978 0 07 352994 3

International Marketing

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International Marketing

fifteenth edition

Philip R. Cateora FELLOW, ACADEMY OF INTERNATIONAL BUSINESS UNIVERSITY OF COLORADO

Mary C. Gilly UNIVERSITY OF CALIFORNIA, IRVINE

John L. Graham UNIVERSITY OF CALIFORNIA, IRVINE

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INTERNATIONAL MARKETING

Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2011, 2009, 2007, 2005, 2002, 1999, 1996, 1993, 1990, 1987, 1985, 1983, 1979, 1975, 1971 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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ISBN 978-0-07-352994-3 MHID 0-07-352994-X

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Vice president and editor-in-chief: Brent Gordon Editorial director: Paul Ducham Publisher: Doug Hughes Executive editor: John Weimeister Director of development: Ann Torbert Development editor: Sara Knox Hunter Editorial assistant: Heather Darr Vice president and director of marketing: Robin J. Zwettler Marketing manager: Katie Mergen Marketing specialist: Meredith Desmond Vice president of editing, design, and production: Sesha Bolisetty

Senior project manager: Bruce Gin Buyer II: Debra R. Sylvester Interior designer: JoAnne Schopler Senior photo research coordinator: Jeremy Cheshareck Photo researcher: David Tietz, Editorial Image, LLC Senior media project manager: Greg Bates Media project manager: Cathy L. Tepper Cover design: JoAnne Schopler Interior design: JoAnne Schopler Typeface: 10/12 Times New Roman Compositor: MPS Limited, a Macmillan Company Printer: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data Cateora, Philip R. International marketing ⁄ Philip R. Cateora, Mary C. Gilly, John L. Graham. — 15th ed. p. cm. Includes index. ISBN-13: 978-0-07-352994-3 (alk. paper) ISBN-10: 0-07-352994-X (alk. paper) 1. Export marketing. 2. International business enterprises. I. Gilly, Mary C. II. Graham, John L. III. Title. HF1416.C375 2011 658.8’4—dc22

2010020200

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To Nancy To the people who led me down this

career path: Richard Burr, Trinity University Tom Barry, Southern Methodist University Betsy Gelb, University of Houston

To Geert Hofstede

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vi

Philip R. Cateora Professor Emeritus, The University of Colorado at Boulder. Received his Ph.D. from the

ABOUT THE AUTHORS

University of Texas at Austin where he was elected to Beta Gamma Sigma. In his academic career at the University of Colorado he has served as Division Head of Marketing, Coordi- nator of International Business Programs, Associate Dean, and Interim Dean. His teaching has spanned a range of courses in marketing and international business, from fundamentals through the doctoral level. He received the University of Colorado Teaching Excellence Award and the Western Marketing Educator’s Association’s Educator of the Year Award. Professor Cateora has conducted faculty workshops on internationalizing principles of marketing courses for the AACSB and participated in designing and offering similar faculty workshops under a grant by the Department of Education. In conjunction with these efforts, he co-authored Marketing: An International Perspective, a supplement to accompany principles of marketing texts. Professor Cateora has served as consultant to small export companies as well as multinational companies, served on the Rocky Mountain Export Council, and taught in management development programs. He is a Fellow of the Academy of International Business.

Mary C. Gilly Professor of Marketing at the Paul Merage School of Business, University of California, Irvine. She received her B.A. from Trinity University in San Antonio, Texas; her M.B.A. from Southern Methodist University in Dallas, Texas; and her Ph.D. from the University of Hous- ton. Dr. Gilly has been at UCI since 1982 and has served as Vice Dean, Associate Dean, Director of the Ph.D. Program and Faculty Chair in the school of business, as well as the Associate Dean of Graduate Studies for the campus. She has been on the faculties of Texas A&M University and Southern Methodist University and has been a visiting professor at the Madrid Business School and Georgetown University. Professor Gilly has been a member of the American Marketing Association since 1975 and has served that organization in a number of capacities, including Marketing Education Council, President, Co-Chair of the 1991 AMA Summer Educators’ Conference, and member and chair of the AMA–Irwin Distinguished Marketing Educator Award Committee. She currently serves as Academic Director for the As- sociation for Consumer Research. Professor Gilly has published her research on international, cross-cultural, and consumer behavior topics in Journal of Marketing , Journal of Consumer Research , Journal of Retailing , California Management Review , and other venues.

John L. Graham Professor of International Business and Marketing at the Paul Merage School of Business, University of California, Irvine. He has been Associate Dean and Director, UCI Center for Citizen Peacebuilding; Visiting Scholar, Georgetown University School of Business; Visit- ing Professor at Madrid Business School in Spain; and Associate Professor, University of Southern California. Before beginning his doctoral studies at UC Berkeley, he worked for a division of Caterpillar Tractor Co. and served as an offi cer in the U.S. Navy Underwater Demolition Teams. Professor Graham is the author (with William Hernandez Requejo) of Global Negotiation: The New Rules , Palgrave-Macmillan, 2008; (with N. Mark Lam) of China Now, Doing Business in the World’s Most Dynamic Market, McGraw-Hill, 2007; (with Yoshihiro Sano and James Hodgson, former U.S. Ambassador to Japan) of Doing Business with the New Japan, Rowman & Littlefi eld, 4th edition, 2008; and editor (with Taylor Meloan) of Global and International Marketing, Irwin, 2nd edition, 1997. He has published articles in publications such as Harvard Business Review , Journal of Market- ing , Journal of International Business Studies , Strategic Management Review , Journal of Consumer Research , Journal of International Marketing , and Marketing Science. Excerpts of his work have been read into the Congressional Record , and his research on business negotiation styles in 20 cultures was the subject of an article in the January 1988 issue of Smithsonian. His 1994 paper in Management Science received a citation of excellence from the Lauder Institute at the Wharton School of Business. He was selected for the 2009 International Trade Educator of the Year Award, given by the North American Small Business International Trade Educators’ Association.

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Preface vii PREFACE At the start of the last millennium, the Chinese were the pre- eminent international traders. Although a truly global trading system would not evolve until some 500 years later, Chinese silk had been available in Europe since Roman times. At the start of the last century the British military, mer- chants, and manufacturers dominated the seas and interna- tional commerce. Literally, the sun did not set on the British Empire. At the start of the last decade, the United States had surged past a faltering Japan to retake the lead in global commerce. The American domination of information tech- nology has since been followed by the political upheaval of 9/11 and the economic shocks of 2001 and 2008. China started that decade as the largest military threat to the United States, and at the decade’s end, it has become a lead- ing, often diffi cult trading partner. What surprises do the new decade, century, and millen- nium hold in store for all of us? Toward the end of the last decade, natural disasters and wars hampered commerce and human progress. The battle to balance economic growth and stewardship of the environment continues. The globalization of markets has certainly accelerated through almost univer- sal acceptance of the democratic free enterprise model and new communication technologies, including cell phones and the Internet. Which will prove the better, Chinese grad- ualism or the Russian big-bang approach to economic and political reform? Will the information technology boom of the previous decade be followed by a demographics bust when American baby boomers begin to try to retire after 2012? Or will NAFTA and the young folks in Mexico pro- vide a much needed demographic balance? Ten years out the debate about global warming should be settled—more data and better science will yield the answers. Will the economic tsunami of 2008–2009 evolve into something even worse? What unforeseen advances or disasters will the biological sciences bring us? Will we conquer AIDS⁄HIV in Africa? Will weapons and warfare become obsolete? International marketing will play a key role in providing positive answers to all these questions. We know that trade causes peace and prosperity by promoting creativity, mutual understanding, and interdependence. Markets are burgeon- ing in emerging economies in eastern Europe, the Com- monwealth of Independent States, China, Indonesia, Korea, India, Mexico, Chile, Brazil, and Argentina—in short, glob- ally. These emerging economies hold the promise of huge markets in the future. In the more mature markets of the in- dustrialized world, opportunity and challenge also abound as consumers’ tastes become more sophisticated and complex and as the hoped for rebound in purchasing power provides consumers with new means of satisfying new demands. With the recent downturn in the industrialized countries and the continued growth in emerging markets has come a new competitive landscape, one vastly different from that

earlier period when United States multinationals dominated world markets. From the late 1940s through the 1960s, multi- national corporations (MNCs) from the United States had lit- tle competition; today, companies from almost all the world’s nations vie for global markets. Fareed Zakaria reported:

“During the last two years, 124 countries grew their econ- omies at over 4 percent a year. That includes more than 30 countries in Africa. Over the last two decades, lands out- side the industrialized West have been growing at rates that were once unthinkable. While there have been booms and busts, the overall trend has been unambiguously upward. Antoine van Agtmael, the fund manager who coined the term ‘emerging markets,’ has identifi ed the 25 companies most likely to be the world’s next great multinationals. His list includes four companies each from Brazil, Mexico, South Korea, and Taiwan; three from India, two from China, and one each from Argentina, Chile, Malaysia, and South Africa. This is something much broader than the much- ballyhooed rise of China or even Asia. It is the rise of the rest—the rest of the world.” 1

The economic, political, and social changes that have occurred over the last decade have dramatically altered the landscape of global business. Consider the present and future impact of the following:

• The ever-present threat of global terrorism as repre- sented by the September 11, 2001, attacks

• Major armed confl icts in sub-Saharan Africa and the Middle East

• The potential global recession emanating from the United States

• The emerging markets in eastern Europe, Asia, and Latin America, where more than 75 percent of the growth in world trade over the next 20 years is ex- pected to occur

• The reunifi cation of Hong Kong, Macau, and China, which fi nally puts all of Asia under the control of Asians for the fi rst time in over a century

• The European Monetary Union and the successful switch from local-country currencies to one monetary unit for Europe, the euro

• The rapid move away from traditional distribution structures in Japan, Europe, and many emerging markets

• The growth of middle-income households the world over

• The continued strengthening and creation of regional market groups such as the European Union (EU),

1Fareed Zakaria, “The Rise of the Rest,” Newsweek, May 3, 2008.

vii

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viii Preface

the North American Free Trade Area (NAFTA), the Central American Free Trade Area (CAFTA), ASEAN Free Trade Area (AFTA), the Southern Cone Free Trade Area (Mercosur), and the Asia-Pacifi c Eco- nomic Cooperation (APEC)

• The successful completion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and the creation of the World Trade Organization (WTO), the latter now including China and Taiwan

• The restructuring, reorganizing, and refocusing of companies in telecommunications, entertainment, and biotechnology, as well as in traditional smokestack industries around the world

• The continuing integration of the Internet and cell phones into all aspects of companies’ operations and consumers’ lives

These are not simply news reports. These changes af- fect the practice of business worldwide, and they mean that companies will have to constantly examine the way they do business and remain fl exible enough to react rapidly to changing global trends to be competitive. As global economic growth occurs, understanding marketing in all cultures is increasingly important. Inter- national Marketing addresses global issues and describes concepts relevant to all international marketers, regardless of the extent of their international involvement. Not all fi rms engaged in overseas marketing have a global perspec- tive, nor do they need to. Some companies’ foreign market- ing is limited to one country; others market in a number of countries, treating each as a separate market; and still oth- ers, the global enterprises, look for market segments with common needs and wants across political and economic boundaries. All, however, are affected by competitive activ- ity in the global marketplace. It is with this future that the fi fteenth edition of International Marketing is concerned. Emphasis is on the strategic implications of competi- tion in different country markets. An environmental⁄cultural approach to international marketing permits a truly global orientation. The reader’s horizons are not limited to any spe- cifi c nation or to the particular ways of doing business in a single nation. Instead, the book provides an approach and framework for identifying and analyzing the important cul- tural and environmental uniqueness of any nation or global region. Thus, when surveying the tasks of marketing in a foreign milieu, the reader will not overlook the impact of crucial cultural issues. The text is designed to stimulate curiosity about man- agement practices of companies, large and small, seeking market opportunities outside the home country and to raise the reader’s consciousness about the importance of view- ing international marketing management strategies from a global perspective.

Although this revised edition is infused throughout with a global orientation, export marketing and the operations of smaller companies are also included. Issues specifi c to ex- porting are discussed where strategies applicable to export- ing arise, and examples of marketing practices of smaller companies are examined.

New and Expanded Topics in This Edition The new and expanded topics in this fi fteenth edition refl ect issues in competition, changing marketing structures, ethics and social responsibility, negotiations, and the development of the manager for the 21st century. Competition is raising the global standards for quality, in- creasing the demand for advanced technology and innova- tion, and increasing the value of customer satisfaction. The global market is swiftly changing from a seller’s market to a buyer’s market. This is a period of profound social, eco- nomic, and political change. To remain competitive glob- ally, companies must be aware of all aspects of the emerging global economic order. Additionally, the evolution of global communications and its known and unknown impacts on how international business is conducted cannot be minimized. In the third millennium, people in the “global village” will grow closer than ever before and will hear and see each other as a matter of course. An executive in Germany can routinely connect via VoIP (Voice over Internet Protocol) to hear and see his or her counterpart in an Australian company or anywhere else in the world. In many respects (time zone differences is a prominent exception), geographic distance is becoming irrelevant. Telecommunications, the Internet, and satellites are helping companies optimize their planning, production, and procurement processes. Information—and, in its wake, the fl ow of goods—is moving around the globe at lightning speed. Increasingly powerful networks spanning the globe enable the delivery of services that reach far beyond na- tional and continental boundaries, fueling and fostering international trade. The connections of global communica- tions bring people all around the world together in new and better forms of dialogue and understanding. This dynamic nature of the international marketplace is re- fl ected in the number of substantially improved and expanded topics in this fi fteenth edition, including the following:

• A deeper look at the causes of cultural differences

• The Internet and cell phones and their expanding role in international marketing

• Negotiations with customers, partners, and regulators

• Evolving global middle-income households

• Bottom-of-the-pyramid markets

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Preface ix

• World Trade Organization

• Free trade agreements

• Multicultural research

• Qualitative and quantitative research

• Country-of-origin effects and global brands

• Industrial trade shows

• A growing emphasis on both consumer and industrial services

• Trends in channel structures in Europe, Japan, and developing countries

• Ethics and socially responsible decisions

• Green marketing

• Changing profi les of global managers

Structure of the Text The text is divided into six parts. The fi rst two chapters, Part 1, introduce the reader to the environmental⁄cultural approach to inter- national marketing and to three international marketing management concepts: domestic market expansion, multi- domestic marketing, and global marketing. As companies restructure for the global competitive rigors of the 21st century, so too must tomorrow’s managers. The successful manager must be globally aware and have a frame of ref- erence that goes beyond a country, or even a region, and encompasses the world. What global awareness means and how it is acquired is discussed early in the text; it is at the foundation of global marketing. Chapter 2 focuses on the dynamic environment of interna- tional trade and the competitive challenges and opportunities confronting today’s international marketer. The importance of the creation of the World Trade Organization, the succes- sor to GATT, is fully explored. The growing importance of cell phones and the Internet in conducting international busi- ness is considered, creating a foundation on which specifi c applications in subsequent chapters are presented. The fi ve chapters in Part 2 deal with the cultural environ- ment of global marketing. A global orientation requires the recognition of cultural differences and the critical decision of whether it is necessary to accommodate them. Geography and history (Chapter 3) are included as im- portant dimensions in understanding cultural and market differences among countries. Not to be overlooked is con- cern for the deterioration of the global ecological environ- ment and the multinational company’s critical responsibility to protect it. Chapter 4 presents a broad review of culture and its im- pact on human behavior as it relates to international mar- keting. Specifi c attention is paid to Geert Hofstede’s study of cultural values and behavior. The elements of culture re- viewed in Chapter 4 set the stage for the in-depth analyses

in Chapters 5, 6, and 7 of business customs and the political and legal environments. Ethics and social responsibility are presented in the context of the dilemma that often confronts the international manager, that is, balancing corporate prof- its against the social and ethical consequences of his or her decisions. We have reorganized Part 3 of the book into four chap- ters on assessing global market opportunities. As markets expand, segments grow within markets; as market seg- ments across country markets evolve, marketers are forced to understand market behavior within and across different cultural contexts. Multicultural research, qualitative and quantitative research, and the Internet as a tool in the re- search task are explored in Chapter 8. Separate chapters on economic development and the Americas (Chapter 9); Europe, Africa, and the Middle East (Chapter 10); and the Asia Pacifi c Region (Chapter 11) refl ect the evolving marketing organizations of many multinational companies in response to the costs of travel and communica- tions across time zones, as well as the steady creation and growth of regional market groups in all three regions. The discussions in all three chapters include details about both established and emerging markets present in each region. The strategic implications of the dissolution of the Soviet Union and the emergence of new independent republics, the shift from socialist-based to market-based economies in Eastern Europe, and the return of South Africa and Vietnam to international commerce are examined. Attention is also given to the efforts of the governments of China and India and many Latin American countries to reduce or eliminate barriers to trade, open their countries to foreign investment, and privatize state-owned enterprises. These political, social, and economic changes that are sweeping the world are creating new markets and opportu- nities, making some markets more accessible while creating the potential for greater protectionism in others. In Part 4, Developing Global Marketing Strategies, plan- ning and organizing for global marketing is the subject of Chapter 12. The discussion of collaborative relationships, including strategic alliances, recognizes the importance of relational collaborations among fi rms, suppliers, and cus- tomers in the success of the global marketer. Many mul- tinational companies realize that to fully capitalize on opportunities offered by global markets, they must have strengths that often exceed their capabilities. Collaborative relationships can provide technology, innovations, produc- tivity, capital, and market access that strengthen a compa- ny’s competitive position. Chapters 13 and 14 focus on product and services man- agement, refl ecting the differences in strategies between consumer and industrial offerings and the growing impor- tance in world markets for both consumer and business ser- vices. Additionally, the discussion on the development of

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x Preface

global offerings stresses the importance of approaching the adaptation issue from the viewpoint of building a standard- ized product⁄service platform that can be adapted to refl ect cultural differences. The competitive importance in today’s global market of quality, innovation, and technology as the keys to marketing success is explored. Chapter 15 takes the reader through the distribution process, from home country to the consumer in the target country market. The structural impediments to market entry imposed by a country’s distribution system are examined in the framework of a detailed presentation of the Japanese distribution system. Additionally, the rapid changes in chan- nel structure that are occurring in Japan, as well as in other countries, and the emergence of the World Wide Web as a distribution channel are presented. We also have redistrib- uted key material from a previous chapter on exporting lo- gistics to this and other related sections of the book. Chapter 16 covers advertising and addresses the pro- motional element of the international marketing mix. In- cluded in the discussion of global market segmentation are recognition of the rapid growth of market segments across country markets and the importance of market segmenta- tion as a strategic competitive tool in creating an effective promotional message. Chapter 17 discusses personal selling and sales management and the critical nature of training, evaluating, and controlling sales representatives. Price escalation and ways it can be lessened, counter- trade practices, and price strategies to employ when the dollar is strong or weak relative to foreign currencies are concepts presented in Chapter 18. In Part 5, Chapter 19 is a thorough presentation of ne- gotiating with customers, partners, and regulators. The dis- cussion stresses the varying negotiation styles found among cultures and the importance of recognizing these differ- ences at the negotiation table.

Pedagogical Features of the Text The text portion of the book provides thorough coverage of its subject, with a subject emphasis on the planning and strategic problems confronting companies that market across cultural boundaries. The use of the Internet as a tool of international market- ing is stressed throughout the text. On all occasions in which data used in the text originated from an Internet source, the Web address is given. Problems that require the student to access the Internet are included with end-of-chapter ques- tions. Internet-related problems are designed to familiarize the student with the power of the Internet in his or her re- search, to illustrate data available on the Internet, and to challenge the reader to solve problems using the Internet. Many of the examples, illustrations, and exhibits found in the text can be explored in more detail by accessing the Web addresses that are included.

Current, pithy, sometimes humorous, and always rel- evant examples are used to stimulate interest and increase understanding of the ideas, concepts, and strategies pre- sented in emphasizing the importance of understanding cultural uniqueness and relevant business practices and strategies. Each chapter is introduced with a Global Perspective, a real-life example of company experiences that illustrates salient issues discussed in the chapter. Companies featured in the Global Perspectives range from exporters to global enterprises. The boxed Crossing Borders, an innovation of the fi rst edition of International Marketing , have always been pop- ular with students. They refl ect contemporary issues in in- ternational marketing and can be used to illustrate real-life situations and as the basis for class discussion. They are se- lected to be unique, humorous, and of general interest to the reader. The book is presented in full color, allowing maps to de- pict of geographical, cultural, and political boundaries and features more easily. Color also allows us to better commu- nicate the intricacies of international symbols and meanings in marketing communications. New photographs of cur- rent and relevant international marketing events are found throughout the text—all in color. The Country Notebook—A Guide for Developing a Marketing Plan, found in Part 6, Supplementary Material, is a detailed outline that provides both a format for a complete cultural and economic analysis of a country and guidelines for developing a marketing plan. In addition to The Country Notebook, the fi fteenth edi- tion comprises a selection of short and long cases located online at www.mhhe.com⁄cateora15e. The short cases focus on a single problem, serving as the basis for discussion of a specifi c concept or issue. The longer, more integrated cases are broader in scope and focus on more than one marketing management problem; new cases focus on services, mar- keting, and marketing strategy. The cases can be analyzed using the information provided. They also lend themselves to more in-depth analysis, requiring the student to engage in additional research and data collection.

Supplements We have taken great care to offer new features and improvements to every part of the teach- ing aid package. Following is a list of specifi c features:

• Instructor’s Manual and Test Bank. The Instructor’s Manual, prepared by the authors, con- tains lecture notes or teaching suggestions for each chapter. A section called Changes to This Edition is included to help instructors adapt their teaching notes to the fi fteenth edition. A case correlation grid at the beginning of the case note offers alternative uses for the cases.