Buddhist, Confucian, Shinto, Jewish, othersothers

Superstitions and other supernatural beliefsand other supernatural beliefs


EducationEducation

Levels of ParticipationLevels of Participation Literacy Literacy SecondarySecondary VocationalVocational TertiaryTertiary Technical, ProfessionalTechnical, Professional Etc.Etc.


3. Cross-Cultural ComparisonsHofstede’s Cultural Classification Scheme

(see Exhibits 4-7A & 4-7B):(see Exhibits 4-7A & 4-7B):

Power distance: The degree of inequality among people in a culture

Uncertainty avoidance: cultural preference for structured situations with clear rules over unstructured ones

Individualism: preference for individual vs. group actions.

Masculinity: The importance of “male” vs. “female” values

Long-term vs. short-term orientation: Future versus versus past and present orientationspast and present orientations


Japan vs. The US.Japan vs. The US.Variable Japan USPersonal EmphasisPersonal Emphasis GroupGroup Individual IndividualAttitudeAttitude Self-denial, Dependence Self-expressive, Self-denial, Dependence Self-expressive,

Independence Independence Social EmphasisSocial Emphasis ObligationsObligations Rights RightsStyleStyle CooperationCooperation Competition CompetitionAssumptionsAssumptions InterdependenceInterdependence Independence IndependenceView of SelfView of Self Organization Man Organization Man Individual with Skill Individual with SkillCultural Attitude 1Cultural Attitude 1 We are uniqueWe are unique Everybody is like us Everybody is like usCultural Attitude 2Cultural Attitude 2 Willing to borrow/adopt/ NIH syndromeWilling to borrow/adopt/ NIH syndrome

adaptadaptOrganizational goal 1Organizational goal 1 Share of the marketShare of the market Profitability, Profitability,

FinancialFinancial successsuccess

Organizational goal 2Organizational goal 2 World marketsWorld markets National markets National marketsOrganizational goal 3Organizational goal 3 Quality, Customer value Production, FinancialQuality, Customer value Production, Financial

returnreturn


4. Adaptation to Cultures4. Adaptation to Cultures

Self-reference criterion (SRC): people’s unconscious tendency to resort to their own cultural experience and value systems to interpret a given business situation.

Ethnocentrism: the feeling of or belief in the feeling of or belief in one’s own cultural superiority.one’s own cultural superiority.


5. Culture and the Marketing Mix5. Culture and the Marketing Mix

Product Policy: some products are more culture-bound thanothers. Food, beverages, and clothing products tend to bevery culture bound.Pricing:: Pricing policies are driven by four Cs: Customers, Pricing policies are driven by four Cs: Customers,Company (costs, objectives, strategy), Competition andCompany (costs, objectives, strategy), Competition andCollaborators (e.g., distributors)Collaborators (e.g., distributors)Distribution: Cultural variables may also dictate distributionstrategies.Promotion: Culture typically has a major influence on this a Culture typically has a major influence on this afirm’s communication strategy most visible marketing mixfirm’s communication strategy most visible marketing mixcomponent.. component..


Chapter 5

Political and Legal Political and Legal EnvironmentsEnvironments


Political Environment - Individual Governments

Structure of Government:Ideology – Communism– Socialism– Capitalism– Political Parties

Single-party-dominant countries Dual-party systems Multi-party systems

Government Policies and Regulations: Designed to promote a country’s interests in the international arena promote a country’s interests in the international arena regarding national security, developing new industries, regarding national security, developing new industries, protecting declining industries. creating employment, etc.protecting declining industries. creating employment, etc.


Consequences Of Political Actions – 1.

Indigenization/DomesticationIndigenization/Domestication Nationalization Nationalization (Acceptable according to (Acceptable according to

international law if: satisfies public purpose & includes international law if: satisfies public purpose & includes compensation)compensation)

Expropriation Expropriation (prompt, effective, fair compensation)(prompt, effective, fair compensation) Confiscation Confiscation (no compensation)(no compensation) Local content/local buying/local hiring lawsLocal content/local buying/local hiring laws Discriminatory taxesDiscriminatory taxes Discriminatory pricing of resourcesDiscriminatory pricing of resourcesIKIK


Consequences Of Political Actions – 2.

Threat of equity dilutionThreat of equity dilution Joint-venture pressureJoint-venture pressure Import/Export restrictionsImport/Export restrictions Profit repatriation restrictionsProfit repatriation restrictions Selective boycottsSelective boycotts Price controlsPrice controls TerrorismTerrorism Etc….Etc….IKIK


POLITICAL-RISK INDICATORS. ECONOMIC

- GDP, Inflation, Capital flight- Foreign debt, Food output- Commodity dependence...

POLITICAL- Wars or involvement in foreign conflicts...- Relations with neighbors- Degree of authoritarianism (use of coercion to retain power)- Legitimacy of government/Mechanisms for transfer of power

- Military or political control- Politically motivated violence

SOCIETAL- Urbanization,,- Corruption, nepotism…, nepotism…- Social Unrest (ethnic, language, religious… fundamentalism)- Social Unrest (ethnic, language, religious… fundamentalism)- Xenophobia, Extreme nationalism- Xenophobia, Extreme nationalism

IKIK


Political RiskPolitical Risk Assessment.Assessment.

Risk Assessment TechniquesRisk Assessment Techniques- - Grand Tour Grand Tour (include AmCham)(include AmCham)

- - Old HandOld Hand- - Delphi TechniqueDelphi Technique- Quantitative MethodsQuantitative Methods- Commercial servicesCommercial servicesIKIK


Risk Reduction Strategies.Risk Reduction Strategies. Local PartnersLocal Partners Invaluable StatusInvaluable Status Critical TechnologiesCritical Technologies Frequent Tech. transfersFrequent Tech. transfers Critical Parts from Home CountryCritical Parts from Home Country Vertical IntegrationVertical Integration Local BorrowingLocal Borrowing Minimizing Fixed InvestmentsMinimizing Fixed Investments Political Risk InsurancePolitical Risk Insurance Etc.Etc.


3. Terrorism and the World Economy3. Terrorism and the World Economy According to an IMF study, the September 11, 2001 According to an IMF study, the September 11, 2001

terrorist attacks resulted in short-term lost economic output terrorist attacks resulted in short-term lost economic output worth an estimated as $47billion, the stock market lost $1.7 worth an estimated as $47billion, the stock market lost $1.7 trillion. In addition, 125,000 workers were laid off for 30 trillion. In addition, 125,000 workers were laid off for 30 days.days.

Terrorist activities disrupt international movement of Terrorist activities disrupt international movement of supplies and merchandise and financial flows.supplies and merchandise and financial flows.

Terrorists are active in many countries and often target Terrorists are active in many countries and often target large firms to get money for profit, weapons, payrolls, large firms to get money for profit, weapons, payrolls, bribes, expenses, etc. Piracy has historically been bribes, expenses, etc. Piracy has historically been practiced in most of the world’s seas. practiced in most of the world’s seas. During 2008, Somali pirates captured 42 ships and received $30million in ransom. Have already captured about 40 ships in 2009.. Have already captured about 40 ships in 2009.


International Legal Environment - 1International Legal Environment - 1

Types of Legal Systems:Common LawCode (written) LawCivil LawCommercial LawIslamic Law

International Law (the law of nations) comes from (the law of nations) comes from three main sources: Customs, International three main sources: Customs, International treaties, Court decisionstreaties, Court decisions


International Legal Environment - 2International Legal Environment - 2

U. S. Laws- The Sherman Antitrust Act (1890)- The Clayton Act (1914)- Foreign Corrupt Practices Act (FCPA), 1977: prohibits the

payment of any money or anything of value to a foreign official, political party, or any candidate for political office for purposes of obtaining, retaining, or directing business.– FCPA does not prohibit so called facilitating or grease

payments. It also does not prohibit bribery payments to nongovernmental personnel.

Local laws governing business practices ─ Competition, fraud, consumer protection, labor rights,

routine business practices, etc.


Chapter 6

Global Marketing Research


IntroductionIntroduction

Major challenges faced by global marketingresearchers:1.1. Complexity of research design due to environmental Complexity of research design due to environmental

differencesdifferences2.2. Lack and inaccuracy of secondary dataLack and inaccuracy of secondary data3.3. More variables are involvedMore variables are involved4.4. Communication across cultural barriersCommunication across cultural barriers5.5. Time and cost requirements to collect primary dataTime and cost requirements to collect primary data6.6. Coordination of multicountry research effortsCoordination of multicountry research efforts7.7. Difficulty in establishing comparability across multi-Difficulty in establishing comparability across multi-

country studiescountry studies


Information Needs.

For market selection: Information about the country, area, and/or market

In-country marketing: Specific market information used Specific market information used to make product, promotion, distribution, and price to make product, promotion, distribution, and price decisions and to develop marketing plansdecisions and to develop marketing plans

In-country requirements: Information necessary to forecast future marketing requirements by anticipating requirements by anticipating social, economic, consumer, and industry trends social, economic, consumer, and industry trends within specific markets or countrieswithin specific markets or countries


Selecting the Target Country

Initial screening process:Initial screening process:1. Select indicators and collect data1. Select indicators and collect data2. Determine importance of country indicators2. Determine importance of country indicators3. Rate the countries in the pool on each3. Rate the countries in the pool on each

indicatorindicator4. Compute overall score for each country4. Compute overall score for each country


Secondary Global Marketing Secondary Global Marketing ResearchResearch

Problems with Secondary Data ResearchProblems with Secondary Data Research::– Accuracy– Age – Reliability over time

– Comparability (functional or conceptual equivalence)

– Lumping of data


Sources of Secondary Data

Some Secondary Data Sources:National governments, Regional organizations, UN

agencies

Banks – international, development, regional, local

Business/Trade publications

US and foreign consulting/research firms

Universities

Other Internet sources and databases

etc.


Problems of Gathering Primary Data.

Language barrier (questionnaires must have functional and scalar equivalency)

Inability/unwillingness of respondents to state their opinions

Cultural response bias Situational response bias Respondent unfamiliarity with research

products, brands, services, usage etc. Inappropriate interviewers


(1) Back Translation: the questionnaire is translated from one language to another, and then a second party translates it back into the original.(2) Parallel Translation: more than two translators are used for the back translation; the results are compared, differences discussed, and the most appropriate translation selected.

Fixing Translation Errors.


New Research Technologies.

Several different uses for the Internet ininternational research: (1) Online surveys and buyer panels (CATI - CATI -

Computer-Assisted Telephone Interviewing, CAPI - Computer-Assisted Telephone Interviewing, CAPI - Computer-Assisted Personal Interviewing)Computer-Assisted Personal Interviewing)

(2) Online focus groups(3) Web visitor tracking(4) Advertising measurement(5) Customer identification systems(6) E-mail marketing lists


Rules for Market Size Estimates

– Use several different methods.Use several different methods.– Don’t be misled by numbers.Don’t be misled by numbers.– Don’t be misled by fancy methods.Don’t be misled by fancy methods.– Do a sensitivity analysis by asking Do a sensitivity analysis by asking what-ifwhat-if

questions.questions.– Look for interval estimates with a lower and Look for interval estimates with a lower and

upper limit rather than for point estimates.upper limit rather than for point estimates.


Estimating Market Demand.

Some more useful methods of forecastingdemand are:

(1)Expert Opinion: (2)Analogy: assumes that demand for a

product develops in similar ways in all countries as comparable economic development occurs in each country

(3) Chain Ratio Method(4) Trade Audit


Management of Global Marketing Research

Selecting a Research Agency:Selecting a Research Agency:

Consider:Consider:– Level of expertiseLevel of expertise– QualificationsQualifications– Track recordTrack record– Credibility and experienceCredibility and experience– International/regional coverageInternational/regional coverage– Client recordClient record

Coordination of Multi-Country Research:Coordination of Multi-Country Research:


End of Ch. 6End of Ch. 6

Chapter 1Copyright (c) 2007 John Wiley & Sons, Inc.1 Global Marketing Management, 4e Chapter 1...

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