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In Memoriam: Warren J. Keegan 1936–2014
—MCG
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Mark C. Green Simpson College
Warren J. Keegan Late, Pace University
GLOBAL MARKETING
TENTH EDITION
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ISBN 10: 0-13-489975-X ISBN 13: 978-0-13-489975-6
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Library of Congress Cataloging-in-Publication Data
Library of Congress Cataloging-in-Publication Data Names: Keegan, Warren J., author. | Green, Mark C., author. Title: Global marketing / Warren J. Keegan, Lubin Graduate School of Business, Pace University, New York City and Westchester, New York, Mark C. Green, Department of Business Administration and Economics, Simpson College, Indianola, Iowa. Description: Tenth edition. | Hoboken : Pearson Education, [2020] Identifiers: LCCN 2018045759| ISBN 9780134899756 | ISBN 013489975X Subjects: LCSH: Export marketing. Classification: LCC HF1416 .K443 2020 | DDC 658.8/4--dc23 LC record available at https://lccn.loc.gov/2018045759
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v
Brief Contents
Preface xvi Acknowledgments xx
PART ONE INTRODUCTION 2
Chapter 1 Introduction to Global Marketing 2
PART TWO THE GLOBAL MARKETING ENVIRONMENT 40
Chapter 2 The Global Economic Environment 40 Chapter 3 The Global Trade Environment 72 Chapter 4 Social and Cultural Environments 106 Chapter 5 The Political, Legal, and Regulatory Environments 138
PART THREE APPROACHING GLOBAL MARKETS 174
Chapter 6 Global Information Systems and Market Research 174 Chapter 7 Segmentation, Targeting, and Positioning 212 Chapter 8 Importing, Exporting, and Sourcing 246 Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and
Strategic Alliances 276
PART FOUR THE GLOBAL MARKETING MIX 306
Chapter 10 Brand and Product Decisions in Global Marketing 306 Chapter 11 Pricing Decisions 340 Chapter 12 Global Marketing Channels and Physical Distribution 376 Chapter 13 Global Marketing Communications Decisions I 412 Chapter 14 Global Marketing Communications Decisions II 444 Chapter 15 Global Marketing and the Digital Revolution 478
PART FIVE STRATEGY AND LEADERSHIP IN THE TWENTY-FIRST CENTURY 510
Chapter 16 Strategic Elements of Competitive Advantage 510 Chapter 17 Leadership, Organization, and Corporate Social
Responsibility 542
Glossary 573 Author/Name Index 587 Subject/Organization Index 597
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vii
Preface xvi Acknowledgments xx
PART ONE INTRODUCTION 2
Chapter 1 Introduction to Global Marketing 2 Case 1-1 The Global Marketplace Is Also Local 2
1-1 Introduction and Overview 3 1-2 Principles of Marketing: A Review 5
Competitive Advantage, Globalization, and Global Industries 6
1-3 Global Marketing: What it is and What it isn’t 9 1-4 The Importance of Global Marketing 16 1-5 Management Orientations 17
Ethnocentric Orientation 17 Polycentric Orientation 18 Regiocentric Orientation 18 Geocentric Orientation 18
1-6 Forces Affecting Global Integration and Global Marketing 21 Driving Forces 21
MULTILATERAL TRADE AGREEMENTS 21 CONVERGING MARKET NEEDS AND WANTS AND THE INFORMATION REVOLUTION 21 TRANSPORTATION AND COMMUNICATION IMPROVEMENTS 22 PRODUCT DEVELOPMENT COSTS 22 QUALITY 23 WORLD ECONOMIC TRENDS 23 LEVERAGE 24
Experience Transfers 24 Scale Economies 24
RESOURCE UTILIZATION 25 GLOBAL STRATEGY 25 INNOVATION AND ENTREPRENEURSHIP 25
Restraining Forces 26 MANAGEMENT MYOPIA AND ORGANIZATIONAL CULTURE 26 NATIONAL CONTROLS 26 OPPOSITION TO GLOBALIZATION 26
1-7 Outline of This Book 27 Summary 28 Discussion Questions 29
Case 1-1 The Global Marketplace (continued) 30 Case 1-2 McDonald’s Expands Globally While Adjusting Its Local Recipe 31 Case 1-3 Apple versus Samsung: The Battle for Smartphone
Supremacy Heats Up 35
PART TWO THE GLOBAL MARKETING ENVIRONMENT 40
Chapter 2 The Global Economic Environment 40 Case 2-1 India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver
Acche Din? 40 2-1 The World Economy—Overview of Major Changes 41 2-2 Economic Systems 43
Contents
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Market Capitalism 44 Centrally Planned Socialism 44 Centrally Planned Capitalism and Market Socialism 45
2-3 Stages of Market Development 48 Low-Income Countries 49 Lower-Middle-Income Countries 50 Upper-Middle-Income Countries 51 Marketing Opportunities in LDCs and Developing Countries 54 High-Income Countries 57 Marketing Implications of the Stages of Development 58
2-4 Balance of Payments 59 2-5 Trade in Merchandise and Services 61
Overview of International Finance 62 Economic Exposure 64 Managing Exchange Rate Exposure 64
Summary 65 Discussion Questions 66
Case 2-1 India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver Acche Din? (continued) 67
Case 2-2 A Day in the Life of a Contracts Analyst at Cargill 69
Chapter 3 The Global Trade Environment 72 Case 3-1 Breaking Up Is Hard to Do: Britons Contemplate “Brexit” 72
3-1 The World Trade Organization and Gatt 73 3-2 Preferential Trade Agreements 74
Free Trade Area 75 Customs Union 76 Common Market 76 Economic Union 76
3-3 North America 77 3-4 Latin America: Sica, Andean Community, Mercosur, and Caricom 80
Central American Integration System 80 Andean Community 82 Common Market of the South (Mercosur) 84 Caribbean Community and Common Market (CARICOM) 85
3-5 Asia-Pacific: The Association of Southeast Asian Nations 87 Marketing Issues in the Asia-Pacific Region 88
3-6 Western, Central, and Eastern Europe 89 The European Union 89 Marketing Issues in the EU 93 Central and Eastern Europe 94
3-7 The Middle East 94 Cooperation Council for the Arab States of the Gulf 95 Marketing Issues in the Middle East 96
3-8 Africa 97 Economic Community of West African States 97 East African Community 97 Southern African Development Community 98 Marketing Issues in Africa 98
Summary 99 Discussion Questions 99
Case 3-1 Breaking Up Is Hard to Do: Britons Contemplate “Brexit” (continued) 101 Case 3-2 Can Global Trade Talks Survive in an Era of Populism and Protectionism? 103
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CONTENTS ix
Chapter 4 Social and Cultural Environments 106 Case 4-1 Strange Brew: Coffee Culture Around the World 106
4-1 Society, Culture, and Global Consumer Culture 107 Attitudes, Beliefs, and Values 108 Religion 109 Aesthetics 110 Dietary Preferences 111 Language and Communication 112 Marketing’s Impact on Culture 117
4-2 High- and Low-Context Cultures 118 4-3 Hofstede’s Cultural Typology 119 4-4 The Self-Reference Criterion and Perception 121 4-5 Diffusion Theory 124
The Adoption Process 124 Characteristics of Innovations 124 Adopter Categories 125 Diffusion of Innovations in Pacific Rim Countries 126
4-6 Marketing Implications of Social and Cultural Environments 126 Summary 128 Discussion Questions 129
Case 4-1 Coffee Culture Around the World (continued) 129 Case 4-2 Is Tourism the Savior or the Scourge of Venice? 133
Chapter 5 The Political, Legal, and Regulatory Environments 138 Case 5-1 Travis Kalanick and Uber 138
5-1 The Political Environment 139 Nation-States and Sovereignty 140 Political Risk 142 Taxes 143 Seizure of Assets 145
5-2 International Law 145 Common Law versus Civil Law 147 Islamic Law 148
5-3 Sidestepping Legal Problems: Important Business Issues 148 Jurisdiction 149 Intellectual Property: Patents, Trademarks, and Copyrights 149 Antitrust 155 Licensing and Trade Secrets 159 Bribery and Corruption: Legal and Ethical Issues 160
5-4 Conflict Resolution, Dispute Settlement, and Litigation 162 Alternatives to Litigation for Dispute Settlement 163
5-5 The Regulatory Environment 164 Regional Economic Organizations: The EU Example 165
Summary 167 Discussion Questions 167
Case 5-1 Travis Kalanick and Uber (continued) 168 Case 5-2 Putin’s Russia versus the West: Cold War 2.0? 170
PART THREE APPROACHING GLOBAL MARKETS 174
Chapter 6 Global Information Systems and Market Research 174 Case 6-1 Big Data: “Number One with a Bullet” in the Music Industry 174
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6-1 Information Technology, Management Information Systems, and Big Data for Global Marketing 176 6-2 Sources of Market Information 181 6-3 Formal Market Research 183
Step 1: Information Requirements 183 Step 2: Problem Definition 184 Step 3: Choosing the Unit of Analysis 185 Step 4: Examining Data Availability 185 Step 5: Assessing the Value of Research 187 Step 6: Research Design 187
ISSUES IN DATA COLLECTION 188 RESEARCH METHODOLOGIES 189 SCALE DEVELOPMENT 194 SAMPLING 194
Step 7: Data Analysis 194 COMPARATIVE ANALYSIS AND MARKET ESTIMATION BY ANALOGY 198
Step 8: Interpretation and Presentation 199
6-4 Headquarters’ Control of Market Research 200 6-5 The Marketing Information System as a Strategic Asset 201 Summary 202 Discussion Questions 202
Case 6-1 Big Data Transforms the Music Business and Artist Careers (continued) 203 Case 6-2 A Day in the Life of a Business Systems and Analytics Manager 207
Chapter 7 Segmentation, Targeting, and Positioning 212 Case 7-1 Segmenting the Chinese Luxury Goods Market 212
7-1 Global Market Segmentation 213 Contrasting Views of Global Segmentation 214 Demographic Segmentation 215
SEGMENTING GLOBAL MARKETS BY INCOME AND POPULATION 216 AGE SEGMENTATION 220 GENDER SEGMENTATION 221
Psychographic Segmentation 221 Behavior Segmentation 224 Benefit Segmentation 224 Ethnic Segmentation 225
7-2 Assessing Market Potential and Choosing Target Markets or Segments 226
Current Segment Size and Growth Potential 226 Potential Competition 228 Feasibility and Compatibility 229 A Framework for Selecting Target Markets 230
7-3 Product–Market Decisions 231 7-4 Targeting and Target Market Strategy Options 233
Standardized Global Marketing 233 Concentrated Global Marketing 234 Differentiated Global Marketing 235
7-5 Positioning 236 Attribute or Benefit 236 Quality and Price 236 Use or User 237 Competition 237 Global, Foreign, and Local Consumer Culture Positioning 237
Summary 240 Discussion Questions 240
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Case 7-1 Segmenting the Chinese Luxury Goods Market (continued) 241 Case 7-2 Cosmetics Giants Segment the Global Health and Beauty Market 243
Chapter 8 Importing, Exporting, and Sourcing 246 Case 8-1 The Game’s Afoot: Exports Revive Britain’s Shoe Industry 246
8-1 Export Selling and Export Marketing: A Comparison 247 8-2 Organizational Export Activities 249 8-3 National Policies Governing Exports and Imports 250
Government Programs That Support Exports 250 Governmental Actions to Discourage Imports and Block Market Access 252
8-4 Tariff Systems 257 Customs Duties 259 Other Duties and Import Charges 259
8-5 Key Export Participants 260 8-6 Organizing for Exporting in the Manufacturer’s Country 261 8-7 Organizing for Exporting in the Market Country 262 8-8 Trade Financing and Methods of Payment 262
Letters of Credit 263 Documentary Collections (Sight or Time Drafts) 264 Navigating the Real World: A Brief Case Study 264 Navigating the Real World: Another Brief Case Study 265 Additional Export and Import Issues 265
8-9 Sourcing 266 Management Vision 267 Factor Costs and Conditions 268 Customer Needs 269 Logistics 269 Country Infrastructure 269 Political Factors 270 Foreign Exchange Rates 270
Summary 270 Discussion Questions 271
Case 8-1 Great Britain’s Shoe Export Boom (continued) 271 Case 8-2 A Day in the Life of an Export Coordinator 273
Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and Strategic Alliances 276
Case 9-1 AB InBev and SABMiller: A Match Made in (Beer) Heaven? 276 9-1 Licensing 278
Special Licensing Arrangements 280
9-2 Investment 281 Joint Ventures 283 Investment via Equity Stake or Full Ownership 284
9-3 Global Strategic Partnerships 288 The Nature of Global Strategic Partnerships 288 Success Factors 291 Alliances with Asian Competitors 291 CFM International, GE, and Snecma: A Success Story 292 Boeing and Japan: A Controversy 292
9-4 International Partnerships in Developing Countries 293 9-5 Cooperative Strategies in Asia 294
Cooperative Strategies in Japan: Keiretsu 294 HOW KEIRETSU AFFECT AMERICAN BUSINESS: TWO EXAMPLES 295
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Cooperative Strategies in South Korea: Chaebol 296
9-6 Twenty-First-Century Cooperative Strategies 297 9-7 Market Expansion Strategies 298 Summary 298 Discussion Questions 299
Case 9-1 AB InBev and SABMiller: A Match Made in (Beer) Heaven? (continued) 300 Case 9-2 Jaguar’s Passage to India 302
PART FOUR THE GLOBAL MARKETING MIX 306
Chapter 10 Brand and Product Decisions in Global Marketing 306 Case 10-1 Alphabet 306
10-1 Basic Product Concepts 307 Product Types 308 Product Warranties 308 Packaging 308 Labeling 309 Aesthetics 310
10-2 Basic Branding Concepts 310 Local Products and Brands 311 International Products and Brands 312 Global Products and Brands 312 Global Brand Development 315
10-3 A Needs-Based Approach To Product Planning 319 10-4 “Country of Origin” as a Brand Element 322 10-5 Extend, Adapt, Create: Strategic Alternatives in Global Marketing 324
Strategy 1: Product-Communication Extension (Dual Extension) 325 Strategy 2: Product Extension–Communication Adaptation 326 Strategy 3: Product Adaptation–Communication Extension 327 Strategy 4: Product-Communication Adaptation (Dual Adaptation) 328 Strategy 5: Innovation 329 How to Choose a Strategy 329
10-6 New Products in Global Marketing 330 Identifying New-Product Ideas 330 New-Product Development 331 The International New-Product Department 333 Testing New Products 333
Summary 334 Discussion Questions 335
Case 10-1 Google (continued) 335
Chapter 11 Pricing Decisions 340 Case 11-1 Global Automakers Target Low-Income Consumers 340
11-1 Basic Pricing Concepts 341 11-2 Global Pricing Objectives and Strategies 342
Market Skimming and Financial Objectives 342 Penetration Pricing and Nonfinancial Objectives 344 Companion Products: Captive (“Razors and Blades”) Pricing 344 Target Costing 345 Calculating Prices: Cost-Plus Pricing and Export Price Escalation 346
11-3 Incoterms 347 11-4 Environmental Influences on Pricing Decisions 351
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Currency Fluctuations 351 Inflationary Environment 354 Government Controls, Subsidies, and Regulations 355 Competitive Behavior 356 Using Sourcing as a Strategic Pricing Tool 357
11-5 Global Pricing: Three Policy Alternatives 357 Extension or Ethnocentric Pricing 357 Adaptation or Polycentric Pricing 358 Geocentric Pricing 358
11-6 Gray Market Goods 359 11-7 Dumping 360 11-8 Price Fixing 361 11-9 Transfer Pricing 362
Tax Regulations and Transfer Prices 362 Sales of Tangible and Intangible Property 363
11-10 Countertrade 364 Barter 364 Counterpurchase 365 Offset 365 Compensation Trading 365 Switch Trading 366
Summary 366 Discussion Questions 367
Case 11-1 Global Automakers Target Low-Income Consumers (continued) 367 Case 11-2 Global Consumer-Products Companies Target Low-Income Consumers 369 Case 11-3 LVMH and Luxury Goods Marketing 371
Chapter 12 Global Marketing Channels and Physical Distribution 376 Case 12-1 Welcome to the World of Fast Fashion 376
12-1 Distribution Channels: Objectives, Terminology, and Structure 377
Consumer Products and Services 378 Industrial Products 382
12-2 Establishing Channels and Working With Channel Intermediaries 383
12-3 Global Retailing 386 Types of Retail Operations 387 Trends in Global Retailing 391 Global Retailing Market Expansion Strategies 394
12-4 Physical Distribution, Supply Chains, and Logistics Management 397
Order Processing 399 Warehousing 400 Inventory Management 400 Transportation 400 Logistics Management: A Brief Case Study 403
Summary 403 Discussion Questions 404
Case 12-1 Welcome to the World of Fast Fashion (continued) 405 Case 12-2 Can Walmart Crack the Retail Code in India? 408
Chapter 13 Global Marketing Communications Decisions I 412 Case 13-1 Volkswagen’s “Dieselgate” Nightmare 412
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13-1 Global Advertising 413 Global Advertising Content: Standardization versus Adaptation 415
13-2 Advertising Agencies: Organizations and Brands 419 Selecting an Advertising Agency in the Era of Digital Disruption 420
13-3 Creating Global Advertising 424 Art Direction and Art Directors 425 Copy and Copywriters 426 Additional Cultural Considerations 426
13-4 Global Media Decisions 429 Global Advertising Expenditures and Media Vehicles 430 Media Decisions 430
13-5 Public Relations and Publicity 431 The Growing Role of PR in Global Marketing Communications 435 How PR Practices Differ Around the World 436
Summary 437 Discussion Questions 437
Case 13-1 Volkswagen’s “Dieselgate” Nightmare (continued) 438 Case 13-2 Coca-Cola: Using Advertising and Public Relations to Respond to a Changing
World 440
Chapter 14 Global Marketing Communications Decisions II 444 Case 14-1 Milan Expo 2015 444
14-1 Sales Promotion 446 Sampling 448 Couponing 449 Sales Promotion: Issues and Problems 450
14-2 Personal Selling 451 The Strategic/Consultative Selling Model 453
14-3 Sales Force Nationality 457 14-4 Special Forms of Marketing Communications: Direct Marketing 460
Direct Mail 461 Catalogs 461 Infomercials, Teleshopping, and Interactive Television 463
14-5 Special Forms of Marketing Communications: Support Media, Sponsorship, and Product Placement 464
Support Media 464 Sponsorship 466 Product Placement: Motion Pictures, Television Shows, and Public Figures 468
Summary 470 Discussion Questions 471
Case 14-1 Milan Expo 2015 (continued) 472 Case 14-2 Red Bull 474
Chapter 15 Global Marketing and the Digital Revolution 478 Case 15-1 How Do You Like Your Reality? Virtual? Augmented? Mixed? 478
15-1 The Digital Revolution: A Brief History 479 15-2 Convergence 483 15-3 Value Networks and Disruptive Technologies 484 15-4 Global E-Commerce 487 15-5 Web Site Design and Implementation 490 15-6 New Products and Services 492
Broadband 492 Cloud Computing 494
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Smartphones 494 Mobile Advertising and Mobile Commerce 494 Autonomous Mobility 497 Mobile Music 498 Mobile Gaming 498 Online Gaming and e-Sports 499 Mobile Payments 499 Streaming Video 500 Internet Phone Service 500 Digital Books and Electronic Reading Devices 500 Wearables 501
Summary 502 Discussion Questions 503
Case 15-1 How Do You Like Your Reality: Virtual? Augmented? Mixed? (continued) 504 Case 15-2 Africa 3.0 506
PART FIVE STRATEGY AND LEADERSHIP IN THE TWENTY-FIRST CENTURY 510
Chapter 16 Strategic Elements of Competitive Advantage 510 Case 16-1 IKEA 510
16-1 Industry Analysis: Forces Influencing Competition 511 Threat of New Entrants 512 Threat of Substitute Products 513 Bargaining Power of Buyers 513 Bargaining Power of Suppliers 514 Rivalry among Competitors 514
16-2 Competitive Advantage 515 Generic Strategies for Creating Competitive Advantage 515
BROAD MARKET STRATEGIES: COST LEADERSHIP AND DIFFERENTIATION 515 NARROW TARGET STRATEGIES: COST FOCUS AND FOCUSED DIFFERENTIATION 517
Creating Competitive Advantage via Strategic Intent 519 LAYERS OF ADVANTAGE 519 LOOSE BRICKS 520 CHANGING THE RULES 520 COLLABORATING 521
16-3 Global Competition and National Competitive Advantage 521 Factor Conditions 522
HUMAN RESOURCES 522 PHYSICAL RESOURCES 522 KNOWLEDGE RESOURCES 522 CAPITAL RESOURCES 523 INFRASTRUCTURE RESOURCES 523
Demand Conditions 523 COMPOSITION OF HOME DEMAND 525 SIZE AND PATTERN OF GROWTH OF HOME DEMAND 525 RAPID HOME-MARKET GROWTH 525 MEANS BY WHICH A NATION’S PRODUCTS AND SERVICES ARE PUSHED OR PULLED INTO FOREIGN COUNTRIES 525
Related and Supporting Industries 525 Firm Strategy, Structure, and Rivalry 526 Chance 526 Government 527
16-4 Current Issues in Competitive Advantage 527 Hypercompetitive Industries 527
COST AND QUALITY 529
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TIMING AND KNOW-HOW 529 ENTRY BARRIERS 531
The Flagship Firm: The Business Network with Five Partners 532 Blue Ocean Strategy 533 Additional Research on Competitive Advantage 534
Summary 535 Discussion Questions 535
Case 16-1 IKEA (continued) 536 Case 16-2 “Everything Is Awesome, Everything Is Cool” at LEGO 538
Chapter 17 Leadership, Organization, and Corporate Social Responsibility 542
Case 17-1 A Changing of the Guard at Unilever 542 17-1 Leadership 543
Top Management Nationality 544 Leadership and Core Competence 546
17-2 Organizing For Global Marketing 547 Patterns of International Organizational Development 550
INTERNATIONAL DIVISION STRUCTURE 550 REGIONAL MANAGEMENT CENTERS 552 GEOGRAPHIC AND PRODUCT DIVISION STRUCTURES 554 THE MATRIX DESIGN 555
17-3 Lean Production: Organizing The Japanese Way 558 Assembler Value Chains 558 Downstream Value Chains 559
17-4 Ethics, Corporate Social Responsibility, and Social Responsiveness in the Globalization Era 560
Summary 566 Discussion Questions 567
Case 17-1 Unilever (continued) 567
Glossary 573 Author/Name Index 587 Subject/Organization Index 597
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We are proud that this Tenth Edition of Global Marketing marks more than two decades of pub- lication success. In this new edition, as in prior editions, we take an environmental and strategic approach to global marketing by outlining the major dimensions of the global business environ- ment. We also provide a set of conceptual and analytical tools that prepare students to success- fully apply the 4Ps when pursuing careers in global marketing or related areas.
Guided by our experience using the text in undergraduate and graduate classrooms and in corporate training seminars, we have revised, updated, and expanded Global Marketing. One of our challenges in developing a new edition of Global Marketing is the rate of change in the global business environment. Yesterday’s impossibility becomes today’s reality; new companies explode onto the scene; company leadership changes abruptly. In short, any book can be quickly outdated by events. Even so, we set out to create a compelling narrative that captures the unfold- ing drama that is in inherent in marketing in the globalization era.
When Principles of Global Marketing first appeared in 1996, we invited readers to “look ahead” to such developments as the ending of America’s trade embargo with Vietnam, Europe’s new single market, Daimler AG’s Smart car, Volkswagen’s global ambitions, and Whirlpool’s expansion into emerging markets. This newly revised edition also surveys important current developments in the international arena, including Britain’s tortuous path towards Brexit, China’s ascendance on the world stage, evolving trade relations in the Trump era, achievements by entrepreneurs such as Elon Musk, plus much more.
We are passionate about the subject of global marketing; if our readers detect a note of enthusiasm in our writing, then we have been successful. Our goal for all ten editions has been the same: to write a book that is authoritative in content yet relaxed and assured in style and tone. One instructor using the Ninth Edition wrote us to say, “I love the text, and really like the way it engages students. That is invaluable.” We believe that you will find latest edition of Global Marketing to be the most engaging, up-to-date, relevant, useful text of its kind.
We recommend pairing the Tenth Edition with Pearson’s MyLab Marketing. MyLab Mar- keting is a teaching and learning platform that empowers you to reach every student. By combin- ing content from Global Marketing with digital tools and a flexible platform, MyLab Marketing personalizes the learning experience and will help your students learn and retain key course concepts while developing skills that future employers are seeking in their candidates.
Preface
ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 35
Exhibit 1-14 Apple cofounder Steve Jobs wore many hats during his illustri- ous career, including inventor, entrepreneur, CEO, and visionary technolo- gist. He was also a master showman, a storyteller, and marketing genius. His appearances at product launches are the stuff of legend, and under his guidance Apple’s must-have products—including the iPod, the iPhone, and the iPad—were, simply put, the epitome of “cool.” Source: Paul Sakuma/AP Images.
CASE 1-3
Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up
When Steve Jobs died in October 2011, the world lost one of the towering figures of the modern business era (see Exhibit 1-14). Apple, the company Jobs cofounded, was a pioneer in the consumer electronics world; its key product introductions included the Apple II (1977), the Macintosh (1984), the iPod and iTunes (2001), the Apple Store (2001), the iPhone (2007), and the iPad (2009). At the time of Jobs’s death, Apple was the most valuable tech company in the world. By September 2012, Apple stock had soared to record levels, with its price briefly rising above $700 per share. In addition, Apple had amassed more than $100 billion in cash, most of it held abroad as foreign earnings. Meanwhile, once-dominant tech industry giants such as Nokia, Sony, Dell, and BlackBerry were struggling.
Despite strong 2012 sales for the iPhone 5, industry observers began to wonder whether Apple’s hot streak of hit product introduc- tions was starting to cool. Apple’s reputation was based on its proven ability to disrupt existing markets (e.g., the music and telecommunica- tions industries) and to create new markets through the introduction of technical and design innovations. However, some viewed the 2012 launch of the iPhone 5 as an evolutionary step rather than a revolution- ary breakthrough. In fact, many consumers opted to buy the slower, cheaper iPhone 4 or 4S rather than upgrade to the iPhone 5. Without Jobs, who was considered by many to be the heart and soul of the company, were Apple’s best days behind it?
The Competitive Threat As growth in the key smartphone sector began to slow, Apple’s most formidable competitor was Samsung Electronics, a division of Korean industrial giant Samsung Group, whose products range from semicon- ductors to household appliances to smartphones. Samsung’s popular Galaxy series of phones are powered by Android, an operating system developed by Google. Some Galaxy models, including the Galaxy Note (also known as a “phablet”), have larger screens than the iPhone—a point of difference that has helped drive sales of those devices. The
rivalry between Apple and Samsung has been heated, with the two sides squaring off in court over alleged patent infringement.
China and Europe are two of Samsung’s key markets; in 2012, the company launched the Galaxy S III in Europe. In 2013, however, Samsung staged a lavish event at Radio City Music Hall in New York to launch the Galaxy S4. Why the change? As J. K. Shin, the executive in charge of Samsung’s mobile business, noted, “We’re a global player in the smartphone market and a global company, and the U.S. is an impor- tant market for us. . . . I’m not satisfied with our U.S. market share.”
In many developing countries, there is strong demand for inexpen- sive mobile phones. Some Android-based models from Samsung and other companies sell for much less than Apple’s cheapest models. For many years, Apple did not offer a lower-cost version of the iPhone. In the United States, wireless carriers such as Verizon and AT&T subsidized the price of the iPhone for consumers who signed multiyear service contracts—a factor that explained why an American iPhone 5 sold for $199. By contrast, in other countries consumers paid the full, unsubsi- dized price of the iPhone but were not tied to a contract. Moreover, the iPhone 5 was the same in every world market. By contrast, Samsung made several versions of the Galaxy S4—using different processors, for example—to suit the needs of different regions.
Not surprisingly, smartphone makers are setting their sights on China, India, and other emerging markets. For example, Greater China, which includes China, Hong Kong, and Taiwan, is now Apple’s second- largest market. In 2013, Cook announced that China Mobile, the larg- est carrier in the region and the world’s largest carrier overall, would begin selling the iPhone. Apple faces strong competition from local competitors such as Oppo and Xiaomi; Oppo’s R9 bested the iPhone 6 as the top-selling smartphone in 2016. Distribution is critical, and Cook is aggressively expanding the number of outlets in China that sell iPhones.
As growth in China and Europe slows, India, the number 2 smart- phone market, is becoming increasingly important. Here, however, Apple’s 3 percent market share means that it lags far behind Samsung and Chinese producers in terms of smartphone shipments. Two-thirds of the phones sold in India cost less than $180. By contrast, Indian con- sumers pay about $300 for an iPhone 5S, the older model that Apple launched in 2013. These devices are sold through small, independent retailers; for entry-level buyers, Apple’s Web site offers only the iPhone SE and iPhone 6. In May 2017, Apple began manufacturing the SE in India, bringing the price down to approximately $325. Local manufac- turing will also allow Apple to open its own flagship stores in India.
Famously, Steve Jobs downplayed the importance of formal mar- ket research, saying that consumers don’t know what they want. By contrast, Samsung Electronics relies heavily on market research; it has 60,000 staff members working in dozens of research centers in China, Great Britain, India, Japan, the United States, and elsewhere. Samsung designers have backgrounds in such diverse disciplines as psychology, sociology, and engineering. Researchers track trends in fashion and interior design. Also, Samsung spends more on advertising and promo- tion than does Apple.
The Post-Jobs Era Begins In the months following Jobs’s death, Cook made a number of key stra- tegic decisions. For example, he authorized the introduction of the iPad mini, a product that Jobs had opposed. It quickly became a bestseller.
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New to This Edition As with previous editions, the Tenth Edition offers up-to-date, original insights into the complexities and subtleties of shifts in the external environment and their implications for global marketers. Specific updates and revisions include:
● More than fifty percent of the chapter-opening vignettes and related end- of-chapter cases are new to the Tenth Edition. Cases retained from the prior edition have also been revised and updated for this new edition.
● Revised and updated end-of-chapter cases include Case 1-2, “McDonald’s Expands Globally While Adjusting Its Local Recipe”; Case 1-3, “Apple versus Samsung: The Battle for Smartphone Supremacy Heats Up”; Case 4-2, “Will Tourism Ruin Venice?”; Case 10-1, “Google”; Case 11-1, “Global Automakers Target Low-Income Consumers”; Case 16-1, “IKEA.”
● New cases in the Tenth Edition include Case 2-1, “India’s Economy at the Crossroads: Can Prime Minister Narendra Modi Deliver Acche Din?”; Case 3-1, “Breaking Up Is Hard to Do: Britons Contemplate ‘Brexit’”; Case 4-1, “Strange Brew: Coffee Culture Around the World”; Case 5-1, “Travis Kalanick and Uber"; Case 12-1, “Welcome to the World of Fast Fashion”; Case 15-1, “How Do You Like Your Reality? Virtual? Augmented? Mixed?”
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● New discussion of social media is integrated throughout the Tenth Edition. Chapter 15, “Global Marketing and the Digital Revolution,” has been thoroughly revised and updated to include discussion of location-based mobile platforms, cloud computing, tablets, wearable devices, autonomous mobility, and other cutting-edge topics.
● In MyLab Marketing, in this edition, new Mini Sims put students in professional roles and give them the opportunity to apply course concepts and develop decision-making skills through real-world business challenges.20 PART 1 • INTRODUCTION
Kevin Systrom and Mike Krieger are entrepreneurs. They developed an innovative product, created a brand, and cofounded a company to market it. By applying the basic tools and principles of modern market- ing, the two Stanford University graduates have achieved remarkable success.
As is true with many entrepreneurs, Systrom’s idea was based on his recognition of a problem that needed to be solved and his own needs and wants. Systrom had a passion for photography, and also appreciated the potential of social media. He hit upon an idea for a location-based photo-sharing app that he dubbed Burbn (after his favorite distilled spirit). He then recruited Krieger, who was working on his own app called Meebo. Krieger liked Systrom’s idea, but the two agreed that Burbn was overloaded with functionality. Realizing that “There has to be a better way,” the duo stripped out everything but the photo-sharing function, which they conceptualized as an “instant telegram” (see Exhibit 1-9).
In October 2010, Systrom and Krieger launched Instagram on Apple’s App Store. Within two years, the photo-filtering and photo- sharing app had 30 million users. Soon thereafter, the platform was also launched on the Android and Windows Phone platforms.
Systrom’s insight was that, even in prehistoric times, people com- municated visually. Today, Instagram makes visual information acces- sible, just as Gutenberg’s printing press made the printed word more accessible. Instagram’s popularity is due in part to the dozens of filters that users can apply to their photos (the idea for filters came from Systrom’s girlfriend Nicole).
In 2012, Facebook acquired Instagram for $1 billion. Today, Ins- tagram has more than 600 million users who upload approximately 100 million photographs and videos each day; only 20 percent of users are in the United States. In 2016, Instagram generated more than $1.5 billion in revenues from mobile ads.
Social-media savvy companies in the luxury goods industry have been quick to embrace Instagram. To justify their products’ high prices,
managers of luxury brands need to help consumers understand the craftsmanship and heritage that are integral to the brand stories. Using photo images and videos, companies can take consumers “behind the scenes” and show the process by which luxury products are made by skilled artisans.
Nearly two-thirds of Instagram users use the app to learn about products and brands. Companies can leverage parent Facebook’s pow- erful data and online advertising tools to reach different segments— say, current versus potential luxury consumers—by inserting targeted, photography-based ads in their respective Instagram feeds. One such segment is known as “Henrys,” referring to younger Millennials who are described as “high earning, not rich yet.”
Food is another category that is driving Instagram’s popularity; to date, users have “IG-ed” (i.e., Instagrammed) more than 200 mil- lion posts with the hashtag #food. In response to this trend, social- media–conscious hospitality managers in London, New York, and other food-centric cities are taking steps to ensure that a restaurant’s inte- rior design, menus, and dishes lend themselves to Instagram posts. These range from Michelin-approved restaurants with posh addresses to Mexican-themed chains that feature burritos wrapped in branded foil. The most popular color? “Millennial Pink.” Recent trending food items include “freakshakes” and “unicorn lattes.”
Two new Instagram features, Stories and Live, launched in August 2016; they allow users to upload short video clips, live feeds, and photos that disappear within 24 hours. The features proved to be so addictive that parent company Facebook added similar functionality to WhatsApp, Messenger, and Facebook. Some critics have observed that, with Stories, Instagram was simply copying Snapchat. Systrom disagrees. To him, execution trumps originality. Stories “clearly pro- vides unique value to people that they’re not getting elsewhere,” he says.
The music industry’s embrace of Instagram and Stories illus- trates Systrom’s point. Musicians and bands of all types—from global superstars like Adele and Beyoncé to indie artists seeking to break through—are using the platform to connect with fans in an organic way. According to Nielsen, Instagram users spend more time listening to music and are likely to pay for streaming music services than nonus- ers. Artists use Stories and Live to announce new releases and tours, and to provide behind-the-scenes looks at the creative process. Popular posts can quickly go viral, allowing record companies and the artists themselves to see the impact on music sales.
Sources: John Paul Titlow, “How Instagram Became the Music Industry’s Secret Weapon,” Fast Company (September 29, 2017); Deepa Seetharaman, “A Copy- cat? No, Call It Competition,” The Wall Street Journal (May 31, 2017), p. B5; Deepa Seetharaman, “‘Efficiency Guru’ Sharpens Instagram,” The Wall Street Journal (April 14, 2017), p. B4; Deepa Seetharaman Natalie Whittle, “A Square Meal: How Restau- rants Are Courting the Instagram Crowd,” FT Magazine (April 7, 2017); Alexandra Wolfe, “Weekend Confidential: Kevin Systrom,” The Wall Street Journal (July 2–3, 2016), p. C11; Hannah Kuchler, “Snap Happy: Instagram Rolls out Carpet for Fashion Brands,” Financial Times—FT Special Report: The Business of Luxury (May 23, 2016), p. 2; Murad Ahmed, “The Camera-Shy Half of Instagram’s Founding Duo,” Financial Times (November 24, 2015), p. 10.
ENTREPRENEURIAL LEADERSHIP, CREATIVE THINKING, AND THE GLOBAL STARTUP
Kevin Systrom and Mike Krieger, Instagram
Exhibit 1-9 Stanford University graduates Kevin Systrom and Mike Krieger are Instagram's co-founders.
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90 PART 2 • THE GLOBAL MARKETING ENVIRONMENT
Exhibit 3-8 GNH (gross national happiness), rather than GNP (gross national product), guides policy in Bhutan. Some critics argue that promoting happiness in the Himalayan state has resulted in some negative consequences. For example, the emphasis on the Buddhist culture shared by the majority of the population has caused resentment among the Nepalese minority living in the south.
When Britain’s Prince William visited Bhutan in 2016 with his wife Catherine, the Duchess of Cambridge, the world got a rare glimpse into a country that has been called the “forbidden kingdom.” Why “for- bidden?” For one thing, the country’s leaders limit tourism; only about 57,000 foreign visitors traveled to Bhutan in 2015. One hopes that the royal couple were able to glean some insights into their host country’s secret regarding happiness.
Bhutan is a kingdom of 754,000 people in the Himalaya Mountains (see Exhibit 3-8). Per capita GNI is approximately $2,330; using this fig- ure as a metric, Bhutan is included in the ranks of lower-middle-income nations. However, for the past several decades, Bhutan has relied on another measure besides economic growth to assess its success—namely, gross national happiness (GNH).
It has been argued that indicators such as GDP and GNI per capita are inadequate when explaining a nation’s well-being. For example, China’s GDP has doubled twice since 1990, yet ordinary Chinese citi- zens do not appear any happier today than they were when the coun- try’s leaders began transitioning to a free market economy. If increased income and consumption don’t correlate with happiness, then what does? According to some economists and policymakers, supplemental indicators that measure factors such as social progress, quality of life, and sustainability are needed.
The GNH Index includes both objective and subjective indicators: psychological well-being, time use, community vitality, culture, health, education, environmental diversity, living standards, and governance. As Lyonpo Jigmi Thinley, home minister of Bhutan, explained, “We have to think of human well-being in broader terms. Material well-being is only one component. That doesn’t ensure that you’re at peace with your envi- ronment and in harmony with each other.”
Not surprisingly, there is some disagreement among social scientists regarding the best way to define, track, and measure such intangibles as happiness and quality of life. In Britain, for example, officials have devel- oped a summary of “sustainable development indicators” that include measures of traffic, pollution, and crime. In another approach, survey
participants report the feelings they experience as they go about their daily routines, with these activities ranging from paying bills to participat- ing in sports activities. In France, former President Nicolas Sarkozy estab- lished the Commission on the Measurement of Economic Performance and Social Progress to address issues related to national well-being.
Meanwhile, officials in Bhutan have launched a number of initia- tives to promote happiness in the kingdom. For example, teachers are rotated between rural and urban areas to ensure all schoolchildren have access to a top-quality education. As Thakur S. Powdyel, an official at Bhutan’s Ministry of Education, puts it, “The goal of life should not be limited to production, consumption, more production, and more consumption. There is no necessary relationship between the level of possession and the level of well-being.”
With the global economic crisis as a backdrop, a first-ever Happi- ness Congress was held in Madrid in the fall of 2010. The Congress was sponsored by the Coca-Cola Company, which uses the tagline “Open Happiness” in its global advertising. The global beverage giant also established the Coca-Cola Institute of Happiness in Spain after research indicated that Spanish consumers associate Coke, more than any other brand, with happiness.
Minister Thinley from Bhutan was the keynote speaker at the Con- gress; his address was titled “Happiness in Difficult Times.” As Thin- ley told attendees, “Our economic models are greatly, deeply flawed. They are not sustainable.” The 7th International Congress was held in November 2017 in Thimphu, Bhutan.
Sources: Kai Schultz, “In Bhutan, Happiness Index as Gauge for Social Ills,” The New York Times (January 28, 2017), p. A6; “Forbidden Kingdom,” CBS Sunday Morning (April 17, 2016); Jody Rosen, “Higher State of Being,” New York Times Style Magazine: Travel (November 2, 2014), pp. 144–151; Richard Easterlin, “When Growth Outpaces Happiness,” The New York Times (September 28, 2012), p. A31; Tim Harford, “Happi- ness: A Measure of Cheer,” Financial Times (December 27, 2010), p. 5; Victor Mallet, “Bhutan and Coke Join Hands for Happiness,” Financial Times (October 22, 2010), Andrew C. Revkin, “A New Measure of Well-Being from a Happy Little Kingdom,” The New York Times (October 4, 2005), p. F1.
THE CULTURAL CONTEXT
Bhutan and GNH (Gross National Happiness)
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86 PART 2 • THE GLOBAL MARKETING ENVIRONMENT
As the data in Figure 3-5 clearly show, Brazil is an economic powerhouse in South America. Brazil has the largest geographical territory and the larg- est population in the region. It has emerged on the world stage as a strong exporter, and its rapid economic growth has given Brazilian policymakers a greater presence on the global stage and more clout at global trade talks.
One symbol of Brazil’s new role in the global economy is Embraer, a jet aircraft manufacturer (see Exhibit 3-6). Specializing in regional jets that seat between 37 and 124 passengers, Embraer has won orders from a variety of carriers. A cornerstone of Embraer’s strategy is its management’s policy of sourcing the best components available anywhere in the world. This approach, known as reverse outsourcing, has proved its worth in the development of new models such as the E-170/175. In that program, more than one dozen partners, including GE and Honeywell, shared the development risks in exchange for a percentage of revenue from aircraft sales. To sell more regional jets to China, Embraer has also established a $50 million joint venture with China Aviation Industry Corporation.
In the United States alone, more than 850 Embraer jets are cur- rently in service. The reason is simple: It is a huge market. As Paulo Cesar Silva, Embraer’s top executive for Commercial Aviation, notes, “For us, North America is—and will continue to be—the most impor- tant market in terms of the potential to sell new products here. Aviation in North America is about 40 percent of aviation in the world.” Embraer is also aggressively pursuing the defense sector with its light attack aircraft, the Super Tucano. The U.S. military has expressed interest, and orders have come in from Colombia, Indonesia, and other nations.
Brazil’s agricultural sector is also a leading exporter. Brazil is the world’s number 1 exporter of beef, coffee, orange juice (check the label on your orange juice carton), and sugar. Annual coffee bean production totals 40 million 60-kilo bags—one-third of the world total. JBS is the world’s largest meat processor. Brazil is also rapidly gaining a reputation as a producer of sugar-based ethanol fuel. Says Ermor Zambello, man- ager of the Grupo Farias sugar mill, “Globalization has made us think more about foreign markets. Now, we have more of a global outlook, and we are concerned about global production.”
The central issue in the stalled Doha Round of WTO negotiations was agriculture. Brazil and India are taking the lead of the Group of Twenty developing nations calling for agricultural sector reform. For example, the
average tariff on Brazil’s exports to the 34 Organisation for the Economic Co-operation and Development (OECD) nations is 27 percent.
Government subsidies are also a key issue. In the EU, government spending accounts for approximately one-third of gross farm receipts; in the United States, the government provides about one-fourth of gross farm receipts. By contrast, Brazil farm support spending amounts to only 3 percent of farm receipts.
Moving forward, Brazil faces a number of other challenges. Reper- cussions are still being felt from Lava Jato (“Car Wash”), a massive corruption scandal that ensnared politicians and top officials at Brazil’s national oil company. Former president Luiz Inácio Lula da Silva was convicted on corruption charges and sentenced to prison. In the wake of the scandal, Brazil’s current president, Michel Temer, is privatizing a wide range of state-owned businesses.
Despite improvements made prior to the country’s hosting of the 2016 Summer Olympics, Brazil’s infrastructure remains woefully under- developed. Significant investment is required to improve highways, rail- roads, and ports. Businesspeople speak of “the Brazil cost,” a phrase that refers to delays related to excessive red tape.
Trade with China is presenting both opportunities and threats. In 2009, China surpassed the United States to become Brazil’s top trading partner and is investing tens of billions of dollars in the country. China’s explosive economic growth has created great demand for soybeans, iron ore, and other Brazilian commodity exports. However, Brazilian manufac- turers in light-industry sectors such as toys, eyeglasses, and footwear are facing increased competition from low-priced Chinese imports.
Sources: Joe Leahy, Andres Schipani, and Lucy Hornby, “‘Suddenly Everything Is for Sale,’” Financial Times (November 14, 2017), p. 9; Ben Mutzabaugh, “Brazil’s Embraer Jets Are Sized Just Right,” USA Today (July 6, 2012), pp. 1B, 2B; Joe Leahy, “In Search of More High-Flyers,” Financial Times (April 17, 2012), p. 10; Joe Leahy, “The Brazilian Economy: A High-Flyer Now Flags,” Financial Times (January 11, 2012), p. 7; Antonia Regalado, “Soccer, Samba, and Outsourcing?”, The Wall Street Journal (January 25, 2007), pp. B1, B8; David J. Lynch, “Brazil Hopes to Build on Its Ethanol Success,” USA Today (March 29, 2006), pp. 1B, 2B; David J. Lynch, “China’s Growing Pull Puts Brazil in a Bind,” USA Today (March 21, 2006), pp. 1B, 2B; David J. Lynch, “Comeback Kid Embraer Has Hot New Jet, and Fiery CEO to Match,” USA Today (March 7, 2006), pp. 1B, 2B; David J. Lynch, “Brazil’s Agricultural Exports Cast Long Shadow,” USA Today (March 10, 2006), pp. 1B, 2B.
EMERGING MARKETS BRIEFING BOOK
Brazil
Exhibit 3-6 Embraer is the world’s fourth-largest aircraft manufacturer, but is second only to Canada’s Bom- bardier in the regional aircraft sector. Source: Alexandre Meneghini/AP Images.
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● In addition, most chapters contain sidebar features on the following themes: Emerging Markets Briefing Book; Entrepreneurial Leadership, Creative Thinking, and the Global Startup; and The Cultural Context.
● Among the entrepreneurs profiled in these sidebars are Kevin Systrom (Instagram); Reed Hastings (Netflix); Daniel Ek (Spotify); Oscar Farinetti (Eataly); Elon Musk (Tesla); Jack Ma (Alibaba), Sir James Dyson (Dyson), and Brian Chesky and Joe Gebbia (Airbnb).
● The Entrepreneurial Leadership, Creative Thinking, and the Global Startup sidebars also contain expanded coverage of digital entrepreneurship, includ- ing financial technology (“fintech”), in this Tenth Edition.
● All tables containing key company, country, and industry data have been updated. Examples include Table 2-3, “Index of Economic Freedom”; all the income and population tables in Chapters 3 and 7; Table 10-2, “The World’s Most Valuable Brands”; Table 13-1, “Top 25 Global Marketers”; and Table 13-2, “Top 20 Global Advertising Agency Companies.”
● The discussion of the BRICS nations has been updated to incorporate the impact of slowing growth in China and the volatility of commodity prices.
● Income and population data in Chapter 3 have been reorganized for improved clarity, comparability, and visual impact.
● More infographics have been incorporated into the text to enhance clarity and visual appeal.
Solving Teaching and Learning Challenges Today’s Millennial and Generation Z students are networked and technology-savvy. They have access to more content across more platforms than previous generations. Many are also taking on substantial debt loads as they pursue their college degrees. For these and other reasons, it is important to give them a textbook that is “worth the money,” and that provides an experience that is rewarding and motivates them to “keep reading.”
We have been gratified to receive positive feedback from students who have benefited from college courses in which Global Marketing was the required text. The following student comments suggest that Global Marketing does exactly that:
“The textbook is very clear and easy to understand.” “An excellent textbook with many real-life examples.” “The authors use simple language and clearly state the important points.” “This is the best textbook that I am using this term.” “The authors have done an excellent job of writing a text that can be read easily.”
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PREFACE xix
The Tenth Edition helps students develop cross-cultural awareness and engage with issues relating to sustainability and corporate social responsibility. The new edition also profiles some of the most innovative thinkers and entrepreneurial leaders of the modern era.
Each chapter opens with a brief case study introducing a company, a country, a product, or a global marketing issue that directly relates to chapter themes and content. The cases were written with the same objectives in mind: to raise issues that will encourage student interest and learning; to stimulate class discussion; to give students a chance to apply theory and concepts while developing critical-thinking skills; and to enhance the classroom experience for students and instructors alike. Every chapter and case has been classroom-tested in both undergraduate and graduate courses.
Throughout the text, we have added scores of current examples of global marketing practice as well as quotations from global marketing practitioners and industry experts. Organizational Web sites are referenced for further student study and exploration.
We have benefited tremendously from adopter feedback and input; we also continue to draw on our direct experience in key world regions. The result is a text that addresses your needs and the needs of instructors in every part of the world.
Developing Employability Skills Employers at global companies want to know that the people they hire understand and can think critically about contemporary issues such as the dynamics of globalization and growth opportunities in emerging markets. One MBA student wrote to say that reading Global Marketing for coursework in 2017 provided her with a competitive advantage when pursuing a new career opportunity. She said, “I used many of the text’s theories during my interview process, and I incorporate the lessons learned on a daily basis as I work with our offices in 12+ locations around the world!”
The Tenth Edition addresses current global trends and issues, including the economic dis- ruption and social disruption that are among the forces at work in the world today. The resulting shifts in global market opportunities and threats are important themes in this revision, as are the rise of economic nationalism and populism. Terms such as austerity, capital flight, currency wars, double-dip recession, global imbalances, global rebalancing, quantitative easing (QE), secular stagnation, sovereign-debt crisis, and negative interest rates appear regularly in the busi- ness news. New terms such as tax inversion are now part of the conversation as well.
Recent research findings have been integrated into each chapter of Global Marketing to help students be conversant in the most current conversations that are happening in this field. For example, our thinking about the benefits of globalization has been influenced by Richard Baldwin’s 2016 book, The Great Convergence: Information Technology and the New Globalization. As Baldwin notes, the process of removing constraints on the costs of moving goods, people, and ideas began in the late 19th century. The first wave of globalization was driven by the falling costs of water transport (e.g., ocean-going freighters) and land transport (e.g., the railroads). In keeping with the theory of competitive advantage, this meant that coun- tries with manufacturing prowess benefited by trading with countries whose primary outputs were agricultural production. The current wave of globalization has resulted in part from the digital revolution that allows supply chains to stretch around the world.
Instructor Teaching Resources The following supplements are available with this text:
Supplements available to instructors at www.pearsonhighered.com
Features of the Supplement
Instructor’s Manual authored by Kerry Walsh from University of South Florida
• Chapter-by-chapter summaries
• Examples and activities not in the main book
• Teaching outlines
• Teaching tips
• Solutions to all questions and problems in the book
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xx PREFACE
Supplements available to instructors at www.pearsonhighered.com
Features of the Supplement
Test Bank authored by Mahmood Khan from Pamplin College of Business, Virginia Tech
4,000 multiple-choice, true/false, short- answer, and graphing questions with these annotations:
• Difficulty level (1 for straight recall, 2 for some analysis, 3 for complex analysis)
• Type (Multiple-choice, true/false, short-answer, essay
• Topic (The term or concept the question supports)
• Learning outcome
• AACSB learning standard (Written and Oral Communication; Ethical Understanding and Reasoning; Analytical Thinking; Information Technology; Interpersonal Relations and Teamwork; Diverse and Multicultural Work; Reflective Thinking; Application of Knowledge)
Page number in the text
Computerized TestGen TestGen allows instructors to: • Customize, save, and generate classroom tests
• Edit, add, or delete questions from the Test Item Files
• Analyze test results
• Organize a database of tests and student results.
PowerPoints authored by Jill Solomon from University of South Florida
Slides include all the graphs, tables, and equations in the textbook. PowerPoints meet accessibility standards for students with disabilities. Features include, but not limited to:
• Keyboard and Screen Reader access
• Alternative text for images
• High color contrast between background and foreground colors
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xxi
I am indebted to the many colleagues, friends, and adopters who carefully read and critiqued individual manuscript sections and chapters. Their comments improved the clarity and read- ability of the text. In particular, I would like to thank Steven J. Archambault, James A. Baggett, Hunter Clark, Frank Colella, Dave Collins, Diana Dickinson, Mark Freyberg, Lora Friedrich, Alexandre Gilfanov, Carl Halgren, Kathy Hill, Mark Juffernbruch, David Kochel, Peter Kvetko, Keith Miller, Gayle Moberg, Christopher “Kit” Nagel, Alexandre Plokhov, Chatt Pongpatipat, Yao Lu Swanson, David Wolf, and Thomas Wright.
Many individuals were instrumental in helping us secure permissions, and I want to acknowledge everyone who “went the extra mile” in supporting this revision. I would especially like to thank Nicholas Arnold, Meredith Corporation; Jane Bachmann, DuPont; John Baloff, ATI Amplifier Technologies; Jeremy Banks, banxcartoons; William Bassett, Kikkoman; Julien Benatar, Pandora; Chris Boyens, Deere & Company; Paul Button, Jill Camp, Kohler; Lee Carter, Mower; Buzz Delano, Delano Associates; Kirk Edmondson, Lexus Advanced Business Development; Jemma Gould, IPG; Mandy Guss, Las Cruces; Jennifer Hall, Champagne Bureau, USA; Emma Hamm, Subaru; Sean Higgins, Frrester Research; David Johnson, Meredith Corporation; Allison Joyce, Allison Joyce Photojournalism; Tom Kingsbury, Bridgestone Americas, Inc.; Denise Lavoie, Henkel; Ilana McCabe, QVC Inc.; Edward Linsmier, Edward Linsmier Photography; Mike Lovell, Meredith Corporation; Katherine Miller, Nucor; Brad Miller, New Balance Athletic Shoe, Inc.; Morgan Molinoff, Edelman; Kerry Ann Nolan, Subaru; Meghan Reutzel, GoDaddy; Lenore Rice, Seibert & Rice; Michael Ross, Michael Ross Photography; Vivian Santangelo, Meredith Corporation; Mara Seibert, Seibert & Rice; Greg Selfe, Two Sides UK; Lindsy Shrewsberry, STIHL USA; Brady Spangenberg, BASF; Katie Szadziewska, McArthurGlen; and Vibhav Valdore, Bridgestone Latin America.
Colleagues and adopters at several institutions contributed material to this revision and made helpful suggestions. Thanks to Professor Steven Archambault, Cal-Poly Pomona Univer- sity, and Professor Christopher “Kit” Nagel of Concordia University–Irvine, for suggestions that we incorporated in Chapter 2 and Chapter 8. Dominic Standish, a colleague at CIMBA Italy, organized the panel discussion “Death in Venice: Is Tourism Killing or Saving the City?” in fall 2011. That panel, our subsequent discussions during my visits to London and Venice, and Domi- nic’s book Venice in Environmental Peril? Myth and Reality all were key resources for the open- ing case in Chapter 4. Lora Friedrich, Professor of Sociology at Simpson College, and Chatt Pongpatipat, Assistant Professor of Marketing at Saginaw Valley State University, contributed the Chapter 7 sidebar about Thailand. Paul Button created a wonderful new set of infographic maps for Chapter 3. Thanks also to my daughter, Lauren Konrad, for additional last-minute help with infographic design.
I would also like to thank the many present and former students at Simpson College and the University of Iowa who have offered feedback on previous editions of Global Marketing, contrib- uted case studies, and suggested improvements. These include Han Wang’s contributions to the Chapter 7 opening case on segmenting the Chinese luxury market. Glynis Gallagher, a University of Iowa graduate, contributed a wonderful Chapter 2 case about her experience as a contracts analyst at Cargill. Brady Spangenberg wrote in detail about his vocational journey to BASF in a new case in Chapter 6. Simpson alumna Beth Dorrell graciously offered her expertise on export documentation. Mikkel Jakobsen wrote about his first job in global marketing for Case 8-2.
The students in my international marketing course at CIMBA Italy worked collaboratively on the issue of tourism in Venice; Case 4-2 represents, in part, a mashup of the various team efforts. Hats off to Kaleb Beckett, Luci Boat, Leslie Bourland, Lauren Camerieri, Lucas Commodore, Jeff Dellinger, Chris Duncan, Jacque Ford, Brian Fry, Glynis Gallagher, Katie Greif, Kim Halamicek, Harper Hier, Jake Hirsch, Mike Johnson, Sarah Jones, Josh Kroll, Sean Miller, Chris Nucero, Mark Parmalee, Jack Roeder, Chris Shonkwiler, Slava Sinitsyn, and Chloe Suh. All were enthusiastic participants in the project and our work together in Italy made a lasting impression on me.
It was a great pleasure working with the Pearson team that managed the production of this edition. Thanks to: Stephanie Wall, Editor-in-Chief; Lynn M. Huddon, Executive Portfolio Man- ager; and Michelle Zeng, Content Producer, for their continued support. The production moved
Acknowledgments
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xxii ACKNOWLEDGMENTS
along smoothly, thanks to our friends at SPi Global. These include Anna Iremedio and Michelle Alojera, Content Production Managers; Maya Lane, Rights and Permissions Project Manager; Gowri Duraiswamy, Senior Project Manager. Kudos also to our photo researcher, Jason Acibes, for demonstrating once again that “every picture tells a story.” Thanks also to the marketing team for the fantastic work on marketing support materials, and to the entire Pearson sales team for helping promote the book in the field. I also want to acknowledge the contributions of Mah- mood Khan for in-depth updates to the TestBank, Kerry Walsh for her fine work on the Instruc- tor’s Manual, and Jill Solomon for preparing a new set of PowerPoint slides.
Mark C. Green September 2018
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Consider the following proposition: We live in a global marketplace. Apple iPhones, Burberry trench coats, Caterpillar earthmoving equipment, Facebook, LEGO toys, McDonald’s restau- rants, Samsung HDTVs, and Swatch watches are found practically everywhere on the planet. Global companies are fierce rivals in key markets. For example, American auto industry giants General Motors and Ford are locked in a competitive struggle with Toyota, Hyundai, and other global Asian rivals as well as European companies such as Volkswagen. U.S.-based Intel, the world’s largest chip maker, competes with South Korea’s Samsung. In the global smartphone market, Apple (United States), Motorola (China), and Samsung are dominant players. The globalization of the appliance industry means that Bosch, Electrolux, Haier Group, LG, and Whirlpool all compete for precious retail floor space and consumer awareness and preference.
Now consider a second proposition: We live in a world in which markets are local. In China, for example, Yum! Brands’ East Dawning fast-food chain competes with local restaurants such as New Asia Snack and Haidi Lao. Likewise, the best-selling smartphone in China isn’t marketed by Samsung or Apple. In fact, the top four smartphone brands in China—Huawei, Vivo, Oppo, and Xiaomi—are all from domestic producers.
In Taiwan, 85C has overtaken Starbucks as the largest chain of coffee shops. In India, Dunkin’ Donuts goes head-to-head with local chain Mad Over Doughnuts. In Poland, many consumers frequent small, family-owned shops rather than huge stores operated by France’s Carrefour and U.K.–based Tesco.1 In Southeast Asia, Uber jockeys for position with ride-hailing service Grab. Similarly, Brazilian com- panies such as Natura Cosméticos and O Boticário compete with Avon for direct-sale customers. Across Latin America, e-commerce giants eBay and Amazon compete with local market leader MercadoLibre.
Introduction to Global Marketing
CASE 1-1
The Global Marketplace Is Also Local
L E A R N I N G O B J E C T I V E S
1-1 Use the product/market growth matrix to explain the various ways a company can expand globally.
1-2 Describe how companies in global industries pursue competitive advantage.
1-3 Compare and contrast a single- country marketing strategy with a global marketing strategy (GMS).
1-4 Identify the companies at the top of the Global 500 rankings.
1-5 Explain the stages a company goes through as its management orien- tation evolves from domestic and ethnocentric to global and geocentric.
1-6 Discuss the driving and restraining forces affecting global integration today.
1
PA RT O N E
INTRODUCTION
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3
brand? When is a Japanese car not a Japanese car? Even U.S. President Donald Trump appeared to be unaware of the global nature of the automobile business when, in 2017, he threatened to slap tariffs on German cars sold in the United States. Consider:
• In 2016, BMW produced 411,000 vehicles at its plant in South Carolina. More than two-thirds of the plant’s production is exported, making BMW America’s top auto exporter.
• A Mercedes-Benz plant in Alabama produces 300,000 cars annually. • For several years, the top-selling “American” car (assembled in the
United States with at least 75 percent domestic content) was the Toyota Camry.
At the end of this chapter, you will find the rest of Case 1-1. Taken together, the two parts give you the opportunity to learn more about the global marketplace and test your knowledge of current issues in global marketing. You may be surprised at what you learn!
The “global marketplace versus local markets” paradox lies at the heart of this textbook. In later chapters, we will investigate the nature of local markets in more detail. For now, however, we will focus on the first part of the paradox. Think for a moment about brands and products that are found throughout the world. Ask the average consumer where this global “horn of plenty” comes from, and you’ll likely hear a variety of answers. It’s certainly true that some brands—McDonald’s, Dos Equis, Swatch, Waterford, Ferragamo, Volkswagen, and Burberry, for instance—are strongly identified with a specific country. In much of the world, Coca-Cola and McDonald’s are recognized as iconic American brands, just as Ferragamo and Versace are synonymous with classic Italian style (see Exhibit 1-1).
However, for many other products, brands, and companies, the sense of identity with a specific country is becoming blurred. Which brands are Japanese? American? Korean? German? Indian? Can you name the corporate owner of the Nokia smartphone
1-1 Introduction and Overview As the preceding examples illustrate, the global marketplace finds expression in many ways. Some are quite subtle; others are not. While shopping, you may have noticed more multilan- guage labeling on your favorite products and brands. Chances are you were one of the millions of people around the world who tuned in to television coverage of the World Cup Soccer cham- pionship in 2018. On the highway, you may have seen a semitrailer truck from FedEx’s Global Supply Chain Services fleet. Or perhaps you are one of the hundreds of millions of Apple iTunes customers who got a free download of U2’s 2014 album Songs of Innocence—whether you wanted it or not! When you pick up a pound of Central American coffee at your favorite café, you will find that some beans are labeled Fair Trade Certified.
Exhibit 1-1 Salvatore Ferragamo, based in Florence, Italy, is one of the world’s leading fashion brands. Ferragamo and other companies in the luxury sector face challenges as consumer habits change. Historically, the luxury shopper was brand loyal and had an eye for classic designs. Now, many shoppers pursue the “next big thing” via online retail channels. Source: Roussel Bernard/Alamy Stock Photo.
1-1 Use the product/market growth matrix to explain the various ways a company can expand globally.
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4 PART 1 • INTRODUCTION
The growing importance of global marketing is one aspect of a sweeping transformation that has profoundly affected the people and industries of many nations during the past 160 years. International trade has existed for centuries. Beginning in 200 b.c., for example, the legendary Silk Road was a land route connecting China with Mediterranean Europe. From the mid-1800s to the early 1920s, with Great Britain the dominant economic power in the world, international trade flourished. However, a series of global upheavals, including World War I, the Bolshevik Revolution, and the Great Depression, brought that era to an end. Then, following World War II, a new era began. Unparalleled expansion into global markets by companies that previously served only customers located in their respective home countries is one hallmark of this new global era.
Four decades ago, the phrase global marketing did not exist. Today, businesspeople use global marketing to realize their companies’ full commercial potential. That is why, no matter whether you live in Asia, Europe, North America, or South America, you may be familiar with the brands mentioned in the opening paragraphs of this chapter. However, there is another, even more critical reason why companies need to take global marketing seriously: survival. A management team that fails to understand the importance of global marketing risks losing its domestic business to competitors with lower costs, more experience, and better products.
But what is global marketing? How does it differ from “regular” marketing as it is typically practiced and taught in an introductory course? Marketing can be defined as the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.2 Marketing activities center on an organization’s efforts to satisfy customer wants and needs with products and services that offer competitive value. The marketing mix (the four Ps of product, price, place, and promo- tion) represents the contemporary marketer’s primary tools in achieving this goal. Marketing is a universal discipline, as applicable in Argentina as it is in Zimbabwe.
This book is about global marketing. An organization that engages in global marketing focuses its resources and competencies on global market opportunities and threats. A fundamental difference between regular marketing and global marketing is the scope of activities. A company that engages in global marketing conducts important business activities outside the home-country market. The scope issue can be conceptualized in terms of the familiar product/market matrix of growth strategies (see Table 1-1). Some companies pursue a market development strategy, which involves seeking new customers by introducing existing products or services to a new market seg- ment or to a new geographical market. Global marketing can also take the form of a diversification strategy in which a company creates new product or service offerings targeting a new segment, a new country, or a new region.
Starbucks provides a good case study of a global marketer that can simultaneously execute all four of the growth strategies shown in Table 1-1:
Market penetration: Starbucks is building on its loyalty card and rewards program with a smartphone app that enables customers to pay for purchases electronically. The app dis- plays a bar code that the customer can scan.
Market development: Starbucks entered Italy in 2018, starting with a 25,000-square-foot flagship Reserve Roastery in Milan. Walking distance from the landmark Duomo, the Roastery will offer pastries by local bakery Princi as well as the aperitivo beverages that are so popular throughout Italy.3
Product development: Starbucks created a new instant-coffee brand, Via, to enable its customers to enjoy coffee at the office and other locations where brewed coffee is not available. After a successful launch in the United States, Starbucks rolled out Via in Great
TA B L E 1 - 1 Product/Market Growth Matrix
Product Orientation
Existing Products New Products
Market Orientation Existing markets Market penetration strategy Product development strategy
New markets Market development strategy Diversification strategy
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ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 5
Britain, Japan, South Korea, and several other Asian countries. Starbucks also recently introduced its first coffee machine. The Versimo allows Starbucks’ customers to “prepare their favorite beverages at home.”
Diversification: In 2011, Starbucks dropped the word “Coffee” from its logo. It recently acquired a juice maker, Evolution Fresh; the Bay Bread bakery, and tea retailer Teavana Holdings. Next up: Revamping select stores so they can serve as wine bars and attract new customers in the evening.4
To get some practice applying the matrix shown in Table 1-1, create a product/market growth matrix for another global company. IKEA, LEGO, and Walt Disney are all good candidates for this type of exercise.
Companies that engage in global marketing frequently encounter unique or unfamiliar fea- tures in specific countries or regions of the world. In China, for example, product counterfeiting and piracy are rampant. Companies doing business there must take extra care to protect their intel- lectual property and deal with “knockoffs.” In some regions of the world, bribery and corruption are deeply entrenched. A successful global marketer understands specific concepts and has a broad and deep understanding of the world’s varied business environments.
The global marketer also must understand the strategies that, when skillfully implemented in conjunction with universal marketing fundamentals, increase the likelihood of market suc- cess. And, as John Quelch and Katherine Jocz assert, “The best global brands are also the best local brands.” That is, managers at global companies understand the importance of local excel- lence.5 This book concentrates on the major dimensions of global marketing. A brief overview of marketing is presented next, although the authors assume that the reader has completed an introductory marketing course or has equivalent experience.
1-2 Principles of Marketing: A Review As defined in the previous section, marketing is one of the functional areas of a business, distinct from finance and operations. Marketing can also be thought of as a set of activities and processes that, along with product design, manufacturing, and transportation logistics, compose a firm’s value chain. Decisions at every stage, from idea conception to support after the sale, should be assessed in terms of their ability to create value for customers.
For any organization operating anywhere in the world, the essence of marketing is to surpass the competition at the task of creating perceived value—that is, to provide a superior value propo- sition—for customers. The value equation is a guide to this task:
Value = Benefits / Price (money, time, effort, etc.)
The marketing mix is integral to the value equation because benefits are a combination of the product, the promotion, and the distribution. As a general rule, value, as the customer perceives it, can be increased in these ways. Markets can offer customers an improved bundle of benefits or lower prices (or both!). Marketers may strive to improve the product itself, to design new channels of distribution, to create better communications strategies, or a combination of all three.
Marketers may also seek to increase value by finding ways to cut costs and prices. Nonmon- etary costs are also a factor, and marketers may be able to decrease the time and effort that custom- ers must expend to learn about or seek out the product.6 Companies that use price as a competitive weapon may scour the globe to ensure an ample supply of low-wage labor or access to cheap raw materials. Companies can also reduce prices if costs are low because of process efficiencies in manufacturing or because of economies of scale associated with high production volumes.
Recall the definition of a market: people or organizations that are both able and willing to buy. To achieve market success, a product or brand must measure up to a threshold of acceptable quality and be consistent with buyer behavior, expectations, and preferences. If a company is able to offer a combination of superior product, distribution, or promotion benefits and lower prices than the competition does, it should enjoy an extremely advantageous position. Toyota, Nissan, and other Japanese automakers made significant gains in the American market in the 1980s by
1-2 Describe how companies in global industries pursue competitive advantage.
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6 PART 1 • INTRODUCTION
creating a superior value proposition: They offered cars with higher quality, better mileage, and lower prices than those made by General Motors, Ford, and Chrysler.
Today, the auto industry is shifting its attention to emerging markets such as India and Africa. Renault and its rivals are racing to offer middle-class consumers a new value proposition: high- quality vehicles that sell for the equivalent of $10,000 or less. On the heels of Renault’s success with the Dacia Logan have come the $2,500 Nano from India’s Tata Motors and a $3,000 Datsun from Nissan (see Case 11-1).
Achieving success in global marketing often requires persistence and patience. Following World War II, some of Japan’s initial auto exports were market failures. In the late 1960s, for example, Subaru of America began importing the Subaru 360 automobile and selling it for $1,297. After Consumer Reports judged the 360 to be unacceptable, sales ground to a halt. Similarly, the Yugo automobile achieved a modest level of U.S. sales in the 1980s (despite a “don’t buy” rat- ing from a consumer magazine) because its sticker price of $3,999 made it the cheapest new car available. Low quality was the primary reason for the market failure of both the Subaru 360 and the Yugo.7 The Subaru story does have a happy ending, however, due in no small measure to the company’s decades-long efforts to improve its vehicles. In fact, each year, Consumer Reports puts Subaru near the top of its quality rankings, in the same league with Lexus, Mazda, Toyota, and Audi.8 History has not been so kind to the Yugo: It ended up on Time magazine’s list of the “50 Worst Cars of All Time.”
Even some of the world’s biggest, most successful companies stumble while pursuing global opportunities. Walmart’s exit from the German market was due, in part, to the fact that German shoppers could find lower prices at “hard discounters” such as Aldi and Lidl. In addition, many German consumers prefer to go to several small shops rather than seek out the convenience of a single, “all-in-one” store located outside a town center. Likewise, U.K.-based Tesco’s attempts to enter the U.S. market with its Fresh & Easy stores failed, in part, because U.S. consumers were unfamiliar with the private-label goods that made up much of the merchandise stock. And, in 2015, American “cheap chic” retailer Target terminated its operations in Canada, a victim of missteps in terms of store locations and pricing. The cost for closing 133 stores: more than $5 billion.
Competitive Advantage, Globalization, and Global Industries When a company succeeds in creating more value for customers than its competitors do, that company is said to enjoy competitive advantage in an industry.9 Competitive advantage is measured relative to rivals in specific industry sectors. For example, your local laundromat is in a local industry; its competitors are local. In a national industry, competitors are national. In a global industry—consumer electronics, apparel, automobiles, steel, pharmaceuticals, furniture, and dozens of other sectors—the competition is, likewise, global (and, in many industries, local as well). Global marketing is essential if a company competes in a global industry or one that is globalizing.
The transformation of formerly local or national industries into global ones is part of a broader economic process of globalization, which Jagdish Bhagwati defines as follows:
Economic globalization constitutes integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology.10
From a marketing point of view, globalization presents companies with tantalizing opportuni- ties—and challenges—as executives decide whether to offer their products and services every- where. At the same time, globalization presents companies with unprecedented opportunities to reconfigure themselves. As John Micklethwait and Adrian Wooldridge put it, the same global bazaar that allows consumers to buy the best that the world can offer also enables producers to find the best partners.11
For example, globalization is presenting significant marketing opportunities for professional sports organizations such as the National Basketball Association, the National Football League, and Major League Soccer (see Exhibit 1-2). As Major League Soccer commissioner Don Garber noted, “In the global culture the universal language is soccer. That’s the sweet spot. If it weren’t for the shrinking world caused by globalization, we wouldn’t have the opportunity we have today.”12
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ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 7
Is there more to a global industry than simply “global competition”? Definitely. As defined by management guru Michael Porter, a global industry is one in which competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale. Put another way, an industry is global to the extent that a company’s industry position in one country is interde- pendent with its industry position in other countries. Indicators of globalization include the ratio of cross-border trade to total worldwide production, the ratio of cross-border investment to total capital investment, and the proportion of industry revenue generated by companies that compete in all key world regions.14 One way to determine the degree of globalization in an industry sector is to calculate the ratio of the annual value of global trade in the sector—including the value of components shipped to various countries during the production process—to the annual value of industry sales. In terms of these metrics, the consumer electronics, apparel, automobile, and steel industries are highly globalized.15
Achieving competitive advantage in a global industry requires executives and managers to maintain a well-defined strategic focus. Focus is simply the concentration of attention on a core business or competence. The importance of focus for a global company is evident in the following comment by Helmut Maucher, former chairman of Nestlé SA:
Nestlé 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. For the time being we have no biscuits [cookies] in Europe and the United States for competitive reasons, and no margarine. We have no soft drinks because I have said we either buy Coca-Cola or we leave it alone. This is focus.16
Sometimes, however, company management may choose to initiate a change in focus as part of an overall strategy shift. Even Coca-Cola has been forced to sharpen its focus on its core beverage brands. Following sluggish sales for that company in 2000 and 2001, former chairman and chief executive Douglas Daft formed a new alliance with Nestlé that jointly developed and marketed coffees and teas. Daft also set about the task of transforming Coca-Cola’s Minute Maid unit into a global division that markets a variety of juice brands worldwide. As Daft explained:
We’re a network of brands and businesses. You don’t just want to be a total beverage company. Each brand has a different return on investment, is sold differently, drunk for different reasons, and has different managing structures. If you mix them all together, you lose the focus.17
Exhibit 1-2 The National Football League (NFL) promotes American foot- ball globally. The NFL is focusing on a handful of key markets, including Can- ada, China, Germany, Japan, Mexico, and the United Kingdom. Every fall, banners are draped over London’s Regent Street to create awareness of the International Series games played before sellout crowds at Wembley Sta- dium and Twickenham. Source: Alena Kravchenko/Shutterstock.
“We believe a company can only think in one set of terms. If you are premium, you have to focus on it.”13
Helmut Panke, former chair- man, Bayerische Motoren Werke (BMW) AG
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8 PART 1 • INTRODUCTION
Examples abound of corporate executives addressing the issue of focus, often in response to changes in the global business environment. In recent years, Bertelsmann, Colgate, Danone, Electrolux, Fiat, Ford, Fortune Brands, General Motors, Harley-Davidson, Henkel, LEGO, McDonald’s, Royal Philips, Toshiba, Vivendi, and many other companies have stepped up their efforts to sharpen their strategic focus on core businesses and brands.
Specific actions can take a number of different forms; in addition to alliances, these can include mergers, acquisitions, divestitures, and folding some businesses into other company divisions (see Table 1-2). At Royal Philips, CEO Frans van Houten has shed the electronics and engineering units; instead of marketing TV sets and VCRs, today’s Philips is focused on three sectors: health care, lighting, and consumer lifestyle (see Exhibit 1-3). Major changes in the organizational structure such as these must also be accompanied by changes in corporate culture.18
Value, competitive advantage, and the focus required to achieve them are universal in their relevance, and they should guide marketing efforts in any part of the world. Global marketing requires attention to these issues on a worldwide basis and utilization of a business intelligence system capable of monitoring the globe for opportunities and threats. A fundamental premise of this book can be stated as follows: Companies that understand and engage in global marketing can offer more overall value to customers than companies that do not have such understanding. Many business managers and pundits share this conviction. In the mid-1990s, for example, C. Samuel Craig and Susan P. Douglas noted:
Globalization is no longer an abstraction but a stark reality. . . . Choosing not to participate in global markets is no longer an option. All firms, regardless of their size, have to craft strategies in the broader context of world markets to anticipate, respond, and adapt to the changing configuration of these markets.19
Companies in a range of industries are “going global.” For example, three Italian furniture companies have joined together to increase sales outside of Italy and ward off increased competi- tion from Asia. Luxury goods purveyors such as LVMH and Prada Group provided the model for the new business entity, which unites Poltrona Frau, Cassina, and Cappellini.20 Hong Kong’s Tai
Exhibit 1-3 The Dragon Bridge in Da Nang is a major tourist attraction. The LED lighting is provided by Philips. Source: Huu Dai Trinh/Alamy Stock Photo.
TA B L E 1 - 2 Strategic Focus
Company/headquarters Divestiture/buyer
General Electric (United States) Appliance division, sold to Haier (China) for $5.4 billion (2016); NBC Universal, sold to Comcast for $30 billion (2009).
Vivendi (France) Activision Blizzard videogame unit, management buyout for $8.2 billion (2013).
Unilever (United Kingdom/Netherlands) American pasta sauce business, sold to Mizkan Group (Japan) for $2.15 billion (2014).
IBM (United States) Microelectronics division, sold to Global Foundries for $1.5 billion (2014).
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ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 9
Ping Carpets International is also globalizing. Top managers have been dispersed to different parts of the world; while the finance and technology functions are still in Hong Kong, the marketing chief is based in New York City and the head of operations is in Singapore. As company director John Ying noted, “We’re trying to create a minimultinational.”21
Many gains can be ascribed to globalization. Hundreds of millions of people have been lifted from poverty and have joined the middle class. In countries where globalization has raised wages, living standards have improved. Even so, popular sentiment has been shifting, and a note of caution is in order. A mounting body of evidence indicates that the gains from globaliza- tion have not been evenly distributed. A disproportionate amount of wealth has flowed to the “have lots” and “have yachts,” with not enough going to the “have nots.” U.S. President Donald Trump’s “America First” agenda is just one example of the way some nations are retreating into protectionism and isolation. Some industry observers have noted that we are entering a new era of “globalization in reverse.”
1-3 Global Marketing: What it is and What it isn’t The discipline of marketing is universal. It is natural, however, that marketing practices will vary from country to country for the simple reason that the countries and peoples of the world are different. These differences mean that a marketing approach that has proved successful in one country will not necessarily succeed in another country. Customer preferences, competitors, channels of distribution, and communication media may differ. An important managerial task in global marketing is learning to recognize the extent to which it is possible to extend marketing plans and programs worldwide, as well as the extent to which adaptation is required.
The way a company addresses this task is a manifestation of its global marketing strategy (GMS). In single-country marketing, strategy development addresses two fundamental issues: choosing a target market and developing a marketing mix. The same two issues are at the heart of a firm’s GMS, although they are viewed from a somewhat different perspective (see Table 1-3). Global market participation is the extent to which a company has operations in major world markets. Standardization versus adaptation is the extent to which each marketing mix element is standardized (i.e., executed the same way) or adapted (i.e., executed in different ways) in various country markets. For example, Nike recently adopted the slogan “Here I am” for its pan-European clothing advertising targeting women. The decision to drop the famous “Just do it” tagline in the region was based on research indicating that college-age women in Europe are not as competitive about sports as men are.22
GMS has three additional dimensions that pertain to marketing management. First, concentration of marketing activities is the extent to which activities related to the marketing mix (e.g., promotional campaigns or pricing decisions) are performed in one or a few country
1-3 Compare and contrast a single-country marketing strategy with a global marketing strategy (GMS).
TA B L E 1 - 3 Comparison of Single-Country Marketing Strategy and Global Marketing Strategy
Single-Country Marketing Strategy Global Marketing Strategy
Target market strategy Global market participation
Marketing mix development Marketing mix development
Product Product adaptation or standardization
Price Price adaptation or standardization
Promotion Promotion adaptation or standardization
Place Place adaptation or standardization
Concentration of marketing activities
Coordination of marketing activities
Integration of competitive moves
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10 PART 1 • INTRODUCTION
Rock music has often served as a cultural manifestation of youth movements. In 1960’s “swinging London,” for example, the Beatles, the Rolling Stones, and other British Invasion bands set new trends in sound and style. On the other side of the Atlantic Ocean, American rock groups such as the Grateful Dead and the Jefferson Airplane gave voice to the era’s political and social turmoil during the “Summer of Love.”
In 1976, a new sound emerged. Punk rock was both a musical and a cultural movement. On the musical side, it represented a visceral reaction to, and repudiation of, the prevailing musical styles and tastes of the time. Giant stadium concerts by English progressive rock bands such as Genesis, Pink Floyd, and Yes had become overblown spectacles. Southern California soft-rock, a genre popularized by the Eagles, Linda Ronstadt, and singer-songwriter Jackson Browne, was equally distaste- ful to the punks.
Punk also offered an outlet for the voices of disenfranchised young people and an opportunity to rebel against the establishment. In the United Kingdom in the mid-1970s, the country’s economic stagna- tion meant there were few job opportunities for young people—as well as their elders. The government’s decision to conserve coal sup- plies resulted in power shortages and mandatory three-day working weeks. During the same time period, New York City was in social and economic decline. In the summer of 1976, a serial killer known as the Son of Sam was terrorizing the area. Across America, the energy crisis meant rising prices for gasoline and shortages.
It was in this musical and economic context that young people in both the United States and the United Kingdom discovered that it was relatively easy to learn to play two or three guitar chords. Even better, punk’s “DIY” ethos meant that musicianship was often beside the point. Who needs technique? Who cares what the notes are?
In the United States, punk scenes sprang up on both coasts. Forest Hills, New York, was the breeding ground for the Ramones. Seymour Stein, the Sire Records chief who signed the band to his label, says simply, “New York City needed an infusion.” At the leg- endary CBGB (“Country Bluegrass Blues”) music club in New York’s East Village, the Ramones shared the stage with the Talking Heads, Blondie, and other new bands that were part of the local art-rock scene.
Key to the Ramones’ sound was concise pop songwriting; many songs ranged in length from a mere two minutes (or less) to under three minutes. The look was important, too; the band members carefully cultivated an outcast image by wearing black leather biker jackets and ripped jeans. None of the four was actually named Ramone. Even so, the band was often referred to as “Da Brudders.”
On the U.S. West Coast, a punk scene took shape when bands such as X and Black Flag were formed in Los Angeles. As John Doe, bassist and vocalist for X, recalls, “Rock and roll needed to be hit upside the head!” Despite being dismissed by the mainstream rock world, punk flourished in L.A. as a minority movement in clubs such as the Mask.
In the United Kingdom, the Sex Pistols burst onto the scene in 1976. The Clash, X-Ray Spex and a host of others followed and quickly gained fame and notoriety (see Exhibit 1-4). In July 1976, the Ramones played a landmark show at the Roundhouse in London that some observers credit with sparking the U.K. punk movement. In November 1976, the Sex Pistols released their debut single, “Anarchy in the UK,” on the EMI label.
The following month, the Sex Pistols caused a national furor by swearing on-camera during a live interview with Thames Television presenter Bill Grundy. When Grundy asked what the band had done with its £40,000 advance from EMI, guitarist Steve Jones replied, “We f**kin’ spent it, didn’t we?” The following day, the headline in The Daily Mirror trumpeted, “The Filth and the Fury!” Grundy was fired. (The entire spectacle can viewed on YouTube.)
Vivian Goldman, a former features editor who covered punk for Sounds, a weekly British music paper, notes that punk’s relevance and impact continue today. “In Indonesia, Russia, South Africa, and else- where, people use punk to rage against the system,” she said recently. “Punk’s rebel consciousness represents a flag for a new way of thinking.”
Sources: Peter Aspden, “Infamy in the UK,” Financial Times (June 11–12, 2016), p. 14; Anna Russell, “Punk Takes London by Storm, Again,” The Wall Street Journal (March 25, 2016), p. D6; “Musical Milestones: Celebrating 40 Years of the Ramones,” Conference Presentation, SXSW Music, Film, and Interactive, March 17, 2016; “No Future: 1976 and the Birth of Punk in the UK,” Conference Presentation, SXSW Music, Film, and Interactive, March 16, 2016; Mikal Gilmore, “The Curse of the Ramones: How a Band of Misfits Launched Punk Rock,” Rolling Stone (April 21, 2016), pp. 42–48+; Tom DeSavia and John Doe, Under the Big Black Sun: A Personal History of L.A. Punk (Boston, MA: Da Capo Press, 2016); Tim Jackson, Virgin King: Inside Richard Branson’s Business Empire (London, UK: Harper Collins Publishers, 1995), Chapter 3, “Broken Bottles.”
THE CULTURAL CONTEXT
“1-2-3-4!” 40 Years of Punk Rock, 1976–2016
Exhibit 1-4 Among punk’s positive social effects was the empowerment of women. For example, Exene Cervenka fronted L.A. punk band X, and Poly Sty- rene (shown here) was the singer for London’s X-Ray Spex. Source: Pictorial Press Ltd/Alamy Stock Photo.
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locations. Second, coordination of marketing activities refers to the extent to which market- ing activities related to the marketing mix are planned and executed interdependently around the globe. Third, integration of competitive moves is the extent to which a firm’s competitive marketing tactics in different parts of the world are interdependent. The GMS should enhance the firm’s performance on a worldwide basis.23
The decision to enter one or more particular markets outside the home country depends on a company’s resources, its managerial mind-set, and the nature of opportunities and threats. Today, most observers agree that Brazil, Russia, India, China, and South Africa—five emerging markets known collectively as BRICS—represent significant growth opportunities. Mexico, Indonesia, Nigeria, and Turkey—the so-called MINTs—also hold great potential. Throughout this text, marketing issues in these countries are highlighted in “Emerging Markets Briefing Book” boxes.
We can use Burberry as a case study in global marketing strategy. This U.K.-based luxury brand is available in scores of countries, and Burberry’s recent expansion plans emphasize several geographical areas (see Exhibit 1-5). First are the BRICS nations, where growing numbers of middle-class consumers are developing a taste for luxury brands. Second is the United States, which is dotted with shopping malls whose managers are anxious to entice crowd-pulling luxury goods retailers by sharing fit-out costs and offering attractive, rent-free periods. Under former CEO Angela Ahrendts, Burberry’s marketing mix strategy included the following elements:
Product: Intensify focus on accessories. Boost sales of handbags, belts, and accessories— products whose sales are less cyclical than sales of clothing. Burberry Bespoke allows customers to design their own coats.
Price: “Affordable luxury” is central to the value proposition: more expensive than Coach, less expensive than Prada.
Place: Burberry is opening more independent stores in key U.S. cities, including flagship stores in Los Angeles, San Francisco, and New York; it is also expanding in London and Hong Kong. Such locations generate more than half the company’s revenue and profit.24
Promotion: Encourage advocacy and sharing via social media and online channels such as Twitter, Instagram, and www.artofthetrench.com. Launch Burberry Acoustic to enhance brand relevance and to provide exposure for emerging music talent via www.burberry.com/acoustic.
As you can see in Table 1-3, the next part of the GMS involves the concentration and coordi- nation of marketing activities. At Burberry, haphazard growth had led to a federation of individual operations. Company units in some parts of the world didn’t talk to each other. In some cases, they
Exhibit 1-5 Thomas Burberry is cred- ited with inventing gabardine fabric in the 1850s, paving the way for creation of the trench coat. England’s Burberry Group celebrated its 160th anniversary in 2016. The Burberry trademark is registered in more than 90 countries. Source: Oli Scarff/Getty Images.
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http://www.artofthetrench.com
http://www.burberry.com/acoustic
12 PART 1 • INTRODUCTION
competed against each other, and sometimes designed their own products for their own markets and wouldn’t share ideas with other parts of the business. During her tenure as CEO, Angela Ahrendts was very clear in articulating her core strategic vision: Leverage the Franchise. In other words: “One company, one brand.”25
When Christopher Bailey became CEO in 2014, he set about refining and updating Ahrendts’ strategies with an approach he called “Inspire with the Brand.” Bailey used data analytics to lever- age consumer insights gleaned from Burberry’s strong digital presence and its worldwide network of brick-and-mortar stores to project a consistent brand voice.26 Collaborations with musicians also became integral to Bailey’s strategy; he even designed the sequined gown global superstar Adele wore on her 2016 world tour! Bailey also embraced multichannel marketing, adding more mobile marketing to the existing mix of retail and wholesale channels.
An Italian businessman, Marco Gobetti, took over as Burberry’s CEO in 2017. He faces a num- ber of new challenges to the company’s global marketing strategy, including the declining popular- ity of department store shopping in the United States and slowing sales of luxury goods in China.27
The issue of standardization versus adaptation in global marketing has been at the center of a long-standing controversy among both academicians and business practitioners. Much of the controversy dates back to Professor Theodore Levitt’s 1983 article “The Globalization of Markets” in the Harvard Business Review. Levitt argued that marketers were confronted with a “homogeneous global village.” He advised organizations to develop standardized, high-quality world products and market them around the globe by using standardized advertising, pricing, and distribution. Some well-publicized failures by Parker Pen and other companies that had tried to follow Levitt’s advice brought his proposals into question. The business press frequently quoted industry observers who disputed Levitt’s views. As Carl Spielvogel, chairman and CEO of the Backer Spielvogel Bates Worldwide advertising agency, told The Wall Street Journal in the late 1980s, “Theodore Levitt’s comment about the world becoming homogenized is bunk. There are about two products that lend themselves to global marketing—and one of them is Coca-Cola.”28
Global marketing is the key to Coke’s worldwide success—but that success was not based on a total standardization of marketing mix elements. For example, Coca-Cola achieved success in Japan by spending a great deal of time and money to become an insider; the company built a complete local infrastructure with its sales force and vending machine operations. Coke’s success in Japan is a function of its ability to achieve global localization, by being as much of an insider as a local company, yet still reaping the benefits that result from world-scale operations. Although the Coca-Cola Company has experienced a recent sales decline in Japan, that country remains a key market that accounts for about 20 percent of total worldwide operating revenues.29
What does the phrase global localization really mean? In a nutshell, it means that a successful global marketer must have the ability to “think globally and act locally.” Kenichi Ohmae summed up this paradox as follows:
The essence of being a global company is to maintain a kind of tension within the organiza- tion without being undone by it. Some companies say the new world requires homogeneous products—”one size fits all”—everywhere. Others say the world requires endless customiza- tion—special products for every region. The best global companies understand it’s neither and it’s both. They keep the two perspectives in mind simultaneously.30
As we will see many times in this book, global marketing may include a combination of stan- dard (e.g., the actual product itself) and nonstandard (e.g., distribution or packaging) approaches. A global product may be the same product everywhere and yet different. Global marketing requires marketers to think and act in a way that is both global and local by responding to similarities and differences in world markets.
But it is important to bear in mind that “global localization” is a two-way street, and that there is more to the story than “think globally, act locally.” Many companies are learning that it is equally important to think locally and act globally. In practice, this means that companies are discovering the value of leveraging innovations that occur far from headquarters and transporting them back home. For example, McDonald’s restaurants in France don’t look like McDonald’s restaurants elsewhere. Décor colors are muted, and the golden arches are displayed more subtly. After seeing the sales increases posted in France, some American franchisees began undertaking similar renovations. As Burger Business newsletter editor Scott Hume has noted, “Most of the
“The more things globalize, the more people want to affiliate with everything that is local. This has led to unbelievable fragmentation.”31
Peter Ter Kulve, Chief Transforma- tion Officer, Unilever
“One of the top-level lessons is that we have done much more local market customization in India than we did in China.”33
Jeff Bezos, CEO, Amazon
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interesting ideas of McDonald’s are coming from outside the U.S. McDonald’s is becoming a European chain with stores in the U.S.”32 (see Case 1-2).
These reverse flows of innovation are not occurring just between developed regions such as Western Europe and North America. The growing economic power of China, India, and other emerging markets means that many innovations originate there (see Table 1-4). For example, Nestlé, Procter & Gamble, Unilever, and other consumer products companies are learning that low-cost products with less packaging developed for low-income consumers also appeal to cost- conscious consumers in, say, Spain and Greece (see Exhibit 1-6).34
The Coca-Cola Company supports its Coke, Fanta, and Powerade brands with marketing mix elements that are both global and local. Dozens of other companies also have successfully pursued global marketing by creating strong global brands, in various ways. In consumer electronics, Apple is synonymous with hardware and software integration, ease of use, cutting-edge innova- tion, and high-tech design. In appliances, Germany’s reputation for engineering and manufactur- ing excellence is a source of competitive advantage for Bosch (see Exhibit 1-7). Italy’s Benetton utilizes a sophisticated distribution system to quickly deliver the latest fashions to its worldwide network of stores. The backbone of Caterpillar’s global success is a network of dealers who
TA B L E 1 - 4 Think Locally/Act Globally
Company/headquarters Country Product
Cinnabon/USA Cinnabon customers in Central and South America prefer dulce de leche. Products devel- oped for those regions are being introduced in the United States, where the Hispanic popu- lation is a key segment.35
Starbucks/USA Starbucks opened an experimental store in Amsterdam that serves as a testing ground for new design concepts such as locally sourced and recycled building materials. The best concepts will be extended to other parts of Europe. Fast Company magazine included Liz Muller, Director of Creative Design at Starbucks, in its “Most Creative People 2013” ranking.
Kraft Foods/USA Tang drink powder became a $1 billion brand as regional managers in Latin America and the Middle East moved beyond orange (the top-seller) into popular local flavors such as mango and pineapple. Kraft plans to reboot Tang in the U.S. market using lessons learned abroad.36
Exhibit 1-6 For Nestlé, innovation is the key to its expanded presence in emerging markets such as Thailand, Sri Lanka, and Mali. Recently, Nestlé introduced mobile coffee carts from which vendors sell single servings of Nescafé brand coffee. Some of these innovations are being transferred to high-income countries in Europe and elsewhere. Source: adrian arbib/Alamy.
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14 PART 1 • INTRODUCTION
support the company’s promise of “24-hour parts and service” anywhere in the world. As these examples indicate, there are many different paths to success in global markets. In this book, we do not propose that global marketing is a knee-jerk attempt to impose a totally standardized approach on marketing around the world. Instead, a central issue in global marketing is how to tailor the global marketing concept to fit particular products, businesses, and markets.37
As shown in Table 1-5, McDonald’s global marketing strategy is based on a combination of global and local marketing mix elements. For example, a vital element in McDonald’s business model is a restaurant system that can be set up virtually anywhere in the world. McDonald’s offers core menu items—hamburgers, french fries, and soft drinks—in most countries, and the company also customizes menu offerings in accordance with local eating customs. The average price of a Big Mac in the United States is $5.28. By contrast, in China, Big Macs sell for the equivalent of $3.17. In absolute terms, Chinese Big Macs are cheaper than American ones. But is it a fair comparison? Real estate costs vary from country to country, as do per capita incomes.
Exhibit 1-7 MILAN - ITALY - APRIL 2012: Salone internazionale del mobile 2012, furniture fair, Bosch. Source: A. Astes/Alamy Stock Photo.
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The approach to global marketing that a company adopts will depend on industry conditions, shifting economic realities, and its source or sources of competitive advantage. For example:
Harley-Davidson’s motorcycles are perceived around the world as the all-American bike. Should Harley-Davidson start manufacturing motorcycles in a low-wage country such as Thailand?
The success of Honda and Toyota in world markets was initially based on exporting cars from factories in Japan. Today, both companies operate manufacturing and assembly facili- ties in the Americas, Asia, and Europe. From these sites, the automakers both supply cus- tomers in the local market and export their products to the rest of the world. For example, each year Honda exports tens of thousands of Accords and Civics from U.S. plants to Japan and dozens of other countries. Will European consumers continue to buy Honda vehicles exported from America? Will American consumers continue to snap up American-built Toyotas?
Uniqlo, a division of Japan’s Fast Retailing, operates approximately 850 stores in Japan and 300 stores in 12 overseas countries. The company sources 90 percent of its clothing from China. Uniqlo currently has 46 stores in the United States; its plans call for a total of 200 U.S. stores by 2020. Can the company achieve its goal of reaching $50 billion in sales by 2020, thereby becoming the world’s number 1 apparel retailer?
The answer to these questions is: It all depends. Although Harley-Davidson’s competitive advantage is based, in part, on its “Made in the USA” positioning, the company has shifted some production outside the United States. India’s 100 percent tariff on imported motorcycles prompted Harley-Davidson to launch production in the state of Haryana in 2011. To further capitalize on market opportunities in Asia, and to avoid import tariffs that can go as high as 60 percent, the company recently opened a manufacturing facility in Thailand.38
Toyota’s success in the United States was originally attributable to its ability to transfer world-class manufacturing skills—“the Toyota Way”—to its U.S. plants while using advertising to inform prospective customers that American workers build the Avalon, Camry, and Tundra models, with many components purchased from American suppliers. The U.S. market generates approximately two-thirds of Toyota’s profits. However, in its drive to become the world’s top auto- maker, Toyota’s insular corporate culture and focus on cost cutting compromised overall product quality. Under the leadership of Akio Toyoda, the company has rebounded. It sold 10.2 million cars in 2016 and posted record profits; an innovative production system, dubbed Toyota New Global Architecture, is designed to ensure that Toyota can respond quickly to market changes in any part of the world.39
TA B L E 1 - 5 Examples of Effective Global Marketing: McDonald’s
Marketing Mix Element Standardized localized
Product Big Mac McAloo Tikka potato burger, Chicken Maharaja Mac (India); Rye McFeast (Finland); Adagio (Italy)
Promotion Brand name Slang nicknames—for example, Mickey D’s (United States, Canada), Macky D’s (United Kingdom, Ireland), Macca’s (Australia), Mäkkäri (Finland), MakDo (Philippines), McDo (France)
Advertising slogan “i’m lovin’ it”
“Venez comme vous êtes” (“Come as you are”) television ad campaign in France. Various executions show individuals expressing different aspects of their respective personalities. One features a young man dining with his father. The ad’s creative strategy centers on sexual free- dom and rebellion: The father does not realize that his son is gay.
Place Freestanding restaurants in high-traffic public areas
McDonald’s Switzerland operates themed dining cars on the Swiss national rail system; McDonald’s is served on the Stena Line ferry from Helsinki to Oslo; home delivery (India)
Price Average price of Big Mac is $5.28 (United States)
$5.91 (Norway); $3.17 (China)
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16 PART 1 • INTRODUCTION
As noted, about one-fourth of Uniqlo’s 1,200 stores are located outside Japan; key country markets include the United States, China, Russia, Singapore, and South Korea. Shoppers have responded favorably to Uniqlo’s colorful designs and the high service standards for which Japa- nese retailers are famous. According to A. T. Kearney’s 2016 Global Retail Development Index, China is the number 1–ranked emerging market opportunity for retail. In China, Uniqlo’s manage- ment team selectively targets cities with high population densities such as Beijing and Shanghai (see Exhibit 1-8).40
1-4 The Importance of Global Marketing The largest single market in the world in terms of national income is the United States, representing roughly 25 percent of the total world market for all products and services. U.S. companies that wish to achieve their maximum growth potential must “go global,” however, because 75 percent of world market potential is outside their home country. Management at Coca-Cola clearly under- stands this; about 75 percent of the company’s operating income and two-thirds of its operating revenue are generated outside North America.
Non-U.S. companies have an even greater motivation to seek market opportunities beyond their own borders; their opportunities include the 325 million people in the United States. For example, even though the dollar value of the home market for Japanese companies is the third largest in the world (after the United States and China), the market outside Japan is 90 percent of the world potential. For European countries, the picture is even more dramatic. Even though Germany is the largest single-country market in Europe, 94 percent of the world market potential for German companies is outside Germany.
Many companies have recognized the importance of conducting business activities outside their home country. Industries that were essentially national in scope only a few years ago are dominated today by a handful of global companies. In most industries, the companies that will survive and prosper in the twenty-first century will be global enterprises. Some companies that fail to formulate adequate responses to the challenges and opportunities of globalization will be absorbed by more dynamic, visionary enterprises. Others will undergo wrenching transformations and, if their efforts succeed, will emerge from the process greatly transformed. Some companies will simply disappear.
Each year, Fortune magazine compiles a ranking of the 500 largest service and manufacturing companies by revenues.41 Walmart stands atop the 2016 Global 500 rankings, with revenues of
Exhibit 1-8 Japan’s Fast Retailing competes with global companies such as Inditex (Spain), H&M (Sweden), and Gap (U.S.). Fast Retailing founder Tadashi Yanai intends to create the world’s biggest apparel retail operation by 2020. Source: August_0802/ Shutterstock.
1-4 Identify the companies at the top of the Global 500 rankings.
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$486 billion; it currently generates only about one-third of its revenues outside the United States. However, global expansion is key to Walmart’s growth strategy. In all, 5 companies in the top 10 compete in the oil or energy sectors. Toyota and Volkswagen, the only global automakers in the top 10, are locked in a fierce competitive struggle as the German company rebounds from a scandal involving its diesel engines.
Examining the size of individual product markets, measured in terms of annual sales, provides another perspective on global marketing’s importance. Many of the companies identified in the Fortune rankings are key players in the global marketplace.
1-5 Management Orientations The form and substance of a company’s response to global market opportunities depend greatly on its management’s assumptions or beliefs—both conscious and unconscious—about the nature of the world. The worldview of a company’s personnel can be described as ethnocentric, polycentric, regiocentric, or geocentric—collectively known as the EPRG framework.42 This orientation may change over time. Management at a company with a prevailing ethnocen- tric orientation may, for example, consciously make a decision to move in the direction of geocentricism.
Ethnocentric Orientation A person who assumes that his or her home country is superior to the rest of the world is said to have an ethnocentric orientation. Ethnocentrism is sometimes associated with attitudes of national arrogance or assumptions of national superiority; it can also manifest itself as indifference to marketing opportunities outside the home country. Company personnel with an ethnocentric orientation see only similarities in markets and assume that products and practices that succeed in the home country will succeed anywhere.
At some companies, the ethnocentric orientation means that opportunities outside the home country are largely ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior. This point of view leads to a standardized or extension approach to marketing based on the premise that products can be sold everywhere without adaptation.
As the following examples illustrate, an ethnocentric orientation can take a variety of forms:
Nissan’s earliest exports were cars and trucks that had been designed for mild Japanese winters; the vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. Nissan’s assumption was that Americans would do the same thing. As a Nissan spokesman said, “We tried for a long time to design cars in Japan and shove them down the American consumer’s throat. That didn’t work very well.”43
Until the 1980s, Eli Lilly and Company operated as an ethnocentric company: Activity out- side the United States was tightly controlled by headquarters, and the focus was on selling products originally developed for the U.S. market.44
For many years, executives at California’s Robert Mondavi Corporation operated the com- pany as an ethnocentric international entity. As former CEO Michael Mondavi explained, “Robert Mondavi was a local winery that thought locally, grew locally, produced locally, and sold globally. . . . To be a truly global company, I believe it’s imperative to grow and produce great wines in the world in the best wine-growing regions of the world, regardless of the country or the borders.”45
The cell phone divisions of Toshiba, Sharp, and other Japanese companies prospered by focusing on the domestic market. When handset sales in Japan slowed a few years ago, the Japanese companies realized that Nokia, Motorola, and Samsung already dominated key world markets. Atsutoshi Nishida, president of Toshiba, noted, “We were thinking only about Japan. We really missed our chance.”46
1-5 Explain the stages a company goes through as its management orientation evolves from domestic and ethnocentric to global and geocentric.
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18 PART 1 • INTRODUCTION
In the ethnocentric international company, foreign operations or markets are typically viewed as being secondary or subordinate to domestic ones. (We are using the term domestic to mean the coun- try in which a company is headquartered.) An ethnocentric company operates under the assumption that headquarters’ “tried-and-true” knowledge and organizational capabilities can be applied in other parts of the world. Although this assumption can sometimes work to a company’s advantage, valuable managerial knowledge and experience in local markets may go unnoticed. Even if customer needs or wants diverge from those in the home country, those differences are often ignored at headquarters.
Sixty years ago, most business enterprises—and especially those located in a large country like the United States—could operate quite successfully with an ethnocentric orientation. Today, however, ethnocentrism is one of the major internal weaknesses that must be overcome if a com- pany is to transform itself into an effective global competitor.
Polycentric Orientation The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes management’s belief or assumption that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies so as to succeed; the term multinational company is often used to describe such a structure. This point of view leads to a localized or adaptation approach that assumes products must be adapted in response to different market conditions. Examples of companies and business units with a polycentric orientation include the following:
At Procter & Gamble, one of Pampers’ many problems in the 1990s was that various regional groups and 80-plus country teams were all acting independently. P&G executives knew they had to address the issue in Pampers’ two biggest organizations, Pampers Europe (run by an Austrian) and Pampers North America (run by an American). The two executives were not collaborating, thereby stifling any potential for their organizations to cooperate in solving the global challenges Pampers faced in research and development, design, manufacturing, and marketing.48
Unilever, the Anglo-Dutch consumer products company, once exhibited a polycentric orientation. For example, its Rexona deodorant brand had 30 different package designs and 48 different formulations. Advertising was also executed on a local basis. Top management spent a decade changing Unilever’s strategic orientation by implementing a reorganization plan that centralizes authority and reduces the power of local country managers.49
Regiocentric Orientation In a company with a regiocentric orientation, a region becomes the relevant geographic unit; management’s goal is to develop an integrated regional strategy. What does regional mean in this context? A U.S. company that focuses on the countries included in the North American Free Trade Agreement (NAFTA)—namely, the United States, Canada, and Mexico—has a regiocentric orien- tation. Similarly, a European company that focuses its attention on Europe is regiocentric. Some companies serve markets throughout the world, but do so on a regional basis. Such a company could be viewed as a variant of the multinational model discussed previously.
For decades, a regiocentric orientation prevailed at General Motors: Executives in different parts of the world—Asia-Pacific and Europe, for example—were given considerable autonomy when designing vehicles for their respective regions. Company engineers in Australia, for exam- ple, developed models for sale in the local market. One result of this approach was that a total of 270 different types of radios were being installed in GM vehicles around the world. As GM Vice Chairman Robert Lutz told an interviewer in 2004, “GM’s global product plan used to be four regional plans stapled together.”50
Geocentric Orientation A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated global strategies. A company whose management has adopted a geocentric orientation is sometimes known as a global or transnational company.51 During the past several years, long-standing regiocentric policies at GM, such as those just discussed, have been replaced by a geocentric approach. Among other changes, the new policy calls for engineering jobs to be assigned on a worldwide basis, with a global council based in Detroit
“What unites us through our brands, markets, and businesses is the group’s identity, which we refer to as ‘a worldwide business with local presence.’ Everywhere we operate, our priority is to create or develop a strong brand that reflects consumer needs in that market as closely as possible.”47
Franck Riboud, honorary chairman, Groupe Danone
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determining the allocation of the company’s $7 billion annual product development budget. One goal of the geocentric approach: to save 40 percent in radio costs by using a total of 50 different radios.
It is a positive sign that, at many companies, management realizes the need to adopt a geocen- tric orientation. However, the transition to new structures and organizational forms can take time to bear fruit. As new global competitors emerge on the scene, management at long-established industry giants such as GM must face up to the challenge of organizational transformation. More than a decade ago, Louis R. Hughes, a GM executive, said, “We are on our way to becoming a transnational corporation.” Basil Drossos, former president of GM de Argentina, echoed his col- league’s words: “We are talking about becoming a global corporation as opposed to a multina- tional company; that implies that the centers of expertise may reside anywhere they best reside.”53 In 2008, Toyota sold more vehicles worldwide than GM for the first time. When GM emerged from bankruptcy in 2009, it did so as a smaller, leaner company.
A global company can be further described as one that either pursues a strategy of serving world markets from a single country, or sources globally for the purposes of focusing on specific country markets. In addition, global companies tend to retain their association with a particular headquarters country. Until recently, Harley-Davidson served world markets from the United States exclusively. Similarly, all the production for luxury fashion marketer Tod’s takes place in Italy.
By contrast, Uniqlo sources its apparel from low-wage countries; a sophisticated supply chain ensures timely delivery to its network of stores. Benetton pursues a mixed approach, sourc- ing some of its apparel from Italy and some from low-wage countries. Harley-Davidson, Tod’s, Uniqlo, and Benetton may all be thought of as global companies.
Transnational companies serve global markets and use global supply chains, which often results in a blurring of national identity. A true transnational would be characterized as “stateless.” Toyota and Honda are two examples of companies that exhibit key characteristics of transna- tionality. At global and transnational companies, management uses a combination of standard- ized (extension) and localized (adaptation) elements in the marketing program. A key factor that distinguishes global and transnational companies from their international or multinational counterparts is mind-set: At global and transnational companies, decisions regarding extension and adaptation are not based on assumptions, but rather made on the basis of ongoing research into market needs and wants.
One way to assess a company’s “degree of transnationality” is to compute an average of three ratios: (1) sales outside the home country to total sales, (2) assets outside the home country to total assets, and (3) employees outside the home country to total employees. Viewed in terms of these metrics, Nestlé, Unilever, Royal Philips Electronics, GlaxoSmithKline, and the News Corporation can also be categorized as transnational companies. Each is headquartered in a relatively small home-country market—a fact of life that has compelled the company’s management to adopt a regiocentric or geocentric orientation to achieve revenue and profit growth.
The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a “worldview” that sees similarities and differences in markets and countries and seeks to create a global strategy that is fully responsive to local needs and wants. A regiocentric manager might be said to have a worldview on a regional scale; the world outside the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a combination of the two. However, research suggests that many companies are seeking to strengthen their regional competitiveness rather than move directly to develop global responses to changes in the competitive environment.54
The ethnocentric company is centralized in its marketing management; the polycentric com- pany is decentralized; and regiocentric and geocentric companies are integrated on a regional or global scale, respectively. A crucial difference among the various orientations is the under- lying assumption for each. The ethnocentric orientation is based on a belief in home-country superiority. The underlying assumption of the polycentric approach is that there are so many differences in cultural, economic, and marketing conditions in the world that it is futile to attempt to transfer experience across national boundaries. A key challenge facing organizational leaders today is managing a company’s evolution beyond an ethnocentric, polycentric, or regiocentric orientation to a geocentric one. As noted in one highly regarded book on global business, “The multinational solution encounters problems by ignoring a number of organizational impedi- ments to the implementation of a global strategy and underestimating the impact of global competition.”55
“These days everyone in the Midwest is begging Honda to come into their hometown. It is no longer viewed as a ‘Japanese’ company, but a ‘ pro-American-worker corporation’ flush with jobs, jobs, jobs.”52
Douglas Brinkley, Professor of History, Tulane University
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20 PART 1 • INTRODUCTION
Kevin Systrom and Mike Krieger are entrepreneurs. They developed an innovative product, created a brand, and cofounded a company to mar- ket it. By applying the basic tools and principles of modern marketing, the two Stanford University graduates have achieved remarkable success.
As is true with many entrepreneurs, Systrom’s idea was based on his recognition of a problem that needed to be solved and his own needs and wants. Systrom had a passion for photography, and also appreciated the potential of social media. He hit upon an idea for a location-based photo-sharing app that he dubbed Burbn (after his favorite distilled spirit). He then recruited Krieger, who was working on his own app called Meebo. Krieger liked Systrom’s idea, but the two agreed that Burbn was overloaded with functionality. Realizing that “There has to be a better way,” the duo stripped out everything but the photo-sharing function, which they conceptualized as an “instant telegram” (see Exhibit 1-9).
In October 2010, Systrom and Krieger launched Instagram on Apple’s App Store. Within two years, the photo-filtering and photo- sharing app had 30 million users. Soon thereafter, the platform was also launched on the Android and Windows Phone platforms.
Systrom’s insight was that, even in prehistoric times, people com- municated visually. Today, Instagram makes visual information acces- sible, just as Gutenberg’s printing press made the printed word more accessible. Instagram’s popularity is due in part to the dozens of filters that users can apply to their photos (the idea for filters came from Systrom’s girlfriend Nicole).
In 2012, Facebook acquired Instagram for $1 billion. Today, Ins- tagram has more than 600 million users who upload approximately 100 million photographs and videos each day; only 20 percent of users are in the United States. In 2016, Instagram generated more than $1.5 billion in revenues from mobile ads.
Social-media savvy companies in the luxury goods industry have been quick to embrace Instagram. To justify their products’ high prices,
managers of luxury brands need to help consumers understand the craftsmanship and heritage that are integral to the brand stories. Using photo images and videos, companies can take consumers “behind the scenes” and show the process by which luxury products are made by skilled artisans.
Nearly two-thirds of Instagram users use the app to learn about products and brands. Companies can leverage parent Facebook’s pow- erful data and online advertising tools to reach different segments— say, current versus potential luxury consumers—by inserting targeted, photography-based ads in their respective Instagram feeds. One such segment is known as “Henrys,” referring to younger Millennials who are described as “high earning, not rich yet.”
Food is another category that is driving Instagram’s popularity; to date, users have “IG-ed” (i.e., Instagrammed) more than 200 mil- lion posts with the hashtag #food. In response to this trend, social- media–conscious hospitality managers in London, New York, and other food-centric cities are taking steps to ensure that a restaurant’s inte- rior design, menus, and dishes lend themselves to Instagram posts. These range from Michelin-approved restaurants with posh addresses to Mexican-themed chains that feature burritos wrapped in branded foil. The most popular color? “Millennial Pink.” Recent trending food items include “freakshakes” and “unicorn lattes.”
Two new Instagram features, Stories and Live, launched in August 2016; they allow users to upload short video clips, live feeds, and photos that disappear within 24 hours. The features proved to be so addictive that parent company Facebook added similar functionality to WhatsApp, Messenger, and Facebook. Some critics have observed that, with Stories, Instagram was simply copying Snapchat. Systrom disagrees. To him, execution trumps originality. Stories “clearly pro- vides unique value to people that they’re not getting elsewhere,” he says.
The music industry’s embrace of Instagram and Stories illus- trates Systrom’s point. Musicians and bands of all types—from global superstars like Adele and Beyoncé to indie artists seeking to break through—are using the platform to connect with fans in an organic way. According to Nielsen, Instagram users spend more time listening to music and are likely to pay for streaming music services than nonus- ers. Artists use Stories and Live to announce new releases and tours, and to provide behind-the-scenes looks at the creative process. Popular posts can quickly go viral, allowing record companies and the artists themselves to see the impact on music sales.
Sources: John Paul Titlow, “How Instagram Became the Music Industry’s Secret Weapon,” Fast Company (September 29, 2017); Deepa Seetharaman, “A Copy- cat? No, Call It Competition,” The Wall Street Journal (May 31, 2017), p. B5; Deepa Seetharaman, “‘Efficiency Guru’ Sharpens Instagram,” The Wall Street Journal (April 14, 2017), p. B4; Deepa Seetharaman Natalie Whittle, “A Square Meal: How Restau- rants Are Courting the Instagram Crowd,” FT Magazine (April 7, 2017); Alexandra Wolfe, “Weekend Confidential: Kevin Systrom,” The Wall Street Journal (July 2–3, 2016), p. C11; Hannah Kuchler, “Snap Happy: Instagram Rolls out Carpet for Fashion Brands,” Financial Times—FT Special Report: The Business of Luxury (May 23, 2016), p. 2; Murad Ahmed, “The Camera-Shy Half of Instagram’s Founding Duo,” Financial Times (November 24, 2015), p. 10.
ENTREPRENEURIAL LEADERSHIP, CREATIVE THINKING, AND THE GLOBAL STARTUP
Kevin Systrom and Mike Krieger, Instagram
Exhibit 1-9 Stanford University graduates Kevin Systrom and Mike Krieger are Instagram's co-founders. Source: CHRISTIE HEMM KLOK/The New York Times/Redux.
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ChAPTER 1 • INTRODUCTION TO GlObAl MARkETING 21
1-6 Forces Affecting Global Integration and Global Marketing
The remarkable growth of the global economy over the past 65 years has been shaped by the dynamic interplay of various driving and restraining forces. During most of those decades, com- panies from different parts of the world in different industries achieved great success by pursu- ing international, multinational, or global strategies. During the 1990s, changes in the business environment presented numerous challenges to established ways of doing business. Today, despite calls for protectionism as a response to the changing political environment, global marketing continues to grow in importance. This is because, even today, driving forces have more momentum than restraining forces. The forces affecting global integration are shown in Figure 1-1.
Driving Forces Regional economic agreements, converging market needs and wants, technological advances, pressure to cut costs, pressure to improve quality, improvements in communication and trans- portation technology, global economic growth, opportunities for leverage, and innovation and entrepreneurship all represent important driving forces; any industry subject to these forces is a candidate for globalization.
MULTILATERAL TRADE AGREEMENTS For years, a number of multilateral trade agreements have accelerated the pace of global integration. NAFTA expanded trade among the United States, Canada, and Mexico. The General Agreement on Tariffs and Trade (GATT), which was ratified by more than 120 nations in 1994, created the World Trade Organization (WTO) to promote and protect free trade. In Europe, the expanding membership of the European Union has lowered boundaries to trade within the region. The creation of a single currency zone and the introduction of the euro have led to increased intra-European trade in the twenty-first century.
CONVERGING MARKET NEEDS AND WANTS AND THE INFORMATION REVOLUTION A person studying markets around the world will discover cultural universals as well as differences. The common elements in human nature provide an underlying basis for the opportunity to create and serve global markets. The use of the word create is deliberate here. Most global markets do not exist in nature; marketing efforts must create them. For example, no one needs soft drinks— and yet today in some countries, per capita soft drink consumption exceeds water consumption. Marketing has driven this change in behavior, so that the soft drink industry is now a truly global one. Today, consumer needs and wants around the world are converging as never before, which in turn creates an opportunity for global marketing. Multinational companies pursuing strategies of product adaptation run the risk of failing to be successful against global competitors that have recognized opportunities to serve global customers.
The information revolution—what some refer to as the “democratization of information”—is one reason for the trend toward convergence. This revolution is fueled by a variety of technologies, products, and services, including satellite dishes; globe-spanning TV networks such as CNN and MTV; widespread access to broadband Internet; and Facebook, Twitter, YouTube, and other social media. Taken together, these communication tools mean that people in the remotest corners of the globe can compare their own lifestyles and standards of living with those of people in other countries. In regional markets such as Europe and Asia, the increasing overlap of advertising across national boundaries and the greater mobility of consumers have created opportunities for marketers to pursue pan-regional product positioning. The Internet is an even stronger driving force: When a company establishes a site on the Internet, the company automatically becomes
1-6 Discuss the driving and restraining forces affecting global integration today.
FIGURE 1-1 Driving and Restraining Forces Affecting Global Integration
Global integration
and global
marketing
R estraining forcesD
riv in
g fo
rc es
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22 PART 1 • INTRODUCTION
global. In addition, the Internet allows people everywhere in the world to reach out to one another and to companies around the globe, buying and selling a virtually unlimited assortment of products and services.
TRANSPORTATION AND COMMUNICATION IMPROVEMENTS The time and cost barriers associ- ated with distance have fallen tremendously over the past 100 years. The jet airplane revolution- ized travel and communication by making it possible for people to go around the world in less than 48 hours. Tourism enables people from many countries to see and experience the newest products sold abroad. In 1970, 75 million passengers traveled internationally; according to figures compiled by the International Air Transport Association, that figure increased to nearly 3.8 billion passengers in 2016.
One essential characteristic of the effective global business is face-to-face communication among employees and between a company and its customers. Modern jet travel made such com- munication feasible. Today’s information technology allows airline alliance partners such as United and Lufthansa to sell seats on each other’s flights, thereby making it easier for travelers to get from point to point. Meanwhile, the cost of international data, voice, and video communication has fallen dramatically over the past several decades. Today, Skype and FaceTime are powerful new communication channels. They are the latest in a series of innovations—including fax, e-mail, video teleconferencing, Wi-Fi, and broadband Internet—that enable managers, executives, and customers to link up electronically from virtually any part of the world without traveling at all.
A similar revolution has occurred in transportation technology. The costs associated with physical distribution, in terms of both money and time, have been greatly reduced in recent years. The per-unit cost of shipping automobiles from Japan and Korea to the United States by specially designed auto-transport ships is less than the cost of overland shipping from Detroit to either U.S. coast. Another key innovation has been the increased utilization of 20- and 40-foot metal contain- ers that can be transferred from trucks to railroad cars to ships.
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