I n t e r n a t i o n a l M a r k e t i n g

The Scope and Challenge

of International Marketing

Chapter 1

1 4 t h E d i t i o nP h i l i p R. C a t e o r a

M a r y C. G i l l yJ o h n L . G r a h a m

McGraw-Hill/IrwinInternational Marketing 14/e

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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What Should You Learn?• The changing face of U.S. business

• The scope of the international marketing task

• The importance of the self-reference criterion (SRC) in international marketing

• The progression of becoming a global marketer

• The increasing importance of global awareness

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Global Perspective: Global Commerce Causes Peace

• Global commerce during peace time– Commercial aircraft and space vehicle industries– Mobile phone industry– Individuals and small companies

• International markets are ultimately unpredictable– Flexibility means survival

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Events and Trends Affecting Global Business

• The rapid growth of the World Trade Organization and regional free trade areas ( European Union)

• The trend toward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe

• The burgeoning impact of the Internet, mobile phones, and other global media on the dissolution of national borders

• The mandate to properly manage the resources and global environment for the generations to come

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International Marketing• International marketing defines as the performance of International marketing defines as the performance of

business activities designed to Plan, Price , Promote, business activities designed to Plan, Price , Promote, and Direct the flow of a company’s goods and services and Direct the flow of a company’s goods and services to consumers or users in more than one nation for a to consumers or users in more than one nation for a profit.profit.

• The only difference between the definitions of domestic The only difference between the definitions of domestic marketing and international marketing is that marketing and international marketing is that marketing activities take place in more than one marketing activities take place in more than one country.country.

• Marketing concepts, processes, and principles are Marketing concepts, processes, and principles are universally applicable, and the marketer`s task is the universally applicable, and the marketer`s task is the same.same.

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International Marketing

• Business`s goal is to make a profit by promoting, Business`s goal is to make a profit by promoting, pricing, and distributing products for which there is a pricing, and distributing products for which there is a market.market.

• What is the difference between domestic and What is the difference between domestic and international marketing?international marketing?

• The answer lies not with different concepts of The answer lies not with different concepts of marketing but with the environment within which marketing but with the environment within which marketing plans must be implemented.marketing plans must be implemented.

• The uniqueness of foreign marketing comes from the The uniqueness of foreign marketing comes from the range of unfamiliar problems and the variety of range of unfamiliar problems and the variety of strategies necessary to cope with different levels of strategies necessary to cope with different levels of uncertainty encountered in foreign markets.uncertainty encountered in foreign markets.

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International Marketing

• Competition, legal restraints, government controls, Competition, legal restraints, government controls, weather, consumers, and any number of other weather, consumers, and any number of other uncontrollable elements can and frequently do, affect uncontrollable elements can and frequently do, affect the profitable outcome.the profitable outcome.

• The marketer cannot control or influence these The marketer cannot control or influence these uncontrollable elements but instead must adjust or uncontrollable elements but instead must adjust or adapt to them to achieve profits.adapt to them to achieve profits.

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The International Marketing TaskExhibit 1.3

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•The inner circle depicts the controllable elements that The inner circle depicts the controllable elements that constitute a marketer’s decision area.constitute a marketer’s decision area.• The second circle encompasses those environmental elements The second circle encompasses those environmental elements at home that have some effect on foreign-operation decisions.at home that have some effect on foreign-operation decisions.• The outer circles represent the elements of the foreign The outer circles represent the elements of the foreign environment for each foreign market within which the environment for each foreign market within which the marketer operates. marketer operates. • As the outer circle illustrate, each foreign market in which a As the outer circle illustrate, each foreign market in which a company does business can ( and usually does) present separate company does business can ( and usually does) present separate problems involving some or all of the uncontrollable elements.problems involving some or all of the uncontrollable elements.• Thus , the more foreign markets in which a company operates, Thus , the more foreign markets in which a company operates, the greater is the possible variety of foreign environmental the greater is the possible variety of foreign environmental factors with which to contend. factors with which to contend.

The International Marketing Task

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• The successful manager constructs a marketing program designed The successful manager constructs a marketing program designed for optimal adjustment to the uncertainty of the business climate.for optimal adjustment to the uncertainty of the business climate.• The inner circle represents the area under the control of the The inner circle represents the area under the control of the marketing manger. marketing manger. • The controllable elements can be altered in the long run, and The controllable elements can be altered in the long run, and usually in the short run to adjust to changing market conditions, usually in the short run to adjust to changing market conditions, consumer tastes, or corporate objectives.consumer tastes, or corporate objectives.• The outer circles surrounding the marketing decision factors The outer circles surrounding the marketing decision factors represent the levels of uncertainty created by the domestic and represent the levels of uncertainty created by the domestic and foreign environments.foreign environments.• Although the marketer can blend a marketing mix from the Although the marketer can blend a marketing mix from the controllable elements, the marketer must actively evaluate and if controllable elements, the marketer must actively evaluate and if needed adapt with uncontrollable elements.needed adapt with uncontrollable elements.

Marketing Decision Factors

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•The second circle represents the aspects of the domestic The second circle represents the aspects of the domestic environment that are often beyond the control of companies.environment that are often beyond the control of companies.• These include home- country elements that have a direct effect These include home- country elements that have a direct effect on the success of a foreign venture: political and legal forces, on the success of a foreign venture: political and legal forces, economic, climate, and competition.economic, climate, and competition.

Aspects of the domestic environment

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•In addition to uncontrollable domestic elements, a significant In addition to uncontrollable domestic elements, a significant source of uncertainty is the number of factors in the foreign source of uncertainty is the number of factors in the foreign environment that are often uncontrollable.environment that are often uncontrollable.• A business operating in its home country feels comfortable in A business operating in its home country feels comfortable in forecasting the business climate and adjusting business forecasting the business climate and adjusting business decisions to these elements.decisions to these elements.• The process of evaluating uncontrollable elements in an The process of evaluating uncontrollable elements in an international marketing program, involves substantial doses of international marketing program, involves substantial doses of cultural, political, and economic shock.cultural, political, and economic shock.•These factors constitute the principal elements of uncertainty These factors constitute the principal elements of uncertainty an international marketer must cope with in designing a an international marketer must cope with in designing a marketing program. marketing program.

Aspects of the foreign environment

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Environmental Adaptation• Ability to effectively interpret the influence and

impact of the culture in which you hope to do business– Cultural adjustments

• Establish a frame of reference

• Avoid measuring and assessing markets against the fixed values and assumptions of your own culture

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The Self-Reference Criterion and Ethnocentrism

• The key to successful international marketing is The key to successful international marketing is adaptation to the environmental differences from adaptation to the environmental differences from one market to another.one market to another.

• Adaptation is a conscious effort on the part of the Adaptation is a conscious effort on the part of the international marketer to anticipate the influence international marketer to anticipate the influence of both the foreign and domestic uncontrollable of both the foreign and domestic uncontrollable factors on a marketing mix and then to adjust the factors on a marketing mix and then to adjust the marketing mix to minimize the effects.marketing mix to minimize the effects.

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Primary obstacles to success in international marketing:Primary obstacles to success in international marketing:• SRC ( the person`s self-reference criterion), The SRC is an SRC ( the person`s self-reference criterion), The SRC is an unconscious reference to one`s own cultural values, unconscious reference to one`s own cultural values, experiences, and knowledge as a basis for decisions.experiences, and knowledge as a basis for decisions.•Your self – reference criterion can prevent you from being Your self – reference criterion can prevent you from being aware of cultural differences or from recognizing the aware of cultural differences or from recognizing the importance of those differences. importance of those differences. • Associated ethnocentrism, the notion that people in one`s Associated ethnocentrism, the notion that people in one`s own company, culture, or country knows best how to do own company, culture, or country knows best how to do things.things.•Ethnocentrism and the SRC can influence an evaluation of Ethnocentrism and the SRC can influence an evaluation of the appropriateness of a domestically designed marketing the appropriateness of a domestically designed marketing mix for a foreign market.mix for a foreign market.

The Self-Reference Criterion and Ethnocentrism

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SRC and Ethnocentrism• SRC is an unconscious reference to

– One’s own cultural values, experiences, and knowledge as a basis for decisions

• Dangers of the SRC– Failing to recognize the need to take action– Discounting the cultural differences that exist among

countries– Reacting to a situation in an offensive to your hosts

• Ethnocentrism– Notion that one’s own culture or company knows best

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• Ethnocentrism and the SRC can influence an evaluation of the appropriateness of a domestically designed marketing mix for a foreign market

• The most effective way to control the influence of ethnocentrism and the SRC is to recognize their effects on our behavior

SRC and Ethnocentrism

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Framework for Cross-cultural Analysis

1. Define business problem or goal • Home-country vs. foreign-country cultural traits, habits, or

norms• Consultation with natives of the target country

2. Make no value judgments

3. Isolate the SRC influence • Examine it carefully to see how it complicates the

problem4. Redefine the problem

• Without SRC influence • Solve for the optimum business goal situation

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Developing a Global Awareness• To be globally aware is to have: To be globally aware is to have:

• Tolerance of cultural differences:Tolerance of cultural differences:– Understanding cultural differences and accepting and Understanding cultural differences and accepting and

working with others whose behavior may be different working with others whose behavior may be different from yours.from yours.

– The tolerant person understands the differences that The tolerant person understands the differences that may exist between cultures and uses that knowledge to may exist between cultures and uses that knowledge to relate effectively.relate effectively.

• Global awareness also involves knowledge of cultures, Global awareness also involves knowledge of cultures, history, world market potential, and global economic, history, world market potential, and global economic, social, and political trends.social, and political trends.

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Approaches to Global Awareness

Global awareness can and should be built into Global awareness can and should be built into organizations using several approaches:organizations using several approaches:

• Select individual managers specifically for their Select individual managers specifically for their demonstrated global awarenessdemonstrated global awareness

• Develop personal relationships in other countriesDevelop personal relationships in other countries

• Have a culturally diverse senior executive staff or Have a culturally diverse senior executive staff or board of directorsboard of directors

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Stages of International Marketing Involvement

•Once a company has decided to go international, it has to Once a company has decided to go international, it has to decide the degree of marketing involvement and commitment it decide the degree of marketing involvement and commitment it is prepared to make.is prepared to make.• These decisions should reflect considerable study and analysis These decisions should reflect considerable study and analysis of market potential and company capabilities.of market potential and company capabilities.• Many companies begin tentatively in international marketing, Many companies begin tentatively in international marketing, growing as they gain experience and gradually changing growing as they gain experience and gradually changing strategy and tactics as they become more committed.strategy and tactics as they become more committed.•Others enter international marketing after much research and Others enter international marketing after much research and with fully developed long-range plans, prepared to make with fully developed long-range plans, prepared to make investments to acquire a market position .investments to acquire a market position .

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Stages of International Marketing Involvement

In general, one of five stages can describe the In general, one of five stages can describe the international marketing involvement of a company. international marketing involvement of a company. These include: These include:

• No direct foreign marketingNo direct foreign marketing

• Infrequent foreign marketingInfrequent foreign marketing

• Regular foreign marketingRegular foreign marketing

• International marketingInternational marketing

• Global marketingGlobal marketing

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No Direct Foreign Marketing• A company in the “no direct foreign marketing” stage does not A company in the “no direct foreign marketing” stage does not

actively cultivate customers outside national boundaries; actively cultivate customers outside national boundaries; however, this company’s products may reach foreign markets.however, this company’s products may reach foreign markets.

• Products reach foreign markets indirectlyProducts reach foreign markets indirectly– Trading companiesTrading companies– Foreign customers who contact firmForeign customers who contact firm– WholesalersWholesalers– DistributorsDistributors who sell abroad without explicit encouragement

or even knowledge of the producer– Web sitesWeb sites

• Foreign orders pique a company’s interest to seek additional Foreign orders pique a company’s interest to seek additional international salesinternational sales

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Infrequent Foreign Marketing• Caused by temporary surpluCaused by temporary surplusesses

– Variations in production levelsVariations in production levels– Increases in demandIncreases in demand

• Sales to foreign markets are made as goods are available, Sales to foreign markets are made as goods are available, Firm has little or no intention of maintaining continuous Firm has little or no intention of maintaining continuous market representationmarket representation– As domestic demand increases and absorbs surpluses, As domestic demand increases and absorbs surpluses,

foreign sales activity is reduced when demand or surplus foreign sales activity is reduced when demand or surplus decreases.decreases.

• In this stage, little or no change is seen in company In this stage, little or no change is seen in company organization or product lines.organization or product lines.

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Regular Foreign Marketing• Firm has permanent production capacity devoted

to foreign markets, it has reached the “regular foreign marketing stage”.

• Firm employs domestic or foreign overseas intermediaries– Or Uses its own sales force– Or has Sales subsidiaries in important foreign markets

• Products allocated or adapted to foreign markets as demand grows to meet customer needs.

• Firm depends on profits from foreign markets

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Global Marketing• Company treats world, including home market as one market

• Market segmentation decisions no longer focused on national borders– Instead market segments are defined by income levels, usage

patterns, or other factors that often span countries and regions.• More than half of revenues come from abroad

• The best people in the company begin to seek international assignments, and the entire operation – organizational structure, sources of finance, production, marketing, and so forth – begins to take on a global perspective.

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Strategic Orientation

The consensus of the researchers and authors in the The consensus of the researchers and authors in the area reveals three relatively distinctive approaches area reveals three relatively distinctive approaches that seem to dominate strategic thinking in firms that seem to dominate strategic thinking in firms involved in international markets:involved in international markets:

• Domestic market extension orientationDomestic market extension orientation

• Multidomestic market orientationMultidomestic market orientation

• Global market orientationGlobal market orientation

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Domestic Market OrientationThe consensus of the researchers and authors in the area reveals

three relatively distinctive approaches that seem to dominate strategic thinking in firms involved in international markets:

• International operations viewed as secondary

• Prime motive is to market excess domestic production

• Firm’s orientation remains basically domestic

• Minimal efforts are made to adapt product or marketing mix to foreign markets

• Firms with this approach are classified as ethnocentric

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Multidomestic Market Orientation• Companies have a strong sense that foreign country markets are Companies have a strong sense that foreign country markets are

vastly differentvastly different

• Market success requires an almost independent program for each Market success requires an almost independent program for each countrycountry– Separate marketing strategies Separate marketing strategies – Subsidiaries operate independently of one another in establishing Subsidiaries operate independently of one another in establishing

marketing objectives and plans, have separate marketing mix, marketing objectives and plans, have separate marketing mix, and have little interaction with each other.and have little interaction with each other.

– Products are adapted for each market with little coordination Products are adapted for each market with little coordination with other country markets, advertising campaigns are localized, with other country markets, advertising campaigns are localized, as are the pricing and distribution decisions. as are the pricing and distribution decisions.

– It aims for adaptation to local country markets.It aims for adaptation to local country markets.• Control is decentralized to reflect the belief that the uniqueness of Control is decentralized to reflect the belief that the uniqueness of

each market requires local marketing input and control.each market requires local marketing input and control.

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Global Market Orientation• Company guided by global marketing orientation

– Marketing activity is global– Market coverage is the world

• Firm develops a standardized marketing mix applicable across national boundaries– Markets are still segmented– Each country or region is considered side by side with a

variety of other segmentation variables– The world as a whole is viewed as the market and the firms

develop a global marketing strategy.– Fits the regiocentric or geocentric classifications

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The Orientation of International Marketing

• An environmental/cultural approach to international strategic marketing

• Intended to demonstrate the unique problems of international marketing

• Discussion of international marketing ranges from the marketing and business practices of small exporters to the practices of global companies

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Summary• The internationalization of American business is

proceeding with increasing pace

• The globalization of markets and competition necessitates all managers to pay attention to the global environment

• International marketing is defined as the performance of business activities across national borders

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• Environmental differences must be taken into account if firms are to market products and services at a profit in other countries– Laws– Customs– Cultures

• Self-reference criteria and ethnocentrism limit international marketer’s abilities to understand and adapt to differences prevalent in foreign markets

Summary

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Summary• Solutions to SLC and ethnocentrism

– Global awareness– Sensitivity

• Strategic orientations found among managers of international marketing operations– Domestic market extension orientation– Multidomestic market orientation– Global market orientation