Distribution patterns in international marketing

Chapter 12 – Global Marketing Management: Planning and Organization

Chapter 12 – Global Marketing Management: Planning and Organization
Teaching Objectives
An issue facing many multinationals today is how to compete in an increasingly competitive global market. Whether a small company or one of the giants, staying competitive means constantly re-accessing marketing strategies. How product, promotion, distribution, and pricing strategies evolve in international marketing is dependent on the approach to internationalization the company takes. Of the three operating concepts that characterize a company’s international orientation, Domestic Market Extension Concept, Multidomestic Market Concept, or Global Market Concept, the main focus of this chapter and the text is on the Global Market Concept. I believe that regardless of the size of a company or in how many countries it operates, it should have a global orientation. The teaching objectives of this chapter are to:

1) Present the operating concepts an international company may have and explore the idea of global marketing management.

2) Discuss the benefits of global orientation.

3) Stress the importance of quality and cost containment in global marketing competition.

4) Examine the different types of collaborative relationships and show how these alliances are being embraced by international companies.

5) Focus on relationship marketing and strategic international alliances as two important types of collaborative relationships for the global marketer.

6) Stress the need for strategic planning to achieve company goals.

Comments and Suggestions
1. The subject of collaborative relationships and the subsequent discussion of relationship marketing and strategic international alliances are important ideas to focus on in this chapter. Changes in technology, the shortening product life cycle, competition, the rapid growth of emerging markets and the need for cost containment as major trends in global marketing means that many firms must engage in collaborative relationships to remain competitive. There are several good examples in the text that illustrate how these relationships have been used. Also, Michael Schrage, “Notes on Collaboration,” The Wall Street Journal, June 19, 1995, p. A-10, had three good examples of important collaborations by IBM, Microsoft, and Boeing. As Schrage states, “. . . ‘winning’ in tomorrow’s global markets isn’t going to be a matter of scoring points but of creating value with customers, clients, suppliers and colleagues in innovative ways.” These relationships span the complete range of contacts a company has from customers through suppliers to other companies.

2. Not to be overlooked in this chapter are the various alternative market entry strategies. It is important to stress that there are a variety of ways to enter international markets and a company may use only one or a combination depending on the goals of the company and target market characteristics.

Lecture Outline
I. Global Marketing Management

A. Global Marketing Management

B. Benefits of a Global Orientation

II. Planning for Global Markets

A. Company Objectives and Resources

B. International Commitment

C. The Planning Process

III. Alternative Market-Entry Strategies

A. Exporting

B. Contractual Agreements

1. Licensing

2. Franchising

3. Joint Ventures

4. Consortia

C. Strategic International Alliances (SIA)

D. Direct Foreign Investment

IV. Organizing for Global Competition

A. Locus of Decision

B. Centralized versus Decentralized Organizations

Discussion Questions
1.

Define:

Licensing

Corporate planning

Franchising

Direct exporting

Joint Venture

Strategic planning

Indirect exporting

SIA

Tactical planning

2. Define strategic planning. How is strategic planning different for international marketing than domestic marketing?

Strategic planning is a systemized way of relating to the future. It is an attempt to manage the effects of external uncontrollable factors on the firm’s strengths, weaknesses, objectives, and goals to attain a desired end. Further, it is a commitment of resources to a country market to achieve specific goals.

The principles of planning are not in themselves different between international and domestic marketing, but the intricacies of the operating environments of the MNC (host country, home, and corporate environments), its organizational structure, and the task of controlling a multicountry operation create differences in the complexity and processes of international planning. Strategic planning on an international level allows for rapid growth of the international function, changing markets, increasing competition, and the ever-varying challenges of different national markets. The plan blends the changing parameters of external country environments with corporate objectives and capabilities to develop a sound, workable marketing program.

3. Discuss the benefits to an MNC of accepting the global market concept. Explain three points that define a global approach to international marketing.

Potential economies of scale; transfers of experience and product and marketing ideas across markets; having access to the toughest, most demanding customers; and stability of revenues should all be on the students’ lists of answers.

(1) Identification of market segments that cut across countries, (2) potential economies of scale in manufacturing and marketing, and (3) firm goals, strategies, structures, and personnel that support a global approach.

4. Discuss the effect of shorter product life cycles on a company’s planning process.

Global competition is placing new emphasis on some basic tenets of business. It is reducing time frames and focusing on the importance of quality, competitive prices, and innovative products. Time is becoming a precious commodity for business, and expanding technology is shortening product life cycles and creating greater opportunities for innovative products. A company no longer can introduce a new product with the expectation of dominating the market for years while the idea spreads slowly through world markets. In any given year, for example, two thirds of Hewlett-Packard’s revenue comes from product introduced in the prior three years. Shorter product life cycles mean that a company must maximize sales rapidly to recover development costs and generate a profit by offering its products globally. Along with technological advances have come enhanced market expectation for innovative products at competitive prices. Today, strategic planning must include emphasis on quality, technology, and cost containment. To achieve the flexibility and speed required under such conditions, many firms are entering collaborative relationships to shore up their weaknesses whether in distribution, technology or manufacturing that will enable them to respond to the problems created by shorter life cycles.

5. What is the importance of collaborative relationships to competition?

The competitive environment of international business is changing rapidly. To be competitive in global markets a company must meet or exceed new standards for quality and new levels of technology. There is an increasing change of pace for product development and profitability. Cost efficient, technologically advanced products are being offered by competitors and demanded in established markets as well as in markets rising from formerly Marxist-socialist economies. Opportunities abound the world over, but to benefit, firms must be current in new technology, have the ability to keep abreast of technological change, have distribution systems to capitalize on global demand, have cost-effective manufacturing, and have capital to build new systems as necessary.

The accelerating rate of technological progress, market demand created by global industrialization, and the creation of new middle classes will result in tremendous potential in global markets. But, along with this surge in global demand comes an increase in competition as technology and management capabilities spread beyond global companies to new competitors from Asia, Europe, and Latin America. Although global markets offer tremendous potential, companies seeking to function effectively in a fragmented global market of five billion people are being forced to stretch production, design\engineering, and marketing resources and capabilities because of the intensity of competition and the increasing pace of technology. Improvements in quality and staying on the cutting edge of technology are critical and basic for survival but often are not enough. Restructuring, reorganizing and downsizing are all avenues being taken by firms to strengthen their competitive positions. Additionally, many multinational companies are realizing they must develop long term, mutually beneficial relationships throughout the company and beyond to competitors, suppliers, governments, and customers. In short, multinational companies are developing orientations that focus on building collaborative relationships to promote long-term alliances and they are seeking continuous, mutually beneficial exchanges.

The environment facing multinational companies demands flexibility, quality, cost containment, cutting edge manufacturing skills, and a rapid response to market changes to sustain a competitive advantage. The strengths and capabilities a company must have to be a major player are enormous and few companies can cover all the bases all of the time. To shore up weaknesses, companies are entering relationships with others to share what each does best whether in marketing, research or manufacturing. Collaborative relationships are becoming a common way to meet the demands of global competition and a successful collaboration means that each achieves more together than either can accomplish alone.

6. In phases one and two of the international planning process, countries may be dropped from further consideration as potential markets. Discuss some of the conditions in each phase that may exist in a country that would lead a marketer to exclude a country.

In phase one of the planning process, there are a host of reasons why a country would no longer be considered. On balance, those countries that do not offer sufficient potential for further consideration will be eliminated. Some of the reasons why this may occur are that product acceptance within the country could not be achieved without extensive investment and new product development, and the firm does not have sufficient resources to make that investment; the legal structure may be such that it would be impossible for the company to function within that country. Competition in the country is such that, based on the company’s objectives, resources, etc., it is felt that it would not be a profitable venture. In other words, any problem that would lead to minimum market potential, minimum profit, minimum return on investment, unacceptable competitive levels, unacceptable political stability, unacceptable legal requirements, etc., may all lead to the dropping of a country.

While the major reasons for dropping a country in phase one center around general environmental constraints, the reasons that a country may be dropped in phase two center around the more specific questions of what cultural environmental adaptations are necessary for successful acceptance of the company’s marketing mix, and will adaptation costs allow for profitable market entry. In phase two, the marketing mix is the focal point of analysis. Still, the final determination of whether or not a country is dropped depends upon the anticipated profitability of the market after necessary adaptations are made.

7. Assume that you are the director of international marketing for a company producing refrigerators. Select one country in Latin America and one in Europe and develop screening criteria to use in evaluating the two countries. Make any additional assumptions about your company that are necessary.

This is a library-type project. Whatever the details of the screening criteria, the major points that should be considered are: (1) company objectives and goals, (2) product-use characteristics, (3) country environmental characteristics.

8. “The dichotomy typically drawn between export marketing and overseas marketing is partly fictional; from a marketing standpoint, they are but alternative methods of capitalizing on foreign market opportunities.” Discuss.

The dichotomy drawn between export marketing and overseas marketing is very misleading, for in fact they are but alternative methods of approaching the foreign markets. Yet, on the other hand, these approaches are often interrelated in the complete marketing structure. Both exporting and overseas marketing can be successfully interchanged to reach various heterogeneous markets. Depending on market structure, competition, and company policies, the organizational structure can be so devised so as to use exporting, overseas marketing, or a combination of both to successfully reach a wide assortment of foreign markets. In one country, due to high tariff rates, overseas production and marketing might be advised; on the other hand, poor communications or resources might necessitate exporting.

9. How will entry into a developed foreign market differ from entry into a relatively untapped market?

The differences between entering a fully developed market and an untapped foreign market are many and extremely varied. Some of these differences are channels of distribution which may or may not be developed. Governmental attitudes toward business, foreigners, and industry may be very liberal in a growing economy, while an established market may be very restrictive. Communication and transportation may be highly limited in untapped markets and highly developed in successful countries. The amount of capital, banks, and exchange-rate systems will vary according to the market’s development. Finally, the degree and amount of competition will vary accordingly. To this list, endless factors could be added such as cost of entering the market, social customs, laws, etc.

10. Why do companies change their organizations when they go from being an international to a global company?

An international marketing plan should optimize the resources committed to stated company objectives. The organizational plan includes the type of organizational arrangements to be used, and the scope and location of responsibility. Many ambitious multinational plans meet with less than full success because of confused lines of authority, poor communications, and lack of cooperation between headquarters and subsidiary organizations.

Companies are usually structured around one of three alternatives: global product divisions responsible for product sales throughout the world; geographical divisions responsible for all products and functions within a given geographical area; and a matrix organization consisting of either of these arrangements with centralized sales and marketing run by a centralized functional staff, or a combination of area operations and global product management.

Market-oriented firms are finding greater competitiveness in world markets makes it essential to assume a global perspective in planning and organizational structure. Global competition also requires quality products designed to meet ever-changing customer needs in the face of rapidly growing competition from every corner of the world. Cost containment, escalating technology, customer satisfaction and a greater number of players mean that every opportunity to refine international business practices must be examined in light of company goals. Strategic international alliances, strategic planning and alternative market entry strategies are important avenues to global marketing that must be implemented in the planning and organization of global marketing management.

11. Formulate a general rule for deciding where international business decisions should be made.

International business decisions should reflect the culture of the country in which they will be implemented. Thus the decision should be as close to the country where it is to be implemented as possible.

12. Explain the popularity of joint ventures.

Joint ventures have become popular for a number of reasons. One important marketing reason is to gain access to markets. Nearly all of the developing countries, and many developed countries, require some degree of local participation for operating in their country. Mergers with distributor companies or companies which already have well-established local distribution may provide rapid market access and distribution to foreign companies entering a country. Sometimes companies join forces in order to broaden the line of merchandise that they have available, thereby gaining marketing efficiency and better public image. Another market reason for joining ventures is that local firms possess market information and the marketing know-how which would take years for a foreign company to acquire. Such participation minimizes the risk of market failure and speeds the marketing effort. Joint ventures may also arise for financial and manpower reasons. Financially it is sometimes desirable to merge with foreign companies because the merger provides access to local capital markets and combines the resources and fund raising capabilities the companies have. It may also give access to a higher quality and more capable managerial manpower.

13. Compare the organizational implications of joint ventures versus licensing.

Joint ventures involve the partners in a new venture and usually require significant inputs of both capital and management. In licensing, the companies retain separate identity. Usually the licensor is little affected by his licensing actions.

14. Visit the homepages of Maytag Corporation http://www.maytag.com/ and the Whirlpool Corporation http://www.whirlpool.com/, both appliance manufacturers in the United States. Each has some international involvement. Search their Web sites and compare their international involvement. How would you classify each, as exporter, international, or global?

15. Using the sources in question above i.e., http://www.maytag.com/) and http://www.whirlpool.com/, list the different alternative entry modes each uses.

Both use foreign direct investment although Whirlpool is the most advanced. Maytag exports from the United States.

16. Visit the Nestlé Corporation homepage http://www.nestle.com and Unilever N.V. http://www.unilever.com/ and compare their strategies towards international markets. In what ways to they differ (besides product categories) do they differ in their international marketing?

This exercise can lead to a good class discussion of multinational and/or global companies and strategies. These two global giants probably are among the first real global companies. From their beginning they viewed the world as their market and still follow that direction.

Chapter 13 – Products and Services for Consumers
Teaching Objectives
Products and services, the first part of the marketing mix to be discussed, is covered here with consumer products and the next chapter on industrial products and services. An overall point that needs to be made with these two chapters is that companies face two different problems in developing products for international markets – they either have an existing product that needs to be evaluated for possible adaptation or they are developing a product for global markets from scratch. The two situations require different approaches to product development. The decisions as to whether to standardize or adapt, to develop global products and global brands need to be addressed at the beginning of the chapter since the direction taken will influence later discussions. The teaching objectives are to:

1) Familiarize students with the debate between standardization and adaptation and global products and brands.

2) Stress the importance of offering products and services suitable to the intended market. That the issue is not whether to adapt or standardize, but how much adaptation is necessary and to what point a product can be standardized.

3) Make them aware of the country of origin effect on how products are perceived.

4) Explore the relationship between consumer perceptions of products and culture. Special emphasis on the product as an innovation and the possibility of resistance to an innovation if it is too new or disruptive of the norm.

5) Present two methods for screening products and services for adaptation; the analysis of characteristics of innovation and analysis of product components model.

Comments and Suggestions
1. Coverage of this chapter can be divided into three parts. First, a broad discussion of how cultural factors and the country of origin affect the acceptance of a product, how a product is received if it is perceived as an innovation and the issues of global products and standardization versus adaptation. Second, there are physical and mandatory requirements that require adaptation, and third, screening products for adaptation. This third point recognizes the fact that most companies have existing products that require evaluation for adaptation, whether mandatory or cultural, before being introduced in another country.

2. Exhibit 13.2, Product Component Model is helpful in focusing on the different components of a product that may require adaptation. Using this model also helps me discuss the issue of the core component and product platform–the most costly part of a product to adapt yet possibly the most easily standardized.

3. If the students are asked to do a research project similar to the one described Part I-F, above, The Country Notebook – A Guide for Developing a Marketing Plan, many of the points in the chapter can be brought out in class. I bring a product to class and ask students to respond on how they think the product will need to be adapted or could be standardized in the country they are studying.

Lecture Outline
I. Quality Products

A. Quality Defined

B. Maintaining Quality

C. Physical or Mandatory Requirements for Adaptation

D. Green Marketing and Product Development

II. Products and Culture

A. Innovate Products and Adaptation

B. Diffusion of Innovations

C. Production of Innovations

III. Analyzing Product Components for Adaptation

A. Core Component

B. Packaging Component

C. Support Services Component

IV. Marketing Consumer Services Globally

A. Services Opportunities in Global Markets

B. Barriers to Entering Global Markets for Consumer Services

V. Consumer Services

VI. Brands in International Markets

A. Global Brands

B. National Brands

C. Country of Origin Effect and Global Brands

D. Private Brands

Discussion Questions
1.

Define the following terms and show their significance to international marketing:

Diffusion

Innovation

Product Component Model

Green marketing

Quality

Product Homologation

Global brand

2. Debate the issue of global versus adapted products for the international market.

A recurring debate exists relative to product planning and focuses on the question of standardized products marketed worldwide versus differentiated products adapted or even redesigned for each culturally unique market. Those with a strong production and unit cost orientation advocate standardization and others, perhaps more culturally sensitive, propose the policy of a different product for each market. The issue cannot be resolved with a simple either/or decision. Cost revenue analyses need to be done and decisions made in the hard, cold lights of profitability. There is no question that significant cost savings can be realized from having standardized products, packages, brand names, and promotional messages but this makes sense only if there is adequate demand for the standardized products: costs must be balanced with demand. On the other hand, if the cost of an individualized product when evaluated against price/demand characteristics within a market exceeds potential profit, then it is ridiculous not to consider other alternatives including not marketing the product at all.

To differentiate for the sake of differentiation is no solution, and realistic business practice requires a company to strive for uniformity in its marketing mix whenever and wherever possible. Economies of production, better planning, more effective control, and better use of creative managerial personnel are all advantages of standardization.

3. Define the country-of-origin effect and give examples.

Country of Origin Effect (COE) can be defined as any influence that country-of-manufacturer has on a consumer’s positive or negative perception of a product. Today a company competing in global markets will manufacture products worldwide and, when the customer is aware of the country of origin, there is the possibility that the place of manufacture will affect product/brand image. Some examples are French wines, German beer, Swiss watches, Cuban cigars, and Irish woolens are some positive COEs. A negative COE is an automobile from Yugoslavia (the Yugo).

4. The text discusses stereotypes, ethnocentrism, degree of economic development, and fads as the basis for generalizations about country-of-origin effect on product perception. Explain each and give an example.

The country, the type of product, and the image of the company and its brands all influence whether or not the country of origin will engender a positive or negative reaction. There are a variety of generalizations that can be made about country of origin effects on products and brands. Consumers tend to have stereotypes about products and countries that have been formed by experience, hearsay, and myth. Following are some of the more frequently cited generalizations.

Consumers have broad but somewhat vague stereotypes about specific countries and specific product categories that they judge “best”: English tea, French perfume, Chinese silk, Italian leather, Japanese electronics, Jamaican rum, and, so on. Stereotyping of this nature is typically product specific and may not extend to other categories of products from these countries.

Ethnocentrism can also have country of origin effect; feelings of national pride, the “buy American” effect among members, for example, can influence attitudes toward foreign products. Honda, which manufactures one of their models almost entirely in the United States, recognizes this phenomenon and points out how many component parts are made in America in some of their advertisements. On the other hand, others have a stereotype of Japan as producing the “best” automobiles. A recent study found that U.S. automobile producers may suffer comparatively tarnished in-country images regardless of whether they actually produce superior products.

Countries are also stereotyped on the basis of whether they are industrialized, in the process of industrializing or less-developed. These stereotypes are less country-product specific; they are more a perception of the quality of goods in general produced within the country. Industrialized countries have the highest quality image, and there is generally a bias against products from developing countries. Within groups of countries grouped by economic development there are variations of image. For example, one study of COE between Mexico and Taiwan found that a microwave oven manufactured in Mexico was perceived as significantly more risky than an oven made in Taiwan. However, for jeans there was no difference in perception between the two countries. One might generalize that the more technical the product, the less positive is the perception of one manufactured in a less-developed or newly industrializing country. There is also the tendency to favor foreign made products over domestic made in less developed countries. Not all foreign products fare equally well since consumers in developing countries have stereotypes about the quality of foreign made products even from industrialized countries. A survey of consumers in the Czech Republic found that 72 percent of Japanese products were considered to be of the highest quality, German goods followed with 51%, Swiss goods with 48%, Czech goods with 32% and, last, the United States with 29%.

One final generalization about COE involves fads that often surround products from particular countries or regions in the world. These fads are more often product specific and generally involve goods that are themselves faddish in nature. European consumers are apparently enamored with a host of American made products ranging from Jeep Cherokees, Budweiser beer, and Jim Beam bourbon, to Boise sound systems. In the 1970s and 80s there was a backlash against anything American, but, in the 1990s, American is in. In China, anything Western seems to be the fad. If it is Western it is in demand even at prices three and four times higher than domestic products. In most cases such fads wane after a few years as some new fad takes over.

5. Discuss product alternatives and the three marketing strategies: domestic market extension, multidomestic market, and global market strategies.

The marketer has at least three viable alternatives when entering a new market: (1) sell the same product presently sold in the home market (Domestic Market Extension Strategy); (2) adapt existing products to the tastes and specific needs in each new country market (MultiDomestic Market Strategy); or (3) develop a standardized product for all markets (Global Market Strategy.)

An important issue in choosing which alternative to use is whether or not a company is starting from scratch (i.e., no existing products to market abroad), or whether it has products already established in various country markets. For a company starting fresh, the prudent alternative is to develop a global product. If the company has several products that have evolved over time in various foreign markets, then the task is one of repositioning the existing products into a global product.