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Pearson Global Edition

G lobal M

arketing K

eegan • G reen

eiG h

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ISBN-13: ISBN-10:

978-1-292-01738-9 1-292-01738-4

9 7 8 1 2 9 2 0 1 7 3 8 9

9 0 0 0 0

G lo

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GlobAl edition

For these Global editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools. this Global edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the north American version.

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http://www.pearsonmylabandmastering.com

Whatever your course goals, we’ve got you covered!

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• Business Today – Bring current events alive in your classroom with videos, discussion questions, and author blogs. Be sure to check back often; this section changes daily.

Writing Space can also check students’ work for improper citation or plagiarism by comparing it against the world’s most accurate text comparison database, available from Turnitin.

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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

Tippie College of Business

University of Iowa

Iowa City, Iowa

Boston Columbus Indianapolis New York San Francisco Upper Saddle River

Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal

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Global MaRKETING Eighth Edition

gLoBAL Edition

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Typeset in 10/12 Times by Integra Printed and bound by Courier Kendallville in The United States of america

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To Cynthia, my wife, best friend, and partner in living life creatively.

—WJK

In memoriam: Peter Nathaniel Green 1964–2013

—MCG

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Brief Contents

Preface 17 Acknowledgments 21

Part ONE Introduction 24 Chapter 1 Introduction to Global Marketing 24 Case 1-1 The Global Marketplace Is Also Local 24 Case 1-1 The Global Marketplace (continued) 54 Case 1-2 McDonald’s Expands Globally While Adjusting Its Local

Recipe 55 Case 1-3 Apple versus Samsung: The Battle for Smartphone Supremacy

Heats Up 58

Part twO the Global Marketing Environment 60 Chapter 2 The Global Economic Environment 60 Case 2-1 A New Front in the Battle of Ideas 60 Case 2-1 A New Front in the Battle of Ideas (continued) 89 Case 2-2 Argentina Uncorks Malbec; World Ready

for a Glass 90

Chapter 3 The Global Trade Environment 92 Case 3-1 Global Trading Partners Look East and West

for Economic Growth 92 Case 3-1 Will New Trade Partnerships Fuel East-West Growth?

(continued) 121 Case 3-2 Will the Euro Survive? The Euro Zone Fights

for Its Life 122

Chapter 4 Social and Cultural Environments 124 Case 4-1 Will Tourism Ruin Venice? 124 Case 4-1 Is Tourism the Savior or the Scourge of Venice?

(continued) 148 Case 4-2 Soccer and the Fashion World 150

Chapter 5 The Political, Legal, and Regulatory Environments 152

Case 5-1 Mr. President—Free Pussy Riot! 152 Case 5-1 Mr. President—Free Pussy Riot! (continued) 181 Case 5-2 America’s Cuban Conundrum 183 Case 5-3 Gambling Goes Global on the Internet 186

Part thrEE approaching Global Markets 188 Chapter 6 Global Information Systems and Market Research 188 Case 6-1 Nestlé’s Middle East Investment in Market Research 188 Case 6-1 Nestlé’s Middle East Investment in Market Research

(continued) 217 Case 6-2 Research Helps Whirlpool Keep Its Cool at Home, Act Local

in Emerging Markets 218

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6 BRIEF CoNTENTS

Chapter 7 Segmentation, Targeting, and Positioning 220 Case 7-1 Global Companies Target Low-Income Consumers (A) 220 Case 7-1 Global Companies Target Low-Income Consumers (A)

(continued) 250 Case 7-2 Cosmetics Giants Segment the Global Cosmetics Market 252

Chapter 8 Importing, Exporting, and Sourcing 254 Case 8-1 East-Asian Countries: Export-led Growth for Economic

Success 254 Case 8-1 Hong Kong Trade and Investment Hub (continued) 281 Case 8-2 Turkish Cars: The Big Picture 282 Case 8-3 A Day in the Life of an Export Coordinator 283

Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and Strategic Alliances 284

Case 9-1 Mo’men Launches Franchises in UAE 284 Case 9-1 Mo’men Launches Franchises in UAE (continued) 311 Case 9-2 Jaguar’s Passage to India 313

Part fOur the Global Marketing Mix 314 Chapter 10 Brand and Product Decisions in Global Marketing 314 Case 10-1 The Beatles Story, Liverpool 314 Case 10-1 The Beatles Story, Liverpool (continued) 347 Case 10-2 The Smart Car 348

Chapter 11 Pricing Decisions 350 Case 11-1 Global Companies Target Low-Income Consumers (B) 350 Case 11-1 Global Companies Target Low-Income Consumers (B)

(continued) 379 Case 11-2 LVMH and Luxury Goods Marketing 380 Case 11-3 One Laptop Per Child 382

Chapter 12 Global Marketing Channels and Physical Distribution 384 Case 12-1 Carrefour’s Entry in Dubai 384 Case 12-1 How Successful is Carrefour’s Joint Venture in the UAE?

(continued) 415 Case 12-2 Fail! Tesco Strikes Out in the United States 416

Chapter 13 Global Marketing Communications Decisions I: Advertising and Public Relations 418

Case 13-1 The Gulf Oil Spill: BP’s Public Relations Nightmare 418 Case 13-1 The BP Oil Spill (continued) 445 Case 13-2 Samsung: Launching People 446

Chapter 14 Global Marketing Communications Decisions II: Sales Promotion, Personal Selling, and Special Forms of Marketing Communication 448

Case 14-1 Red Bull 448 Case 14-1 Red Bull (continued) 479 Case 14-2 Marketing an Industrial Product in Latin America 480

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BRIEF CoNTENTS 7

Chapter 15 Global Marketing and the Digital Revolution 482 Case 15-1 Africa 3.0 482 Case 15-1 Africa 3.0 (continued) 508 Case 15-2 Global Marketers Discover Social Media 509

Part fIvE Strategy and Leadership in the twenty-first Century 510

Chapter 16 Strategic Elements of Competitive Advantage 510 Case 16-1 Volkswagen Aims for the Top 510 Case 16-1 Volkswagen (continued) 538 Case 16-2 IKEA 541 Case 16-3 LEGO 543

Chapter 17 Leadership, organization, and Corporate Social Responsibility 544

Case 17-1 A Changing of the Guard at Unilever 544 Case 17-1 Unilever (continued) 572

Glossary 575 Author/Name Index 589 Subject/Organization Index 597

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Contents

Preface 17 Acknowledgments 21

Part ONE Introduction 24

Chapter 1 Introduction to Global Marketing 24 introduction and overview 25 Principles of Marketing: A Review 27

Competitive Advantage, Globalization, and Global Industries 28

global Marketing: What it is and What it isn’t 31 the importance of global Marketing 38 Management orientations 40

Ethnocentric Orientation 40 Polycentric Orientation 41 Regiocentric Orientation 41 Geocentric Orientation 42

Forces Affecting global integration and global Marketing 44 Multilateral Trade Agreements 44 Converging Market Needs and Wants and the Information Revolution 45 Transportation and Communication Improvements 45 Product Development Costs 45 Quality 46 World Economic Trends 46 Leverage 48

Experience Transfers 48 Scale Economies 48 Resource Utilization 49 Global Strategy 49

Restraining Forces 49 Management Myopia and Organizational Culture 49 National Controls 50 Opposition to Globalization 50

outline of this Book 51

Part twO the Global Marketing Environment 60

Chapter 2 the Global Economic Environment 60 the World Economy—An overview 62 Economic Systems 63

Market Capitalism 64 Centrally Planned Socialism 65 Centrally Planned Capitalism and Market Socialism 65

Stages of Market development 70 Low-Income Countries 70 Lower-Middle-Income Countries 71 Upper-Middle-Income Countries 73 Marketing Opportunities in LDCs and Developing Countries 75 High-Income Countries 77 The Triad 78 Marketing Implications of the Stages of Development 79

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10 CoNTENTS

Balance of Payments 80 trade in Merchandise and Services 82

Overview of International Finance 83 Economic Exposure 85 Managing Exchange Rate Exposure 85

Chapter 3 the Global trade Environment 92 the World trade organization and gAtt 93 Preferential trade Agreements 94

Free Trade Area 95 Customs Union 95 Common Market 95 Economic Union 95

north America 98 Latin America: SiCA, Andean Community, Mercosur, and CARiCoM 100

Central American Integration System 100 Andean Community 101 Common Market of the South (Mercosur) 103 Caribbean Community and Common Market (CARICOM) 105 Current Trade-Related Issues 106

Asia-Pacific: the Association of Southeast Asian nations (ASEAn) 106

Marketing Issues in the Asia-Pacific Region 107

Western, Central, and Eastern Europe 109 The European Union (EU) 110 Marketing Issues in the EU 112

the Middle East 114 Cooperation Council for the Arab States of the Gulf 115 Marketing Issues in the Middle East 116

Africa 116 Economic Community of West African States (ECOWAS) 116 East African Community 117 Southern African Development Community (SADC) 118 Marketing Issues in Africa 118

Chapter 4 Social and Cultural Environments 124 Society, Culture, and global Consumer Culture 125

Attitudes, Beliefs, and Values 127 Religion 127 Aesthetics 128 Dietary Preferences 130 Language and Communication 132 Marketing’s Impact on Culture 135

high- and Low-Context Cultures 136 hofstede’s Cultural typology 137 the Self-Reference Criterion and Perception 141 diffusion theory 142

The Adoption Process 142 Characteristics of Innovations 143 Adopter Categories 143 Diffusion of Innovations in Pacific Rim Countries 144

Marketing implications of Social and Cultural Environments 145

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CoNTENTS 11

Chapter 5 the Political, Legal, and regulatory Environments 152 the Political Environment 153

Nation-States and Sovereignty 154 Political Risk 155 Taxes 157 Seizure of Assets 159

international Law 160 Common Law Versus Civil Law 161 Islamic Law 162

Sidestepping Legal Problems: important Business issues 162 Jurisdiction 162 Intellectual Property: Patents, Trademarks, and Copyrights 163 Antitrust 168 Licensing and Trade Secrets 172 Bribery and Corruption: Legal and Ethical Issues 173

Conflict Resolution, dispute Settlement, and Litigation 175 Alternatives to Litigation for Dispute Settlement 176

the Regulatory Environment 177 Regional Economic Organizations: The EU Example 178

Part thrEE approaching Global Markets 188

Chapter 6 Global Information Systems and Market research 188 information technology and Business intelligence for global Marketing 189 Sources of Market information 194 Formal Market Research 196

Step 1: Information Requirement 196 Step 2: Problem Definition 198 Step 3: Choose Unit of Analysis 198 Step 4: Examine Data Availability 198 Step 5: Assess Value of Research 201 Step 6: Research Design 201

Issues in Data Collection 202 Research Methodologies 204 Scale Development 207 Sampling 208

Step 7: Data Analysis 208 Comparative Analysis and Market Estimation by Analogy 212

Step 8: Interpretation and Presentation 213

headquarters’ Control of Market Research 214 the Marketing information System as a Strategic Asset 214

Chapter 7 Segmentation, targeting, and Positioning 220 global Market Segmentation 221

Contrasting Views of Global Segmentation 223 Demographic Segmentation 223

Segmenting Global Markets by Income and Population 224 Age Segmentation 227 Gender Segmentation 228

Psychographic Segmentation 229 Behavior Segmentation 231 Benefit Segmentation 231 Ethnic Segmentation 234

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12 CoNTENTS

Assessing Market Potential and Choosing target Markets or Segments 235 Current Segment Size and Growth Potential 235 Potential Competition 237 Feasibility and Compatibility 238 A Framework for Selecting Target Markets 239

Product-Market decisions 241 targeting and target Market Strategy options 242

Standardized Global Marketing 242 Concentrated Global Marketing 243 Differentiated Global Marketing 243

Positioning 243 Attribute or Benefit 244 Quality and Price 244 Use or User 244 Competition 245 Global, Foreign, and Local Consumer Culture Positioning 245

Chapter 8 Importing, Exporting, and Sourcing 254 Export Selling and Export Marketing: A Comparison 255 organizational Export Activities 257 national Policies governing Exports and imports 258

Government Programs That Support Exports 259 Governmental Actions to Discourage Imports and Block Market Access 260

tariff Systems 265 Customs Duties 267 Other Duties and Import Charges 267

Key Export Participants 268 organizing for Exporting in the Manufacturer’s Country 269 organizing for Exporting in the Market Country 270 trade Financing and Methods of Payment 270

Documentary Credit 271 Documentary Collections (Sight or Time Drafts) 271 Cash in Advance 273 Sales on Open Account 273

Additional Export and import issues 273 Sourcing 274

Management Vision 275 Factor Costs and Conditions 276 Customer Needs 277 Logistics 277 Country Infrastructure 277 Political Factors 278 Foreign Exchange Rates 278

Chapter 9 Global Market-Entry Strategies: Licensing, Investment, and Strategic alliances 284 Licensing 286

Special Licensing Arrangements 287

investment 289 Joint Ventures 289 Investment via Equity Stake or Full Ownership 293

global Strategic Partnerships 296 The Nature of Global Strategic Partnerships 297 Success Factors 300

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CoNTENTS 13

Alliances with Asian Competitors 300 CFM International, GE, and Snecma: A Success Story 301 Boeing and Japan: A Controversy 301

international Partnerships in developing Countries 302 Cooperative Strategies in Asia 303

Cooperative Strategies in Japan: Keiretsu 303 How Keiretsu Affect American Business: Two Examples 306

Cooperative Strategies in South Korea: Chaebol 307

twenty-First-Century Cooperative Strategies 307 Market Expansion Strategies 308

Part fOur the Global Marketing Mix 314

Chapter 10 Brand and Product Decisions in Global Marketing 314 Basic Product Concepts 315

Product Types 316 Product Warranties 316 Packaging 316 Labeling 317 Aesthetics 318

Basic Branding Concepts 319 Local Products and Brands 320 International Products and Brands 320 Global Products and Brands 321 Global Brand Development 324

A needs-Based Approach to Product Planning 327 “Country of origin” as Brand Element 329 Extend, Adapt, Create: Strategic Alternatives in global Marketing 333

Strategy 1: Product-Communication Extension (Dual Extension) 335 Strategy 2: Product Extension–Communication Adaptation 335 Strategy 3: Product Adaptation–Communication Extension 337 Strategy 4: Product-Communication Adaptation (Dual Adaptation) 338 Strategy 5: Innovation 339 How to Choose a Strategy 340

new Products in global Marketing 340 Identifying New-Product Ideas 340 New-Product Development 342 The International New-Product Department 343 Testing New Products 344

Chapter 11 Pricing Decisions 350 Basic Pricing Concepts 351 global Pricing objectives and Strategies 352

Market Skimming and Financial Objectives 352 Penetration Pricing and Nonfinancial Objectives 353 Companion Products: Captive Pricing, a/k/a “Razors and Blades” Pricing 354 Target Costing 355 Calculating Prices: Cost-Plus Pricing and Export Price Escalation 356

Environmental influences on Pricing decisions 361 Currency Fluctuations 361 Inflationary Environment 364 Government Controls, Subsidies, and Regulations 365

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14 CoNTENTS

Competitive Behavior 366 Using Sourcing as a Strategic Pricing Tool 367

global Pricing: three Policy Alternatives 367 Extension or Ethnocentric Pricing 368 Adaptation or Polycentric Pricing 368 Geocentric Pricing 369

gray Market goods 369 dumping 371 Price Fixing 372 transfer Pricing 373

Tax Regulations and Transfer Prices 374 Sales of Tangible and Intangible Property 374

Countertrade 374 Barter 375 Counterpurchase 376 Offset 376 Compensation Trading 376 Switch Trading 377

Chapter 12 Global Marketing Channels and Physical Distribution 384 distribution Channels: objectives, terminology, and Structure 385

Consumer Products and Services 386 Industrial Products 390

Establishing Channels and Working with Channel intermediaries 391 global Retailing 394

Types of Retail Operations 395 Trends in Global Retailing 399 Global Retailing Market Expansion Strategies 402

Physical distribution, Supply Chains, and Logistics Management 403

Order Processing 408 Warehousing 408 Inventory Management 408 Transportation 409 Logistics Management: A Brief Case Study 412

Chapter 13 Global Marketing Communications Decisions I: advertising and Public relations 418 global Advertising 419

Global Advertising Content: Standardization versus Adaptation 422

Advertising Agencies: organizations and Brands 425 Selecting an Advertising Agency 427

Creating global Advertising 429 Art Direction and Art Directors 430 Copy and Copywriters 432 Cultural Considerations 432

global Media decisions 435 Global Advertising Expenditures and Media Vehicles 435 Media Decisions 436

Public Relations and Publicity 436 The Growing Role of PR in Global Marketing Communications 441 How PR Practices Differ Around the World 442

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CoNTENTS 15

Chapter 14 Global Marketing Communications Decisions II: Sales Promotion, Personal Selling, and Special forms of Marketing Communication 448 Sales Promotion 449

Sampling 452 Couponing 453 Sales Promotion: Issues and Problems 454

Personal Selling 455 The Strategic/Consultative Selling Model 457 Sales Force Nationality 462

Special Forms of Marketing Communications: direct Marketing, Support Media, Event Sponsorship, and Product Placement 464

Direct Mail 465 Catalogs 466 Infomercials, Teleshopping, and Interactive Television 467 Support Media 469 Sponsorship 471 Product Placement: Motion Pictures, Television Shows, and Public Figures 473

Chapter 15 Global Marketing and the Digital revolution 482 the digital Revolution: A Brief history 483 Convergence 488 Value networks and disruptive technologies 489 global E-Commerce 491 Web Site design and implementation 494 new Products and Services 497

Broadband 497 Cloud Computing 498 Smartphones 500 Mobile Advertising and Mobile Commerce 500 Mobile Music 502 Mobile Gaming 504 Internet Phone Service 504 Digital Books and Electronic Reading Devices 505

Part fIvE Strategy and Leadership in the twenty-first Century 510

Chapter 16 Strategic Elements of Competitive advantage 510 industry Analysis: Forces influencing Competition 511

Threat of New Entrants 511 Threat of Substitute Products 513 Bargaining Power of Buyers 513 Bargaining Power of Suppliers 514 Rivalry Among Competitors 515

Competitive Advantage 516 Generic Strategies for Creating Competitive Advantage 516

Broad Market Strategies: Cost Leadership and Differentiation 516 Narrow Target Strategies: Cost Focus and Focused Differentiation 517

The Flagship Firm: The Business Network with Five Partners 520 Creating Competitive Advantage via Strategic Intent 521

Layers of Advantage 522 Loose Bricks 523 Changing the Rules 523 Collaborating 523

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16 CoNTENTS

global Competition and national Competitive Advantage 524 Factor Conditions 525

Human Resources 525 Physical Resources 525 Knowledge Resources 526 Capital Resources 526 Infrastructure Resources 526

Demand Conditions 526 Composition of Home Demand 527 Size and Pattern of Growth of Home Demand 528 Rapid Home-Market Growth 528 Means by Which a Nation’s Products and Services Are Pushed or Pulled into Foreign Countries 528

Related and Supporting Industries 529 Firm Strategy, Structure, and Rivalry 529 Chance 530 Government 530

Current issues in Competitive Advantage 531 Hypercompetitive Industries 531

Cost/Quality 532 Timing and Know-How 533 Entry Barriers 534

Additional Research on Comparative Advantage 535

Chapter 17 Leadership, Organization, and Corporate Social responsibility 544 Leadership 545

Top Management Nationality 546 Leadership and Core Competence 548

organizing for global Marketing 549 Patterns of International Organizational Development 551

International Division Structure 553 Regional Management Centers 555 Geographical and Product Division Structures 556 The Matrix Design 557

Lean Production: organizing the Japanese Way 559 Assembler Value Chains 560 Downstream Value Chains 561

Ethics, Corporate Social Responsibility, and Social Responsiveness in the globalization Era 563

Glossary 575 Author/Name Index 589 Subject/Organization Index 597

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Preface

Global Marketing, Eighth Edition, builds on the worldwide success of the previous editions of Principles of Global Marketing and Global Marketing. Those books took an environmental and strategic approach by outlining the major dimensions of the global business environment. The authors also provided a set of conceptual and analytical tools that prepared students to success- fully apply the four Ps to global marketing.

our goal for all eight editions has been the same: to write a book that is authoritative in con- tent yet relaxed and assured in style and tone. Here’s what students have to say:

● “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.”

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. These topics represented “big stories” in the global marketing arena and continue to receive press coverage on a regular basis.

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, Eighth Edition. We have benefited tremendously from readers’ feedback and input; we also continue to draw on our direct experience in the americas, asia, Europe, africa, and the Middle East. The result is a text that addresses your needs and the needs of instructors in every part of the world. Global Marketing has been adopted at scores of colleges and universities in the United States; international use of the English-language Global Edition is found in australia, Canada, China, Ireland, Italy, Japan, Malaysia, Saudi arabia, South Korea, Spain, and Sri lanka. The text is also available in albanian, Chinese (simplified and traditional), Japanese, Korean, Macedonian, Portuguese, Spanish, and Turkish editions.

what’s New to the Eighth Edition Thunderclap Newman once sang,

“Call out the instigator, there’s something in the air . . . we’ve got to get together sooner or later, because the revolution’s here.”

Indeed, something is in the air. Two specific geopolitical developments that formed the backdrop to the Seventh Edition continue to dominate the headlines as this revision goes to press. First, after popular uprisings in North africa upended the long-entrenched political order, the region is still in transition. Tensions remain especially high in Egypt and Syria. Second, the sovereign debt crisis in the euro zone, while still not resolved, is not as acute today as it was in 2011. High on the EU’s agenda now are broader concerns about high unemployment levels and stagnant demand in Greece, Italy, and elsewhere.

More generally, the global economic crisis continues to impact global marketing strate- gies. Virtually every industry sector, company, and country has been affected by the downturn. although the North american auto industry is rebounding, Europe’s automakers are plagued by excess capacity. The lack of credit remains a key issue that is still squeezing companies and con- sumers. among the bright spots: Real estate values in the United States appear to have bottomed

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18 PREFACE

out, and the uptick in the demand for housing provides grounds for optimism. also, Wall Street continues to rebound, with some stocks hitting record highs.

although all of these storylines continue to unfold as this edition goes to press, we have tried to offer up-to-date, original insights into the complexities and subtleties of these shifts in the external environment and their implications for global marketers. other specific updates and revisions include:

● Fifty percent of the chapter-opening cases and related end-of-chapter cases are new to the Eighth Edition. Holdover cases have been revised and updated.

● 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 bRIC nations has been expanded to talk about the bRICS countries, reflecting South africa’s increasing importance as an emerging market.

● New discussion of social media is integrated throughout the Eighth Edition. Chapter 15, “Global Marketing and the Digital Revolution,” has been completely revised and updated to include discussion of location-based mobile platforms, cloud computing, tablets, and other emerging topics.

● a new sidebar, Innovation, Entrepreneurship, and the Global Startup, presents profiles of visionary business leaders from around the world.

● Income and population data in Chapter 3 have been reorganized for improved clarity and comparability.

● a new emphasis on developing critical thinking skills when analyzing chapter-ending cases has been included in the Eighth Edition.

● To supplement the use of Global Marketing, Eighth Edition, faculty and students can access author updates and comments on Twitter, the microblogging Web site. In addition, the authors have archived nearly 2,000 articles pertaining to global marketing on Delicious.com, the social bookmarking site (www.delicious.com/MarkCGreen).

Time marches on. as this edition goes to press in 2013, some iconic global brands and companies celebrate golden anniversaries. among them: the beatles! Fifty years ago, the bea- tles topped the charts in the United Kingdom before fundamentally revolutionizing popular music. also 50 years ago, the first hypermarket opened in France. Turning 40 this year is the mobile phone; Motorola’s DynaTec mobile handset was the first shot fired in the nascent tele- communications revolution. It was 30 years ago, in 1983, that Theodore levitt’s classic article “The Globalization of Markets” was published in Harvard Business Review. That same year, the compact disc player was introduced, ushering in a new era of digital music. and, in april 2013, apple’s game-changing iTunes store turned 10.

Unifying themes in earlier editions included the growing impact of emerging nations in general and brazil, Russia, India, and China in particular. To those four bRIC countries we add South africa in this edition. also in earlier editions, we explored the marketing strategies used by global companies such as Embraer (brazil), lukoil (Russia), Cemex (Mexico), lenovo (China), and India’s big Three—Wipro, Infosys, and Tata—to build scale and scope on the global stage. We then broadened our view to examine emerging markets as a whole. We noted that, prior to the world wide economic downturn, Mexico, Indonesia, Nigeria, and Turkey (the so-called MINTs) and a handful of other emerging nations were rapidly approaching the tipping point in terms of both competitive vigor and marketing opportunity.

In the Seventh Edition previously, we charted the path of the nascent economic recovery and the resulting shifts in global market opportunities and threats. New phrases such as austerity, capital flight, currency wars, double-dip recession, global imbalances, global rebalancing, quantitative easing (QE), and sovereign-debt crisis were introduced into the discourse. The crisis in the euro zone was, and remains, one of the top stories of the year. Greece, Ireland, Italy, Portugal, and Spain bear especially close observation; this is the open- ing case in Chapter 3. Meanwhile, the big news in asia was China’s overtaking Japan as the world’s second-largest economy. China has also surpassed the United States as the world’s leading manufacturer.

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PREFACE 19

The aforementioned trends are central to the Eighth Edition as well. as noted previously, unprecedented social and political change is underway in North africa. Sub-Saharan africa’s economies are rebounding from the global financial crisis at a rapid pace. Every day the busi- ness press contains another announcement that a global company plans to enter africa or expand operations there. bharti-airtel, Coca-Cola, Ford, IbM, Nestlé, and Walmart are among the com- panies that have joined the “final gold rush” into the world’s last untapped market. “africa 3.0,” the lead-in case to Chapter 15, explores the way mobile phones are transforming business and home life across the continent. This is clearly a region that bears watching.

Current research findings have been integrated into each chapter of Global Marketing, Eighth Edition. For example, we have incorporated key insights from Seung Ho Park and Wilfried R. Vanhonacker’s article “The Challenge for Multinational Corporations in China: Think local, act Global,” which appeared in MIT Sloan Management Review in 2007. Similarly, we found arin- dam K. bhattacharya and David C. Michael’s 2008 Harvard Business Review article “How local Companies Keep Multinationals at bay” to be extremely insightful.

Similarly, our thinking about the global/local market paradox has been influenced by John Quelch’s 2012 book, All Business Is Local. We have added scores of current examples of global marketing practice as well as quotations from global marketing practitioners and industry experts. Throughout the text, organizational Web sites are referenced for further student study and exploration. a companion Web site (www.pearsonglobaleditions.com/keegan) is integrated with the text as well.

End-of-Chapter Cases and Chapter Sidebars Each chapter opens with a brief case study introducing a company, a country, a product, or a global marketing issue that directly relates to the chapter’s themes and content. The cases vary in length from a few hundred words to more than 2,600 words, yet they are all short enough to be covered in a single class period. 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.

The end-of-chapter cases strike a balance between revisions and updates of cases from the Seventh Edition and cases that are new to this edition. Revised and updated cases include Case 1-2, “McDonald’s Expands Globally While adjusting Its local Recipe”; Case 7-1, “Global Companies Target low-Income Consumers”; Case 15-1, “africa 3.0”; and Case 16-1, “Volkswa- gen aims for the Top.”

New cases in the Eighth Edition include Case 1-3, “apple Versus Samsung: The battle for Smartphone Supremacy Heats Up”; Case 3-1, “Global Trading Partners look East and West for Economic Growth”; Case 4-1, “Will Tourism Ruin Venice?”; Case 5-1, “Mr. President— Free Pussy Riot!”; Case 8-1, “East-asian countries: Export-led Growth for Economic Success”; Case 9-1, “Mo’men launches Franchises in UaE”; Case 12-1, “Carrefour’s Entry in Dubai”; and Case 14-1, “Red bull.”

In addition, every chapter contains two or more sidebars on three themes: Emerging Markets briefing book; Innovation, Entrepreneurship, and the Global Startup; and The Cultural Context. among the entrepreneurs profiled are Kevin Plank (Under armour), Reed Hastings (Netflix), and Diego Della Valle (Tod’s).

teaching aids for Instructors on the Instructor’s resource Center at www.pearsonglobaleditions.com/keegan, instructors can access a variety of print, digital, and presentation resources available with this text in downloadable format. Registration is simple and gives you immediate access to new titles and new editions. as a registered faculty member, you can download resource files and receive immediate access and instructions for installing course management content on your campus server.

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20 PREFACE

If you need assistance, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247pearsoned.custhelp.com for answers to fre- quently asked questions and toll-free user-support phone numbers.

The following supplements are available to adopting instructors (for detailed descriptions, please visit www.pearsonglobaleditions.com/keegan):

● Instructor’s Manual. This downloadable instructor’s manual includes sample syllabi, lecture outlines, answers to all end-of-chapter questions and case questions, and additional activities and assignments for your students. This manual is available for download by visiting www.pearsonglobaleditions.com/keegan.

● Test Item File. This downloadable Test Item File contains over 1,600 questions, including multiple-choice, true/false, and essay-type questions. Each question is followed by the correct answer, the learning objective it ties to, the aaCSb category when appropriate, the question type (concept, application, critical thinking, or synthesis), and a difficulty rating.

● PowerPoints. These downloadable PowerPoint slides are available from www.pearson globaleditions.com/keegan. PowerPoints include the basic outlines and key points with corresponding figures and art from each chapter. These PowerPoint slides are completely customizable for individual course needs or are ready to use as is. The notes section of each slide provides additional explanations written for your students.

● TestGen. Pearson Education’s test-generating software is available from www.pearson globaleditions.com/keegan. The software is PC/Mac compatible and preloaded with all of the Test Item File questions. You can manually or randomly view test questions and drag- and-drop to create a test. You can also add or modify test bank questions as needed.

video Library Videos illustrating the most important topics can be accessed at:

MyMarketinglab—available for instructors and students, provides round-the-clock, instant access to videos and corresponding assessments and simulations for Pearson textbooks.

CourseSmart* CourseSmart eTextbooks were developed for students looking to save on required or recommended textbooks. Students simply select their eText by title or author and purchase immediate access to the content for the duration of the course using any major credit card. With a CourseSmart eText, students can search for specific keywords or page numbers, take notes online, print out reading assignments that incorporate lecture notes, and bookmark important passages for later review. For more information or to purchase a CourseSmart eTextbook, visit www.coursesmart.co.uk.

one of our challenges in writing new editions of this textbook 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 current events. Even so, we set out to create a compelling narrative that captures the unfolding drama that is inherent in marketing in the globalization era. The authors are passionate about the subject of global marketing; if our readers detect a note of enthusiasm in our writing, then we have been successful. We believe that you will find Global Marketing, Eighth Edition, to be the most engaging, up-to-date, relevant, and useful text of its kind.

*This product may not be available in all markets. For more details, please visit www.coursesmart.co.uk or contact your local Pearson representative.

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acknowledgments

This book reflects the contributions, labor, and insights of many persons. I would like to thank my students, colleagues, associates, and clients for sharing their insights

and understanding of global marketing theory and practice. It is impossible to single out everyone who has contributed to this edition, but I would especially like to thank:

Stephen blank, lawrence G. bridwell, Steve burgess, John Dory, bob Fulmer, Donald Gibson, Pradeep Gopalakrisna, Jim Gould, David Heenan, Hermawan Kartajaya, Suren Kaushik, bodo b. Schlegelmilch, Jim Stoner, John Stopford, barbara Stöttinger, Michael Szenberg, Martin Topol, Robert Vambery, and Dominique Xardel.

I also wish to acknowledge the many contributions of the students in my doctoral seminar on global strategic marketing. The Pace doctoral students are a remarkable group of experienced executives who have decided to pursue a doctoral degree while working full time.

My associates at Keegan & Company—Eli Seggev, Mark Keegan, and anthony Donato— are outstanding expert consultants. Their collective backgrounds include doctoral degrees in mar- keting, and law and a master’s degree in public administration. The cross-fertilization of their training and experience and challenging client assignments addressing contemporary marketing issues is a continuing source of new ideas and insights on global strategic marketing.

Special thanks are due the superb librarians at Pace University: Michelle lang, head, Gradu- ate Center library, and anne b. Campbell, reference librarian, have a remarkable ability to find anything. like the Canadian Mounties who always get their man, Michelle and anne always get the document. My admiration for their talent and appreciation for their effort are unbounded.

Elyse arno brill, my coauthor for Offensive Marketing (butterworth Heinemann), has pro- vided invaluable assistance in researching, writing, and teaching. Her energy and creativity are unbounded. I am in awe of her ability to juggle a large and growing family, community service, a working farm, and our joint projects. She is an original and creative thinker with an impressive ability to identify important new directions and insights in marketing.

Stephanie Wall, Editor in Chief at Pearson, and Mark Gaffney, acquisitions Editor, were quick to endorse and support the Eighth Edition. becca Groves, Production Project Manager; and Daniel Petrino, Editorial assistant, kept the revision process on track and on schedule. Michelle Dellinger, Senior Project Manager at Integra, shepherded the manuscript through the final stages of the publication process. We are also grateful for the continuing support at Pearson.

Finally, I wish to thank my wife, Dr. Cynthia MacKay, who is a constant source of inspira- tion, support, and delight, as well as my companion in global market field research trips (many by motorcycle).

Warren J. Keegan

September 2013

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22 ACKNoWLEDGMENTS

I am indebted to the many colleagues and friends who carefully read and critiqued individual manuscript sections and chapters. Their comments improved the clarity and readability of the text. In particular, I would like to thank James a. baggett, Hunter Clark, Frank Colella, Dave Collins, Diana Dickinson, Mark Freyberg, alexandre Gilfanov, Carl Halgren, Kathy Hill, Mark Juffern- bruch, David Kochel, Peter Kvetko, Keith Miller, Gayle Moberg, James Palmieri, alexandre Plokhov, Yao lu Swanson, Wendy Vasquez, 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 bill becker, John Deere; Veronique bellett, McarthurGlen; Janon Costley, Total apparel Group; Kirk Edmondson, lexus advanced business Development; Travis Edmonson, Pollo Campero; anita Gambill, STIHl USa; Monica Gartner, bang & olufsen; Jeffrey Hipps, Theta Digital/aTI; lou Ireland, DuPont Pioneer; Kim Isele, NaVTEQ; bob Johnsen, 5b artist Management; Mary Jubb, Kikkoman; Denise lavoie, Henkel; Ilana McCabe, QVC Inc.; Daniel McDonnell, Forrester Research; Pat McFadden, Nucor; brad Miller, New balance athletic Shoe, Inc.; Kerry ann Miller, Subaru of america; Morgan Molinoff, Edelman; Jenni Moyer, Consumer Electronics association; Kerry Moyer, Consumer Electronics association; Ciarra o’Sullivan, Global Call to action against Poverty; Ramiro Pindeda, bridgestone americas Tire operations, llC; lenore Rice, Seibert & Rice; Vivian Santangelo, Meredith Corporation; Mara Seibert, Seibert & Rice; Micaela Shaw, bSH Home appliances Corporation; Naomi Starkman, Slow Food Nation; Corey Taylor, Slipknot; Kathleen Tepfer, Scottish Development International; and Terri Wilsie, CSX.

Colleagues at several institutions contributed material to this revision. The authors are indebted to Keith Miller, Ellis and Nelle levitt Distinguished Professor of law at Drake University law School, for expanding and revising Case 5-3, “Gambling Goes Global on the Internet.” 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 subse- quent discussions, and Dominic’s book Venice in Environmental Peril? Myth and Reality were key resources for the opening case in Chapter 4. Yao lu Swanson, my marketing colleague at Simpson, kindly provided expert answers and clarifications in response to my questions about China.

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, con- tributed case studies, and suggested improvements. These include Devin linn’s case on the wine industry in argentina. Simpson alumna beth Dorrell graciously offered her expertise on export documentation. Mikkel Jakobsen provided source material on Denmark for “The Cultural Con- text” sidebar in Chapter 4. Caleb Hegna supplied important data about the white-goods market in Germany. My conversations with Michael Schwoll also helped shaped the text treatment of marketing practices in Germany.

The students in my international marketing course at CIMba Italy worked collabora- tively on the issue of tourism in Venice; Case 4-1 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. Indeed, the whiteboard that these students filled while reviewing for a midterm exam served as the inspiration and springboard for the cover design of the Eighth Edition.

It was a great pleasure working with the Pearson team that managed the production of this edition. let me echo Warren’s thanks to all members of the Pearson team, and especially to Meeta Pendharkar, our Editorial Project Manager, and becca Groves, Senior Project Manager.

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Stephanie Wall, Editor in Chief, encouraged us to integrate MyMarketinglab into this revision. Mark Gaffney, acquisitions Editor, Marketing, was instrumental in moving the project along. The production moved along smoothly through the summer of 2013 thanks to Michelle Del- linger, Senior Project Manager at Integra. Kudos also to our photo researcher, Nicole Solano, for demonstrating once again that “every picture tells a story.” Nicole also handled permissions research on ads and other content elements. Thanks to the entire Pearson sales team for helping promote the book in the field. I additionally want to acknowledge the contributions of Mahmood Kahn, Virginia Tech, for expertly creating this edition’s Test Item File, Kerry Walsh, University of South Florida, for her fine work on the Instructor’s Manual and Jill Solomon, University of South Florida, for preparing a new set of PowerPoint slides.

Mark C. Green

September 2013

Pearson would like to thank and acknowledge the following people for their work on the Global Edition:

Contributors

ali Hallak, Head of Digital Marketing, Samsung Gulf Electronics, UaE; Hamed Shamma, american University in Cairo, Egypt; Ronan Jouan de Kervenoael, Sabanci University, Turkey; Soo Jiuan Tan, National University of Singapore, Singapore; Stefania Paladini, Coventry University, UK

Reviewers

a. Ercan Gegez, Marmara University, Turkey; Christine Prince, ISG International business School, France; Norizan Mohd. Kassim, King abdulaziz University, Saudi arabia; Shohab Sikandar Desai, american University in the Emirates, UaE

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24 24

Part one

Introduction

1 Introduction to Global Marketing

Consider the following proposition: We live in a global marketplace. Apple iPhones, McDonald’s restaurants, Samsung HDTVs, LEGO toys, Swatch watches, Burberry trench coats, and Caterpillar earthmoving equipment 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 cell phone market, Nokia (Finland), Apple (United States), Motorola (United States), and Samsung are key players. Appliances from Whirlpool and Electrolux compete for precious retail space with products manufactured and marketed by Germany’s Bosch, China’s Haier Group, and South Korea’s LG.

case 1-1

the Global Marketplace Is also Local

Exhibit 1-1 Salvatore Ferragamo, based in Florence, Italy, is one of the world’s leading fashion brands. Emerging markets represent important opportunities for luxury goods marketers. As Ferruccio Ferragamo notes, “We cannot make enough to keep up with demand from the Chinese. They want their shoes not just ‘Made in Italy’ but often ‘Made in Florence.’”

To show its support for socially responsible initiatives, Ferragamo recently introduced a new shoe line called Ferragamo WORLD that utilizes eco-friendly production processes. A portion of the proceeds from every pair sold supports Acumen Fund’s anti-poverty efforts in East Africa, India, and Pakistan. Source: Roussel Bernard/Alamy.

MyMarketingLab™

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Over 10 million students improved their results using the Pearson MyLabs. Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems.

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Learning Objectives

1 Use the product/market growth matrix to explain the various ways a company can expand globally.

2 Describe how companies in global industries pursue competitive advantage.

3 Compare and contrast single-country marketing strategy with global marketing strategy (GMS).

4 Identify the companies at the top of the Global 500 rankings.

5 Explain the stages a company goes through as its management orientation evolves from domestic and ethnocentric to global and geocentric.

6 Discuss the driving and restraining forces affecting global integration today.

Which brands are Japanese? American? Korean? German? Indian? Where is Nokia headquartered? When is a German car not a German car? Can a car be both German and American? Consider:

• An American-built Ford Mustang has 65 percent American and Canadian content; an American-built Toyota Sienna XLE mini- van has 90 percent American and Canadian content.2

• China’s Shanghai Automotive (SAIC) owns the rights to the MG, the legendary two-seat British sports car. In 2008, SAIC began manufacturing a limited-edition TF model at a plant in Longbridge, UK. In 2011, production of the MG6 sedan began in Birmingham.3 India’s Tata Group recently paid $2.4 billion to acquire Land Rover and Jaguar from Ford.

• German carmaker BMW exports the X5 sport-utility vehicle that it builds in Spartanville, South Carolina, to more than 100 coun- tries.

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 cur- rent issues in global marketing. You may be surprised at what you learn!

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.1 France’s domestic film industry generates about 40 percent of local motion picture box office receipts; U.S.-made movies account for about 50 percent. In Turkey, local artists such as Sertab account for more than 80 per- cent of recorded music sales. Kiki, a Japanese magazine for teen- age girls, competes for newsstand sales with Vogue Girl, Cosmo Girl, and other titles from Western publishers. In Germany, the children’s television powerhouse Nickelodeon competes with local broadcaster Super RTL. In Brazil, many consumers are partial to Guaraná Antarctica and other local soft drink brands made from guaraná, a berry that grows in the Amazon region.

The “global marketplace versus local markets” paradox lies at the heart of this text book. In later chapters, we will investi- gate the nature of local markets in more detail. For now, how- ever, 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, and Burberry, for instance—are strongly identified with a particular 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 particular country is becoming blurred.

Part one

Introduction

1Laurie Burkitt, “China Loses Its Taste for Yum,” The Wall Street Journal (December 3, 2012), p. B9. 2Jathon Sapsford and Norihiko Shirouzu, “Mom, Apple Pie and . . . Toyota?” The Wall Street Journal (May 11, 2006), p. B1. 3Norihiko Shirouzu, “Homecoming Is Set for MG,” The Wall Street Journal (March 16, 2011), p. B8.

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 multilanguage labeling on your favorite products and brands. Your local gas station may have changed its name from Getty to Lukoil, reflecting the russian energy giant’s expanding global reach. on the highway, you may have seen a semitrailer truck from Fedex’s Global Supply Chain Services fleet. or perhaps you took

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26 Part 1 • IntroductIon

advantage of radiohead’s offer to set your own price when you downloaded In Rainbows from the Internet. When you pick up a pound of whole-bean Central american coffee at your favorite coffee café, you will find that some beans are labeled Fair trade Certified. Your toll-free telephone call to a software technical support service or an airline customer service center may be answered in Bangalore or Mumbai. Slumdog Millionaire, which received an oscar in 2009 for Best Picture, was filmed on location in and around Mumbai. You have surely followed media reports about the occupy Wall Street movement in new York City and related protests in Great Britain, Germany, Greece, and Italy.

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 flour- ished. 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. 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.5 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) comprises a contemporary marketer’s primary tools. 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 funda- mental 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 develop- ment strategy; this involves seeking new customers by introducing existing products or ser- vices to a new market segment 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 in the United States with a smartphone app that enables customers to pay for purchases electroni- cally. the app displays a bar code that the barista can scan.

● Market development: Starbucks is entering India via an alliance with the tata Group. Phase 1 calls for sourcing coffee beans in India and marketing them at Starbucks stores throughout the world. the next phase will likely involve opening Starbucks outlets in tata’s upscale taj hotels in India.6

● Product development: Starbucks created a brand of instant coffee, Via, to enable its customers to enjoy coffee at the office and other locations where brewed coffee is not

“Traditionally, service at Chinese restaurants is not very good and Chinese eat out only for the taste of the food. What Haidi Lao does is to offer a different service experience to make customers feel important. When people are in a good mood, they are willing to spend more, and that is what Haidi Lao gets for its premier service.”4

—Professor Yu Hai, Department of Sociology, Fudan University

4Jin Jing, “Hotpot Chain Haidi Lao Places emphasis on Very Personal Customer Service,” Shanghai Daily (august 18, 2011). 5american Marketing association. http://www.marketingpower.com/aboutaMa/ Pages/ DefinitionofMarketing.aspx. accessed March 1, 2011. 6Paul Beckett, “Starbucks Brews Coffee Plan for India,” The Wall Street Journal (January 14, 2011), p. B8.

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chaPter 1 • IntroductIon to Global MarketInG 27

available. after a successful launch in the United States, Starbucks rolled out Via in Great 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: Starbucks has launched several new ventures, including music CDs and movie production. next up: revamping stores so they can serve as wine bars and attract new customers in the evening.7

to get some practice applying 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 features 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 intellec- tual 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. He or she also must understand the strategies that, when skillfully implemented in conjunction with universal marketing funda- mentals, increase the likelihood of market success. 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 excellence.8 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.

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, comprise 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, a superior value proposition—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 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. nonmonetary costs are also a factor, and marketers may be able to decrease the time and effort that customers

7Bruce Horovitz, “Starbucks remakes Its Future with an eye on Wine and Beer,” USA Today (october 22, 2010), p. 1B. 8John Quelch and Katherine Jocz, All Business Is Local (new York: Portfolio/Penguin, 2012).

tabLe 1-1 Product/Market Growth Matrix

Product orientation

existing Products new Products

Market Orientation Existing markets 1. Market penetration strategy

2. Product development strategy

New markets 3. Market development strategy

4. Diversification strategy

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28 Part 1 • IntroductIon

must expend to learn about or seek out the product.9 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. In order 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’s, it should enjoy an extremely advantageous position. toyota, nissan, and other Japanese automakers made significant gains in the american market in the 1980s by creating a superior value proposition: they offered cars with higher quality, bet- ter 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 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” rating 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.10 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, in 2012 Consumer Reports put Subaru at the top of its quality rankings, surpassing Mazda, toyota, Honda, and nissan.11 History has not been so kind to the Yugo, however; 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 recent exit from the German market was due, in part, to the fact that German shoppers could find lower prices at stores known as “hard discounters.” In addition, many German consumers prefer to go to several small shops rather than seek out the conve- nience of a single, “all-in-one” store located outside a town center. Likewise, United Kingdom (UK)–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 make up much of the merchandise stock (see Case 12-2).

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.12 Competitive advantage is measured relative to rivals in a given industry. 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.

9With certain categories of differentiated goods, including designer clothing and other luxury products, higher price is often associated with increased value. 10the history of the Subaru 360 is documented in randall rothman, Where the Suckers Moon: The Life and Death of an Advertising Campaign (new York: Vintage Books, 1994), p. 4. 11“Who Makes the Best Cars?” Consumer Reports (april 2012), pp. 14–18. 12Jay Barney notes that “a firm is said to have a competitive advantage when it is implementing a value-creating strat- egy not simultaneously being implemented by any current or potential competitors.” See Jay Barney, “Firm resources and Sustained Competitive advantage,” Journal of Management 17, no. 1 (1991), p. 102.

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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.13

From a marketing point of view, globalization presents companies with tantalizing opportunities—and challenges—as executives decide whether to offer their products and services everywhere. at the same time, globalization presents companies with unprecedented opportuni- ties 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 allows produc- ers to find the best partners.14 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 (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.”15

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 compet- itive 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 posi- tion in one country is interdependent 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.16 one way to deter- mine the degree of globalization in an industry sector is to calculate the ratio of the annual

13Jagdish Bhagwati, In Defense of Globalization (new York: oxford University Press, 2004), p. 3.

Exhibit 1-2 The National Football League (NFL) promotes American football globally. The NFL is focusing on a handful of key markets, includ- ing Canada, China, Germany, Japan, Mexico, and the United Kingdom. In fall 2010 guitar legend Jeff Beck performed “God Save the Queen” at Wembley Stadium in London prior to an NFL exhibition game between the San Francisco 49ers and the Denver Broncos. The final score: 49ers 24, Broncos 16. Sources: Michael Zagaris/Getty Images and James Starling/Alamy.

14John Micklethwait and adrian Wooldridge, A Future Perfect: The Challenge and Hidden Promise of Globalization (new York: Crown Publishers, 2000), p. xxvii. 15Grant Wahl, “Football vs. Fútbol,” Sports Illustrated (July 5, 2004), pp. 68–72. 16Vijay Govindarajan and anil Gupta, “Setting a Course for the new Global Landscape,” Financial Times—Mastering Global Business, part I (1998), p. 3.

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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.17

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 follow- ing 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.19

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 bever- age brands. Following sluggish sales 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.20

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 electronics, toshiba, and many other companies have stepped up efforts to sharpen their strategic focus on core businesses and brands. Specific actions can take a number of different forms besides alliances, including mergers, acquisitions, divestitures, and folding some businesses into other company divisions.21

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 that understanding. there are many who 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.22

“We believe a company can only think in one set of terms. If you are premium, you have to focus on it.”18

—Helmut Panke, former chairman, Bayerische Motoren Werke (BMW) AG

17Diana Farrell, “assessing Your Company’s Global Potential,” Harvard Business Review 82, no. 12 (December 2004), p. 85.

19elizabeth ashcroft, “nestlé and the twenty-First Century,” Harvard Business School Case 9-595-074, 1995. See also ernest Beck, “nestlé Feels Little Pressure to Make Big acquisitions,” The Wall Street Journal (June 22, 2000), p. B4.

18Scott Miller, “BMW Bucks Diversification to Focus on Luxury Models,” The Wall Street Journal (March 20, 2002), p. B4.

20Betsy McKay, “Coke’s ‘think Local’ Strategy Has Yet to Prove Itself,” The Wall Street Journal (March 1, 2001), p. B6. 21robert a. Guth, “How Japan’s toshiba Got Its Focus Back,” The Wall Street Journal (December 12, 2000), p. a6. 22C. Samuel Craig and Susan P. Douglas, “responding to the Challenges of Global Markets: Change, Complexity, Competition, and Conscience,” Columbia Journal of World Business 31, no. 4 (Winter 1996), pp. 6–18.

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evidence is mounting that companies in a range of industries are getting the message. For example, three Italian furniture companies have joined together to increase sales outside of Italy and ward off increased competition 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.23 Hong Kong’s tai 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.”24

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 proven 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 reflection 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 1-2). 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.25

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 locations. Coordination of marketing activities refers to the extent to which marketing activities

23Gabriel Kahn, “three Italian Furniture Makers Hope to Create a Global Luxury Powerhouse,” The Wall Street Journal (october 31, 2006), p. B1. 24Phred Dvorak, “Big Changes Drive Small Carpet Firm,” The Wall Street Journal (october 30, 2006), p. B3.

tabLe 1-2 Comparison of Single-Country Marketing Strategy and Global Marketing Strategy (GMS)

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

25aaron o. Patrick, “Softer nike Pitch Woos europe’s Women,” The Wall Street Journal (September 11, 2008), p. B6.

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How did rock and roll start? In the 1950s, American artists such as Buddy Holly, Elvis Presley, Chuck Berry, and Ray Charles began push- ing the boundaries of popular music. However, it was four young men from Liverpool, England, who perfected the form and, starting in the early 1960s, brought new momentum to the music scene. As MTV Networks executive Bill Flanagan puts it, the result of John Lennon, Paul McCartney, George Harrison, and Ringo Starr play- ing together was “the greatest sound music has ever produced.”

In the 1960s, England’s exports to the world included the Beatles as well as music by other “British Invasion” bands such as the Animals, the Kinks, and the Rolling Stones. Whether you view the breakthrough year as 1962 (first Beatles single released in the United Kingdom), 1963 (the Beatles top the charts in the United Kingdom), or 1964 (America succumbs to Beatlemania after the band appears on The Ed Sullivan Show), it is safe to say that the Fab Four have reached their golden anniversary.

At home, Beatles records were released by Parlophone, a record label owned by Electrical and Musical Industries Ltd. EMI, as the parent company is known, also owned the famous Abbey Roads studios where the Beatles recorded with producer George

Martin. Internationally, Beatles records were released under licensing agreements with various other companies on a country-by-country basis. Although EMI had acquired Los Angeles–based Capitol Records in the 1950s, company executives passed on the opportunity to release Beatles records in the United States. And so, the first few Beatles singles and one LP, “Introducing the Beatles,” were released by Vee-Jay Records. As the group’s popularity surged, however, Capitol Records obtained the rights

to subsequent Beatles singles and LPs. The rest, as they say, is history (see Exhibit 1-3).

From a global marketing perspec- tive, the history of the Beatles’ records is an interesting case study in both prod- uct adaptation and product extension. Although many people don’t realize it, the early albums released in the United Kingdom differed from releases in the United States and other countries. EMI

sent master tapes to various countries, often customizing them at the request of the local company. At home, for example, the first Beatles LP was titled “Please Please Me,” not “Introducing the Beatles.” Capitol Records’ first Beatles LP, “Meet the Beatles,” was released in January 1964. However, it was actually the Beatles’ second UK long player (the original title was “With the Beatles”).

In addition, U.S. album releases by the Fab Four had fewer tracks than the UK releases, had different track sequences, and also included singles and B-sides that were generally not found on the British LPs. In France, the preferred format was known as “extended play” (EP), generally with two songs on each side.

There were other differences as well. In an effort to “Americanize” the sound of the Beatles’ recordings, a studio effect known as reverb was added to some tracks. Reverb makes a “dry” (unprocessed) sound “wetter” by adding an echo-like effect. Another studio tool, compres- sion, was used to add sizzle to high-end sounds such as the cymbals on Ringo Starr’s drum kit. In addition, some of the original mono and stereo tracks were remixed for the American market.

Sources: George Martin, All You Need Is Ears (New York: St. Martin’s Press, 1979); special thanks to Douglas Hinman, Piers Hemmingsen, and James McVeety for addi- tional research.

the cuLturaL cOntext

50th anniversary of Great Britain’s Greatest Cultural export

Exhibit 1-3 It has been 50 years since four lads from Liverpool, England— Ringo Starr, Paul McCartney, George Harrison, and John Lennon—burst onto the global music scene and left an indelible mark on global culture. Ringo and Paul, the two surviving members of the band, continue to record and tour as solo artists. Who was your favorite Beatle? Source: Popperfoto / Getty Images.

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related to the marketing mix are planned and executed interdependently around the globe. Finally, 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.26

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. the UK-based luxury brand is available in scores of countries, and Burberry’s current expansion plans emphasize sev- eral geographical areas (exhibit 1-4). First are the BrICS nations, where growing numbers of middle-class consumers are developing a taste for luxury brands. Second is the United States, 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. Burberry’s marketing mix strategy includes the following:

● Product: Boost sales of handbags, belts, and accessories—products whose sales are less cyclical than clothing’s.

● Price: More expensive than Coach, less expensive than Prada. “affordable luxury” is cen- tral to the value proposition.

● Place: Burberry intends to open more independent stores in key cities including new York, London, and Hong Kong. Such locations generate more than half the company’s revenue and profit.27

● Promotion: roll out a new logo to reduce “plaid overexposure.” Use social media such as twitter and www.artofthetrench.com. Launch Burberry acoustic, a project to provide exposure for emerging music talent via http://live.burberry.com.

Exhibit 1-4 England’s Burberry Group celebrated its 150th anniversary in 2006. Burberry’s trademark is regis- tered in more than 90 countries. The company’s signature plaid pattern— often referred to as “the check”— is incorporated into a wide range of apparel items and accessories. The Burberry brand is enjoying renewed popularity throughout the world; sales in Asia are particularly strong. New CEO Angela Ahrendts wants to broaden the brand’s appeal. To do this, she intends to introduce two new logos: an equestrian knight and the cursive signature of company founder Thomas Burberry. Source: Oli Scarff/Getty Images.

26Shaoming Zou and S. tamer Cavusgil, “the GMS: a Broad Conceptualization of Global Marketing Strategy and Its effect on Performance,” Journal of Marketing 66, no. 4 (october 2002), pp. 40–56. 27Paul Sonne and Kathy Gordon, “Burberry refocusing on World’s Big Cities,” The Wall Street Journal (november 8, 2012), p. B9.

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as you can see in table 1-2, the next part of the GMS involves the concentration and coor- dination of marketing activities. at Burberry, haphazard growth had led to a federation of indi- vidual operations. Company units in some parts of the world didn’t talk to each other. In some cases they 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. to address this issue, Ceo angela ahrendts has been very clear that she wants to leverage the Burberry franchise. Her mantra is: one company, one brand. ahrendts faces other challenges as well. She must maintain momentum in the face of difficult economic conditions worldwide and avoid diluting the brand while ramping up expansion.

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. However, 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; that is, 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 but still reaping the benefits that result from world-scale operations. although the Coca-Cola Company has experienced a recent sales decline in Japan, it 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 suc- cessful 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 orga- nization without being undone by it. Some companies say the new world requires homo- geneous products—“one size fits all”—everywhere. others say the world requires endless customization—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 standard (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 respond- ing 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

28Joanne Lipman, “ad Fad: Marketers turn Sour on Global Sales Pitch Harvard Guru Makes,” The Wall Street Journal (May 12, 1988), p. 1. 29Chad terhune, “Coke tries to Pop Back in Vital Japan Market,” The Wall Street Journal (July 11, 2006), pp. C1, C3. 30William C. taylor and alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (new York: Penguin Books USa, 1996), pp. 48, 49.

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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.”33 (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 1-3). 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 1-5).34

Exhibit 1-5 For Nestlé, innovation is the key to an expanded presence in emerging markets such as Thailand, Sri Lanka, and Mali. The consumer- goods giant is headquartered in Switzerland, but one-third of its research and development centers are located in emerging markets. Recently, Nestlé introduced mobile coffee carts from which vendors sell single servings of Nescafé brand coffee. In a textbook example of “Think locally, act globally,” some of these innovations are being transferred to high-income countries in Europe and elsewhere. Source: adrian arbib/Alamy.

33Greg Farrell, “McDonald’s relies on europe for Growth,” Financial Times (april 20, 2010). 34Louise Lucas, “new accent on Consumer tastes,” Financial Times (December 14, 2010), p. 14.

tabLe 1-3 Think Locally/Act Globally

company/headquarters country Product

Cinnabon/USa Cinnabon customers in Central and South america prefer dulce de leche. Products developed for those regions are being introduced in the United States, where the Hispanic population is a key segment.31

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.32

31Leslie Kwoh, “Cinnabon Finds Sweet Success in russia, Mideast,” The Wall Street Journal (December 26, 2012), p. B5. 32e. J. Schultz, “to the Moon and Back: How tang Grew to Be a Billion-Dollar Global Brand,” Advertising Age (June 16, 2011).

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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. this has been accomplished in various ways. In consumer electronics, apple is synonymous with hardware and software inte- gration, ease of use, cutting-edge innovation, and high-tech design. In appliances, Germany’s reputation for engineering and manufacturing excellence is a source of competitive advan- tage for Bosch (see exhibit 1-6). 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 support a 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. a

Exhibit 1-6 Bosch, Germany’s larg- est privately held industrial group, celebrated its 125th anniversary in 2011. Bosch competes in a variety of sectors including automotive and industrial technology and consumer products. The company uses the slogan “Invented for life” in its advertising and has more than 350 subsidiaries and a market presence in more than 150 countries. Source: Courtesy of BSH Home Appliance Corporation.

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central issue in global marketing is how to tailor the global marketing concept to fit particular products, businesses, and markets.35

as shown in table 1-4, 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 $4.20. By contrast, in China Big Macs sell for the equivalent of $2.44. 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.

the particular approach to global marketing that a company adopts will depend on industry conditions 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 Mexico?

● 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 supply customers in the local market and also export 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 about 850 stores in Japan and 300 stores in 12 overseas countries. the company sources 90 percent of its clothing from China. Uniqlo currently has 6 stores in the United States; 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, thus becoming the world’s number 1 apparel retailer?

tabLe 1-4 Examples of Effective Global Marketing—McDonald’s

Marketing Mix element Standardized localized

Product Big Mac Mcaloo tikka potato burger (India)

Promotion Brand name Slang nicknames, for example, Mickey D’s (USa, Canada), Macky D’s (UK, 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 freedom and rebellion: the father does not realize that his son is gay.

Place Free-standing 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 $4.20 (United States)

$6.79 (norway); $2.44 (China)

35John a. Quelch and edward J. Hoff, “Customizing Global Marketing,” Harvard Business Review 64, no. 3 (May–June 1986), p. 59.

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38 Part 1 • IntroductIon

the answer to these questions is: It all depends. Because Harley-Davidson’s competitive advantage is based, in part, on its “Made in the USa” positioning, shifting production outside the United States is not advisable. the company has opened a new production facility in Kansas, and ceased production of Buell Motorcycles. It also sold MV augusta, an Italian motorcycle manu- facturer that it had acquired in 2008.

toyota’s success in the United States was originally attributable to its ability to transfer world-class manufacturing skills—“the toyota Way”—to america while using advertising to inform prospective customers that american workers build the avalon, Camry, and tundra mod- els, 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 automaker, toyota’s insular corporate culture and focus on cost cutting compromised overall product quality. the big question facing toyota today is whether its reputation and sales will fully recover following much-publicized problems such as sudden acceleration that resulted in embarrassing product recalls.

as noted, about one-quarter of Uniqlo’s 1,200 stores are located outside Japan; key coun- try 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 Japanese retailers are famous. according to a. t. Kearney’s 2011 Global retail Development Index for apparel, China is the number 1–ranked emerging market opportunity for apparel. In China, Uniqlo’s management team selectively targets cities with high population densities such as Beijing and Shanghai (see exhibit 1-7).36

the Importance of Global Marketing the largest single market in the world in terms of national income is the United States, represent- ing roughly 25 percent of the total world market for all products and services. U.S. companies that wish to achieve maximum growth potential must “go global,” because 75 percent of world market potential is outside their home country. Management at Coca-Cola clearly understands this; about 75 percent of the company’s operating income and two-thirds of its operating revenue

36Mayumi negishi, Dana Mattioli, and ryan Dezember, “Japan’s Uniqlo Sets Goal: no. 1 in the U.S.,” The Wall Street Journal (april 12, 2013), p. B7. See also Hiroyuki Kachi and Kenneth Maxwell, “Uniqlo Woos the World but Falters at Home,” The Wall Street Journal (october 12, 2012), p. B8.

Exhibit 1-7 Japan’s Fast Retailing competes with global companies such as Inditex (Spain), H&M (Sweden), and GAP (United States). By aggressively pursuing overseas expansion for the Uniqlo chain of shops, Fast Retailing founder Tadashi Yanai intends to cre- ate the world’s biggest apparel retail operation by 2020. Even as the com- pany expands globally, management must ensure that it remains profitable in Japan.

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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 300 mil- lion 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 Japanese companies. 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 transforma- tions and, if their efforts succeed, will emerge from the process greatly transformed. Some com- panies will simply disappear.

each year, Fortune magazine compiles a ranking of the 500 largest service and manufactur- ing companies by revenues.37 royal Dutch Shell stands atop the 2012 Global 500 rankings, with revenues of $484 billion. In all, 8 companies in the top 10 compete in the oil or energy sectors. Walmart, the world’s biggest retailer, occupies the number 3 position; it currently generates only about one-third of its revenues outside the United States. However, global expansion is key to the company’s growth strategy. toyota, the only global automaker and the only other nonenergy company in the top 10, has faced unprecedented challenges over the past few years, including quality-control issues that forced it to recall millions of vehicles.

examining the size of individual product markets, measured in terms of annual sales, pro- vides another perspective on global marketing’s importance. Many of the companies identified in the Fortune rankings are key players in the global marketplace. annual sales in select global industry sector markets are shown in table 1-5.

37the complete list can be found online at: http://money.cnn.com/magazines/fortune/global500/2012/full_list

tabLe 1-5 How Big Is the Market? Consumer Products

Product or Service Size of Market key Players and brands

Cigarettes $295 billion Philip Morris International (USa); British american tobacco (UK); Japan tobacco (Japan)

Luxury goods $230 billion LVMH Group (France); richemont (Switzerland); Kering (France)

Cosmetics $200 billion L’oréal Sa (France); estée Lauder (USa); Shiseido (Japan); Procter & Gamble (USa)

Personal computers $175 billion Hewlett-Packard (USa); Lenovo (China); Dell (USa); acer (taiwan)

Flat-screen tVs $100 billion Samsung (South Korea); Sony (Japan); LG (South Korea)

Bottled water $100 billion nestlé (Switzerland); Groupe Danone (France); Coca-Cola (USa); PepsiCo (USa)

Home appliances $85 billion Whirlpool (USa); electrolux (Sweden); Bosch- Siemens (Germany)

Cell phones $60 billion nokia (Finland); Motorola (USa); apple (USa); Samsung (South Korea)

Video games $43 billion nintendo (Japan); Sony (Japan); Microsoft (USa)

recorded music $32 billion Sony BMG (Japan); Warner Music Group (USa); Universal Music Group (France)

Source: Compiled by the authors.

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40 Part 1 • IntroductIon

Management orientations the form and substance of a company’s response to global market opportunities depend greatly on 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, poly- centric, regiocentric, or geocentric.38 Management at a company with a prevailing ethnocentric orientation may consciously make a decision to move in the direction of geocentricism. the orientations are collectively known as the ePrG framework.

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 atti- tudes 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.”39

● 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.40

● 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.” 41

● 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.”42

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 country in which a company is headquartered.) an ethnocentric company operates

38adapted from Howard Perlmutter, “the tortuous evolution of the Multinational Corporation,” Columbia Journal of World Business (January–February 1969). 39norihiko Shirouzu, “tailoring World’s Cars to U.S. tastes,” The Wall Street Journal (January 1, 2001), pp. B1, B6. 40t. W. Malnight, “Globalization of an ethnocentric Firm: an evolutionary Perspective,” Strategic Management Journal 16, no. 2 (February 1995), p. 125. 41robert Mondavi, Harvests of Joy: My Passion for Excellence (new York: Harcourt Brace & Company, 1998), p. 333. 42Martin Fackler, “a Second Chance for Japanese Cell Phone Makers,” The New York Times (november 17, 2005), p. C1.

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under the assumption that headquarters’ “tried-and-true” knowledge and organizational capabili- ties 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 differ from those in the home country, those differences are 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 company 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 busi- ness and marketing strategies in order 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 that products must be adapted in response to different market conditions. examples of companies with a polycentric orientation include the following:

● Until the mid-1990s, Citicorp operated on a polycentric basis. James Bailey, a former Citicorp executive, explains, “We were like a medieval state. there was the king and his court and they were in charge, right? no. It was the land barons who were in charge. the king and his court might declare this or that, but the land barons went and did their thing.”44 realizing that the financial services industry was globalizing, then- Ceo John reed attempted to achieve a higher degree of integration between Citicorp’s operating units.

● 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 manage- ment has spent the last decade changing Unilever’s strategic orientation by implementing a reorganization plan that centralizes authority and reduces the power of local country managers.45

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 regiocen- tric orientation. Similarly, a european company that focuses its attention on europe is regiocen- tric. 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 example, developed models for sale in the local market. one result of this approach: a total of 270 differ- ent 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.”46

“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.”43

Franck Riboud, Chairman and CEO of Groupe Danone

43Franck riboud, “think Global, act Local,” Outlook no. 3 (2003), p. 8. 44Saul Hansell, “Uniting the Feudal Lords at Citicorp,” The New York Times (January 16, 1994), Sec. 3, p. 1. 45Deborah Ball, “too Many Cooks: Despite revamp, Unwieldy Unilever Falls Behind rivals,” The Wall Street Journal (January 3, 2005), pp. a1, a5. 46Lee Hawkins, Jr., “new Driver: reversing 80 Years of History, GM Is reining in Global Fiefs,” The Wall Street Journal (october 6, 2004), pp. a1, a14.

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42 Part 1 • IntroductIon

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.47 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 engineer- ing jobs to be assigned on a worldwide basis, with a global council based in Detroit determining the allocation of the company’s $7 billion annual product development budget. one goal of the geocentric approach: 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 geocentric 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 transfor- mation. 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 colleague’s words, noting, “We are talking about becoming a global corporation as opposed to a multinational company; that implies that the centers of expertise may reside any- where they best reside.”49 For the moment, GM is still the world’s number 1 automaker in terms of revenue. In 2008, toyota sold more vehicles worldwide than GM for the first time. as 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 select country markets. In addition, global companies tend to retain their association with a particu- lar headquarters country. Harley-Davidson serves world markets from the United States exclu- sively. Similarly, all the production for luxury goods marketer tod’s takes place in Italy. By con- trast, 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, sourcing 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 transnation- ality. at global and transnational companies, management uses a combination of standardized (extension) and localized (adaptation) elements in the marketing program. a key factor that dis- tinguishes global and transnational companies from international or multinational companies is mind-set: at global and transnational companies, decisions regarding extension and adaptation are not based on assumptions. rather, such decisions are 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 coun- try 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 management to adopt regiocentric or geocentric orientations to achieve revenue and profit growth.

“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.”48

Douglas Brinkley, Professor of History, Tulane University

47although the definitions provided here are important, to avoid confusion we will use the term global marketing when describing the general activities of global companies. another note of caution is in order: Usage of the terms international, multinational, and global varies widely. alert readers of the business press are likely to recognize incon- sistencies; usage does not always reflect the definitions provided here. In particular, companies that are (in the view of the authors as well as numerous other academics) global are often described as multinational enterprises (abbreviated Mnes) or multinational corporations (abbreviated MnCs). the United nations prefers the term transnational company rather than global company. When we refer to an “international company” or a “multinational,” we will do so in a way that maintains the distinctions described in the text.

49rebecca Blumenstein, “Global Strategy: GM Is Building Plants in Developing nations to Woo new Markets,” The Wall Street Journal (august 4, 1997), p. a4.

48Douglas Brinkley, “Hoosier Honda,” The Wall Street Journal (July 18, 2006), p. a14.

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innOvatiOn, entrepreneurship, and the gLObaL startup

Kevin Plank, Under armour

Kevin Plank is an entrepreneur. He developed an innovative product, created a brand, and started a company to manufacture and market it. By applying the basic tools and principles of modern marketing, Plank achieved remarkable success. As is true with many entrepreneurs, Plank’s idea was based on his own needs and wants. As a football player at the University of Maryland, Plank was dissatisfied with the traditional cotton T-shirts he wore during practice. Convinced that “there had to be something better,” Plank’s insight was to adapt the type of synthetic material used to make women’s lingerie—typically a polyester/Lycra blend—for a new purpose: athletic performance. The lightweight fabric holds its shape, wicks moisture away from the body, dries quickly, and offers a snug, glove-like fit.

During his senior year, Plank bought a bolt of material and hired a tailor to sew some T-shirts. He then gave them away to teammates at Maryland and to friends who had joined the NFL. After gradua- tion in 1996, Plank set up shop in a townhouse his family owned in Georgetown. After giving away several hundred shirts to equipment managers at various universities, Plank booked his first order: Georgia Tech bought 200 shirts for $12 each. Less than 20 years later, Plank’s company is on track to reach $2.0 billion in sales.

Under Armour is a contender in the $37 billion sports apparel industry that is dominated by industry titans Nike and Adidas. Moreover, Plank’s company is the dominant player in the specialty category known as compression wear. As the owner of a rival manufacturer notes admir- ingly, “Whether product innovation, packaging, or ‘right-time, right- place,’ or all of the above, they basically were able to light the fuse.” Or, as another industry observer puts it, “They saw something no one else saw and built a business around it.” In Plank’s own words, “All we’re trying to do is change the way people think about fitness.”

Evidence of the company’s ongoing commitment to innova- tion can be seen in recent product introductions. For example, Spine is a lightweight running shoe that was launched in 2012. Nike dominates the running-shoe market; to jump-start Under Armour’s shoe business, Plank hired Gene McCarthy as senior vice president of footwear and Dave Dombrow as creative director. Both McCarthy and Dombrow came from Nike. Spine is designed to work like, well, the human spine: It can be rigid or flexible depending on the wearer’s needs. Also on tap is the E39 shirt, with sensors that monitor the wearer’s heart rate, breathing, and other key performance measures. The UA Highlight is a football cleat that eliminates the need to tape a player’s ankles. And, for college students who shun raincoats and umbrellas while walking around campus in bad weather, there is the Storm Cotton waterproof sweatshirt line.

Plank is unwavering in his strategic intention of building Under Armour into “the biggest brand in the land!” To do this, he must expand his company’s global presence. In 2012, only 6 percent of Under Armour’s revenues were generated outside North America. By contrast, 60 percent of Nike’s business is international; for Germany- based Adidas, 60 percent of sales come from outside Europe. Some industry observers think Under Armour is planning significant global product introductions timed to coincide with the 2016 Summer Olympic Games in Brazil.

Sources: John Kell, “Under Armour Arrives on Global Stage,” The Wall Street Journal (June 3, 2013), p. B2; Bruce Horovitz, “Under Armour Races to Discover Innovative Fitness Gear,” USA Today (July 6, 2012), pp. 1B, 2B.

Exhibit 1-8 Innovation and global expansion are central to Under Armour founder Kevin Plank’s strategic vision for increasing annual sales from $2 billion to $3 billion. In pursuit of the “third billion,” Under Armour’s product development teams are working on water-repelling sweatshirts and fitness gear that monitors heart rate and other athletic performance data. Source: Washington Post / Getty Images.

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44 Part 1 • IntroductIon

51Michael a. Yoshino and U. Srinivasa rangan, Strategic Alliances: An Entrepreneurial Approach to Globalization (Boston: Harvard Business School Press, 1995), p. 64.

Global integration

and global

marketing

R estraining forcesD

riv in

g fo

rc es

Figure 1-1 Driving and Restraining Forces Affecting Global Integration

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 man- ager 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.50

the ethnocentric company is centralized in its marketing management; the polycentric company is decentralized; and the regiocentric and geocentric companies are integrated on a regional and global scale, respectively. a crucial difference among the orientations is the underlying 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 organiza- tional 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 organiza- tional impediments to the implementation of a global strategy and underestimating the impact of global competition.”51

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, companies from different parts of the world in different industries achieved great success by pursuing interna- tional, multinational, or global strategies. During the 1990s, changes in the business environment presented a number of challenges to established ways of doing business. today, despite calls for protectionism as a response to the economic crisis, global marketing continues to grow in impor- tance. this is due to the fact that, even today, driving forces have more momentum than restraining forces. the forces affecting global integration are shown in Figure 1-1.

regional economic agreements, converging market needs and wants, technology advances, pressure to cut costs, pressure to improve quality, improvements in communication and trans- portation technology, global economic growth, and opportunities for leverage all represent important driving forces; any industry subject to these forces is a candidate for globalization.

Multilateral Trade Agreements a number of multilateral trade agreements have accelerated the pace of global integra- tion. naFta is expanding 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,

50allan J. Morrison, David a. ricks, and Kendall roth, “Globalization Versus regionalization: Which Way for the Multinational?” Organizational Dynamics (Winter 1991), p. 18.

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created the World trade organization (Wto) to promote and protect free trade. In europe, the expanding membership of the european Union is lowering 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 dif- ferences. the common elements in human nature provide an underlying basis for the opportu- nity to create and serve global markets. the word create is deliberate. 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, and today the soft drink industry is a truly global one. evidence is mounting that consumer needs and wants around the world are converging today as never before. this creates an opportunity for global marketing. Multinational com- panies 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. the revolution is fueled by a variety of tech- nologies, 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 remot- est 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 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 global. In addition, the Internet allows people everywhere in the world to reach out, buying and selling a virtually unlimited assortment of products and services.

Transportation and Communication Improvements the time and cost barriers associated with distance have fallen tremendously over the past 100 years. the jet airplane revolutionized communication by making it possible for people to travel 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 980 million passengers in 2011. 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 communication 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 dra- matically over the past several decades. today, Skype, Google+, and Cisco telepresence 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 as well. 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 containers that can be transferred from trucks to railroad cars to ships.

Product Development Costs the pressure for globalization is intense when new products require major investments and long periods of development time. the pharmaceutical industry provides a striking illustration of this

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46 Part 1 • IntroductIon

driving force. according to the Pharmaceutical research and Manufacturers association, the cost of developing a new drug in 1976 was $54 million. today, the process of developing a new drug and securing regulatory approval to market it can take 14 years, and the average total cost of bringing a new drug to market is estimated to exceed $400 million.52 Such costs must be recov- ered in the global marketplace, because no single national market is likely to be large enough to support investments of this size. thus, Pfizer, Merck, GlaxoSmithKline, novartis, Bristol- Myers Squibb, Sanofi-aventis, and other leading pharmaceutical companies have little choice but to engage in global marketing. as noted earlier, however, global marketing does not neces- sarily mean operating everywhere; in the pharmaceutical industry, for example, seven countries account for 75 percent of sales. as shown in table 1-6, demand for pharmaceuticals in asia is expected to exhibit double-digit growth in the next few years. In an effort to tap that opportunity and to reduce development costs, novartis and its rivals are establishing research and develop- ment (r&D) centers in China.53

Quality Global marketing strategies can generate greater revenue and greater operating margins that, in turn, support design and manufacturing quality. a global and a domestic company may each spend 5 percent of sales on r&D, but the global company may have many times the total revenue of the domestic company because it serves the world market. It is easy to understand how John Deere, nissan, Matsushita, Caterpillar, and other global companies have achieved world-class quality (see exhibit 1-9). Global companies “raise the bar” for all competitors in an industry. When a global company establishes a benchmark in quality, competitors must quickly make their own improvements and come up to par. For example, the U.S. auto manufacturers have seen their market share erode over the past four decades as Japanese manufacturers built reputations for quality and durability. Despite making great strides in quality, Detroit now faces a new threat: Sales, revenues, and profits have plunged in the wake of the economic crisis. even before the crisis, the Japanese had invested heavily in hybrid vehicles that are increasingly popular with eco-conscious drivers. the runaway success of the toyota Prius is a case in point.

World Economic Trends Prior to the global economic crisis that began in 2008, economic growth had been a driving force in the expansion of the international economy and in the growth of global marketing for three reasons. First, economic growth in key developing countries creates market opportunities that provide a major incentive for companies to expand globally. thanks to rising per capita incomes

52Joseph a. DiMasi, ronald W. Hansen, and Henry G. Grabowski, “the Price of Innovation: new estimates of Drug Development Costs,” Journal of Health Economics 22, no. 2 (March 2003), p. 151. 53nicholas Zamiska, “novartis to establish Drug r&D Center in China,” The Wall Street Journal (november 11, 2006), p. a3.

tabLe 1-6 World Pharmaceutical Market by Region

2011 2007–2011 2012–2016

Market Size (uS$ billions) *caGr % Forecast caGr %

north america $347.1 3.5% 1–4%

europe 265.4 4.9 0–3

asia/africa/australia 165.2 15.5 10–13

Japan 111.2 3.9 1–4

Latin america 66.7 12.3 10–13

total world 995.5 6.1 3–6

*Compound annual growth rate Source: Based on IMS Health Market Prognosis. Courtesy of IMS Health.

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in India, China, and elsewhere, the growing ranks of middle-class consumers have more money to spend than in the past. at the same time, slow growth in industrialized countries has compelled management to look abroad for opportunities in nations or regions with high rates of growth.

Second, economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies. When a country such as China is experiencing rapid economic growth, policymakers are likely to look more favorably on outsiders. a growing country means growing markets; there is often plenty of opportunity for everyone. It is thus possible for a “foreign” company to enter a domestic economy and establish itself without threatening the existence of local firms. the latter can ultimately be strengthened by the new com- petitive environment. Without economic growth, however, global enterprises may take business away from domestic ones. Domestic businesses are more likely to seek governmental intervention to protect their local positions if markets are not growing. Predictably, the recent economic crisis creates new pressure on policymakers in emerging markets to protect domestic markets.

the worldwide movement toward free markets, deregulation, and privatization is a third driving force. the trend toward privatization is opening up formerly closed markets; tremendous opportunities are being created as a result. In their book, Daniel Yergin and Joseph Stanislaw described these trends as follows:

It is the greatest sale in the history of the world. Governments are getting out of businesses by disposing of what amounts to trillions of dollars of assets. everything is going—from steel plants and phone companies and electric utilities to airlines and railroads to hotels, restaurants, and nightclubs. It is happening not only in the former Soviet Union, eastern europe, and China but also in Western europe, asia, Latin america, and africa—and in the United States.54

For example, when a nation’s telephone company is a state monopoly, the government can require it to buy equipment and services from national companies. an independent company that needs to maximize shareholder value has the freedom to seek vendors that offer the best overall value proposition, regardless of nationality. Privatization of telephone systems around the world created significant opportunities for telecommunications equipment suppliers such as Sweden’s

54Daniel Yergin and Joseph Stanislaw, The Commanding Heights (new York: Simon & Schuster, 1998), p. 13.

Exhibit 1-9 With annual sales of $26 billion, Moline, Illinois–based Deere & Company is the world’s leading manufacturer of farm equipment. The company also produces equipment for the construction, forestry, and lawn care industries. Deere has benefited from booming worldwide demand for agricultural commodities; demand for tractors has been especially strong in Brazil, China, India, and other emerg- ing markets. Source: Courtesy of John Deere.

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ericsson; alcatel-Lucent, a Franco-american company; and Canada-based nortel networks. after years of growth, however, most telecom suppliers experienced slower growth as customers cut spending in the face of the global recession. In 2009, nortel networks filed for bankruptcy; it auctioned thousands of patents to an alliance of companies including apple and Microsoft.

Leverage a global company possesses the unique opportunity to develop leverage. In the context of global marketing, leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. Leverage allows a company to conserve resources when pursuing opportunities in new geographical markets. In other words, leverage enables a company to expend less time, less effort, and/or less money. Four important types of leverage are experience transfers, scale economies, resource utilization, and global strategy.

ExPERIEnCE TRAnSFERS a global company can leverage its experience in any market in the world. It can draw upon management practices, strategies, products, advertising appeals, or sales or promotional ideas that have been market tested in one country or region and apply them in other comparable markets. For example, Whirlpool has considerable experience in the United States dealing with powerful retail buyers such as Sears and Best Buy. the majority of european appliance retailers have plans to establish their own cross-border “power” retailing systems; as former Whirlpool Ceo David Whitwam explained, “When power retailers take hold in europe, we will be ready for it. the skills we’ve developed here are directly transferable.”56

Chevron is another example of a global company that gains leverage through experience transfers. as H. F. Iskander, general manager of Chevron’s Kuwait office, explains:

Chevron is pumping oil in different locations all over the world. there is no problem we have not confronted and solved somewhere. there isn’t a rock we haven’t drilled through. We centralize all that knowledge at our headquarters, analyze it, sort it out, and that enables us to solve any oil-drilling problem anywhere. as a developing country you may have a national oil company that has been pumping your own oil for 20 years. But we tell them, “Look, you have 20 years of experience, but there’s no diversity. It is just one year of knowledge 20 times over.” When you are operating in a multitude of countries, like Chev- ron, you see a multitude of different problems and you have to come up with a multitude of solutions. You have to, or you won’t be in business. all those solutions are then stored in Chevron’s corporate memory. the key to our business now is to tap that memory, and bring out the solution that we used to solve a problem in nigeria in order to solve the same problem in China or Kuwait.57

SCALE EConoMIES the global company can take advantage of its greater manufacturing volume to obtain traditional scale advantages within a single factory. also, finished products can be man- ufactured by combining components manufactured in scale-efficient plants in different countries. Japan’s giant Matsushita electric Company is a classic example of global marketing in action; it achieved scale economies by exporting VCrs, televisions, and other consumer electronics prod- ucts throughout the world from world-scale factories in Japan. the importance of manufacturing scale has diminished somewhat as companies implement flexible manufacturing techniques and invest in factories outside the home country. However, scale economies were a cornerstone of Japanese success in the 1970s and 1980s.

Leverage from scale economies is not limited to manufacturing. Just as a domestic com- pany can achieve economies in staffing by eliminating duplicate positions after an acquisition, a global company can achieve the same economies on a global scale by centralizing functional activities. the larger scale of the global company also creates opportunities to improve corporate staff competence and quality.

“If we were going to be world-class, we needed to pull together and leverage our global assets around the world to create a powerhouse ‘one Ford.’ It’s exactly why we are here.”55

—Alan Mulally, CEO, Ford Motor Company

56William C. taylor and alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (new York: Penguin USa, 1996), p. 18.

55Bill Vlasic, “Ford’s Bet: It’s a Small World after all,” The New York Times (January 9, 2010), p. B1.

57thomas L. Friedman, The Lexus and the Olive Tree (new York: anchor Books, 2000), pp. 221–222.

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RESouRCE uTILIzATIon a major strength of the global company is its ability to scan the entire world to identify people, money, and raw materials that will enable it to compete most effectively in world markets. For a global company, it is not problematic if the value of the “home” currency rises or falls dramatically, because there really is no such thing as a home currency. the world is full of currencies, and a global company seeks financial resources on the best available terms. In turn, it uses them where there is the greatest opportunity to serve a need at a profit.

GLoBAL STRATEGy the global company’s greatest single advantage can be its global strategy. a global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats, and resources. When opportunities are identified, the global company adheres to the three principles identified earlier: It leverages its skills and focuses its resources to create superior perceived value for customers and achieve competitive advantage. The global strategy is a design to create a winning offering on a global scale. this takes great discipline, much creativity, and constant effort. the reward is not just success, it’s survival. For example, French automaker renault operated for many years as a regional company. During that time, its primary struggle was a two-way race with Peugeot Citroën for dominance in the French auto industry. However, in an industry dominated by toyota and other global competitors, Chairman Louis Schweitzer had no choice but to formulate a global strategy. Initiatives include acquiring a majority stake in nissan Motor and romania’s Dacia. Schweitzer has also invested $1 billion in a plant in Brazil and is spending hundreds of millions of dollars in South Korea.58

a note of caution is in order: a global strategy is no guarantee of ongoing organizational success. Companies that cannot formulate or successfully implement a coherent global strategy may lose their independence. InBev’s acquisition of anheuser-Busch at the end of 2008 is a case in point. Some globalization strategies do not yield the expected results, as seen in the unraveling of the DaimlerChrysler merger and the failure of Deutsche Post’s DHL unit to penetrate the U.S. domestic package delivery market.

the severe downturn in the business environment in the early years of the twenty-first cen- tury wreaked havoc with strategic plans. this proved true for established global firms as well as newcomers from emerging markets that had only recently come to prominence on the world stage. For example, at Swiss-based aBB, Mexico’s Cemex, and UK supermarket chain tesco, the ambitious global visions of the respective chief executives were undermined by expensive strategic bets that did not pay off.59 although all three companies survived, they are smaller, more focused entities than they had been previously.

Restraining Forces Despite the impact of the driving forces identified previously, several restraining forces may slow a company’s efforts to engage in global marketing. In addition to the market differences discussed earlier, important restraining forces include management myopia, organizational culture, national controls, and opposition to globalization. as we have noted, however, in today’s world the driving forces predominate over the restraining forces. that is why the importance of global marketing is steadily growing.

MAnAGEMEnT MyoPIA AnD oRGAnIzATIonAL CuLTuRE In many cases, management simply ignores opportunities to pursue global marketing. a company that is “nearsighted” and ethno- centric will not expand geographically. anheuser-Busch, the brewer of Budweiser beer, lost its independence after years of focusing primarily on the domestic U.S. market. Myopia is also a recipe for market disaster if headquarters attempts to dictate when it should listen. Global marketing does not work without a strong local team that can provide information about local market conditions.

In companies where subsidiary management “knows it all,” there is no room for vision from the top. In companies where headquarters management is all-knowing, there is no room for local initiative or an in-depth knowledge of local needs and conditions. executives and managers at

58John tagliabue, “renault Pins Its Survival on a Global Gamble,” The New York Times (July 2, 2000), Section 3, pp. 1, 6; Don Kirk and Peter S. Green, “renault rolls the Dice on two auto Projects abroad,” The New York Times (august 29, 2002), pp. W1, W7. 59Joel Millman, “the Fallen: Lorenzo Zambrano; Hard times for Cement Man,” The Wall Street Journal (December 11, 2008), p. a1.

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successful global companies have learned how to integrate global vision and perspective with local market initiative and input. a striking theme emerged during interviews conducted by one of the authors with executives of successful global companies. that theme was respect for local initiative and input by headquarters executives, and the corresponding respect for headquarters’ vision by local executives.

nATIonAL ConTRoLS every country protects the commercial interests of local enterprises by maintaining control over market access and entry into both low- and high-tech industries. Such control ranges from a monopoly controlling access to tobacco markets to national government control of broadcast, equipment, and data transmission markets. today, tariff barriers have been largely removed in high-income countries, thanks to the Wto, Gatt, naFta, and other eco- nomic agreements. However, nontariff barriers (NTBs) are still very much in evidence. ntBs are nonmonetary restrictions on cross-border trade, such as the proposed “Buy american” pro- vision in Washington’s economic stimulus package, food safety rules, and other bureaucratic obstacles. ntBs have the potential to make it difficult for companies to gain access to some individual country and regional markets.

oPPoSITIon To GLoBALIzATIon to many people around the world, globalization and global marketing represent a threat. the term globaphobia is sometimes used to describe an attitude of hostility toward trade agreements, global brands, or company policies that appear to result in hardship for some individuals or countries while benefiting others. Globaphobia manifests itself in various ways, including protests or violence directed at policymakers or well-known global companies (see exhibit 1-10). opponents of globalization include labor unions, college and uni- versity students, national and international nongovernmental organizations (nGos), and others. Shock Doctrine author naomi Klein has been an especially outspoken critic of globalization.

In the United States, some people believe that globalization has depressed the wages of american workers and resulted in the loss of both blue- and white-collar jobs. Protectionist sentiment has increased in the wake of the recent economic crisis. In many developing coun- tries, there is a growing suspicion that the world’s advanced countries—starting with the United States—are reaping most of the rewards of free trade. as an unemployed miner in Bolivia put it, “Globalization is just another name for submission and domination. We’ve had to live with that here for 500 years and now we want to be our own masters.”60

60Larry rohter, “Bolivia’s Poor Proclaim abiding Distrust of Globalization,” The New York Times (october 17, 2003), p. a3.

Exhibit 1-10 American fashion icon Ralph Lauren created the official uniforms that Team USA wore at the opening and closing ceremonies of the 2012 Olympics in China. Controversy erupted after it was revealed that the uniforms—navy blazers, white trousers and skirts, and berets—were “Made in China” rather than in the United States. Critics linked the outsourcing story to the broader issue of the loss of manufacturing jobs in America.

In response, a Ralph Lauren spokes- person released a statement pledging that the 2014 Olympics uniforms will be “Made in the USA.” Still, some observers believe that America’s com- petitive advantage lies in innovation, design, and marketing rather than low-wage manufacturing. According to this view, America’s economy actu- ally benefits from outsourcing. What do you think? Source: ASSOCIATED PRESS.

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outline of this Book this book has been written for students and businesspeople interested in global marketing. throughout the book, we present and discuss important concepts and tools specifically appli- cable to global marketing.

the book is divided into five parts. Part 1 consists of Chapter 1, an overview of global marketing and the basic theory of global marketing. Chapters 2 through 5 comprise Part 2, in which we cover the environments of global marketing. Chapters 2 and 3 examine eco- nomic and regional market characteristics, including the locations of income and population, patterns of trade and investment, and stages of market development. In Chapter 4, we examine social and cultural elements, and in Chapter 5 we present the legal, political, and regulatory dimensions. We devote Part 3 to topics that must be considered when approaching global mar- kets. We cover marketing information systems and research in Chapter 6. Chapter 7 discusses market segmentation, targeting, and positioning. Chapter 8 surveys the basics of importing, exporting, and sourcing. We devote Chapter 9 to various aspects of global strategy, including strategy alternatives for market entry and expansion. We devote Part 4 to the global context of marketing mix decisions. Guidelines for making product, price, channel, and marketing com- munications decisions in response to global market opportunities and threats are presented in detail in Chapters 10 through 14. Chapter 15 explores the ways that the Internet, e-commerce, and other aspects of the digital revolution are creating new opportunities and challenges for global marketers. the two chapters in Part 5 address issues of corporate strategy and leader- ship, in the twenty-first century. Chapter 16 includes an overview of strategy and competitive advantage. Chapter 17 addresses some of the leadership challenges facing the chief executives of global companies. In addition, the chapter examines the organization and control of global marketing programs as well as the issue of corporate social responsibility.

Summary Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. a company that engages in global marketing focuses its resources on global market opportunities and threats. Successful global marketers such as nestlé, Coca-Cola, and Honda use familiar marketing mix elements—the four Ps—to create global marketing programs. Marketing, r&D, manufacturing, and other activities comprise a firm’s value chain; firms configure these activities to create superior customer value on a global basis. the value equation (V = B/P) expresses the relationship between value and the marketing mix.

Global companies also maintain strategic focus while relentlessly pursuing competitive advantage. the marketing mix, value chain, competitive advantage, and focus are univer- sal in their applicability, irrespective of whether a company does business only in the home country or has a presence in many markets around the world. However, in a global industry, companies that fail to pursue global opportunities risk being pushed aside by stronger global competitors.

a firm’s global marketing strategy (GMS) can enhance its worldwide performance. the GMS addresses several issues. First is the nature of the marketing program in terms of the balance between a standardized (extension) approach to the marketing mix elements and a localized (adaptation) approach that is responsive to country or regional differences. Second is the concentration of marketing activities in a few countries or the dispersal of such activities across many countries. Companies that engage in global marketing can also engage in coor- dination of marketing activities. Finally, a firm’s GMS addresses the issue of global market participation.

the importance of global marketing today can be seen in the company rankings compiled by The Wall Street Journal, Fortune, the Financial Times, and other publications. Whether ranked by revenues or some other measure, most of the world’s major corporations are active regionally or globally. the size of global markets for individual industries or prod- uct categories helps explain why companies “go global.” Global markets for some product

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52 Part 1 • IntroductIon

categories represent hundreds of billions of dollars in annual sales; other markets are much smaller. Whatever the size of the opportunity, successful industry competitors find that increas- ing revenues and profits means seeking markets outside the home country.

Company management can be classified in terms of its orientation toward the world: ethnocentric, polycentric, regiocentric, or geocentric. the terms reflect progressive levels of development or evolution. an ethnocentric orientation characterizes domestic and inter- national companies; international companies pursue marketing opportunities outside the home market by extending various elements of the marketing mix. a polycentric worldview predominates at a multinational company, where country managers operating autonomously adapt the marketing mix. When management moves to integrate and coordinate activities on a regional basis, the decision reflects a regiocentric orientation. Managers at global and transna- tional companies are geocentric in their orientation and pursue both extension and adaptation strategies in global markets.

the dynamic interplay of several driving and restraining forces shapes the importance of global marketing. Driving forces include market needs and wants, technology, transportation and communication improvements, product costs, quality, world economic trends, and a rec- ognition of opportunities to develop leverage by operating globally. restraining forces include market differences, management myopia, organizational culture, and national controls such as nontariff barriers (NTBs).

MyMarketingLab Go to mymktlab.com for the following Assisted-graded writing questions:

1-1. Discuss the differences between the global marketing strategies of Harley-Davidson and Toyota.

1-2. UK-based Burberry is a luxury fashion brand that appeals to both genders and to all ages. To improve Burberry’s competitiveness in the luxury goods market, CEO Angela Ahrendts recently unveiled a new strategy that includes all the elements of the mar- keting mix. The strategy also addresses key markets that Burberry will participate in, as well as the integration and coordination of marketing activities. Search for recent articles about Burberry and discuss Burberry’s GMS.

1-3. Mymarketinglab Only – comprehensive writing assignment for this chapter.

Discussion Questions 1-4. What are the basic goals of marketing? are these goals relevant to global marketing? 1-5. What is meant by “global localization”? Is Coca-Cola a global product? explain. 1-6. a company’s global marketing strategy (GMS) is a crucial competitive tool. Discuss

some of the global marketing strategies available to companies. Give examples of companies that use the different strategies.

1-7. UK-based Burberry is a luxury fashion brand that appeals to both genders and to all ages. to improve Burberry’s competitiveness in the luxury goods market, Ceo angela ahrendts recently unveiled a new strategy that includes all the elements of the market- ing mix. the strategy also addresses key markets that Burberry will participate in, as well as the integration and coordination of marketing activities. Search for recent arti- cles about Burberry and discuss Burberry’s GMS.

MyMarketingLab Go to mymktlab.com to complete the problems marked with this icon .

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1-8. Discuss the differences between the global marketing strategies of Harley-Davidson and toyota.

1-9. Describe the differences among ethnocentric, polycentric, regiocentric, and geocentric management orientations.

1-10. Identify and briefly describe some of the forces that have resulted in increased global integration and the growing importance of global marketing.

1-11. Define leverage and explain the different types of leverage available to companies with global operations.

1-12. each July, Fortune publishes its Global 500 listing of the world’s largest companies. You can find the current rankings online at: http://money.cnn.com/magazines/fortune /global500/2012/full_list/. alternatively, you can consult the print edition of Fortune. Browse through the list and choose any company that interests you. Compare its 2012 ranking with the most recent ranking. Has the company’s ranking changed? Consult additional sources (e.g., magazine articles, annual reports, the company’s Web site) to get a better understanding of the factors and forces that contributed to the company’s move up or down in the rankings. Write a brief summary of your findings.

1-13. there’s a saying in the business world that “nothing fails like success.” take Gap, for example. How can a fashion retailer that was once the source for wardrobe staples such as chinos and white t-shirts suddenly lose its marketing edge? Motorola also fell victim to its own success. the company’s razr cell phone was a huge hit, but Motorola strug- gled to leverage that success. now, Google owns Motorola Mobility. also, Starbucks Ceo Howard Shultz recently warned that his company and brand risk becoming com- moditized. and, as noted in Case 1-3, some industry observers are saying that apple has “lost its cool.” If you were to make separate recommendations to management at each of these companies, what would you say?

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case 1-1 cOntinued (reFer tO page 24)

the Global Marketplace

now that you have an overview of global marketing, it’s time to test your knowledge of global current events. Some well-known companies and brands are listed in the left-hand column. The ques- tion is: In what country is the parent corporation located? Possible answers are shown in the right-hand column. Write the letter cor- responding to the country of your choice in the space provided; each country can be used more than once. Answers follow.

Discussion Questions 1-14. Anheuser-Busch (A-B), which has been described as “an

American icon,” is now under the ownership of a company based in Belgium. Responding to reports that some consum- ers planned to boycott Budweiser products to protest the deal, one industry observer said, “Brand nationality is all about where it was born, and also the ingredients of that beer and how they make the beer. Basically, it doesn’t matter who owns it. We are in a global world right now.” Do you agree?

1-15. Anheuser-Busch has long enjoyed a reputation as a very desirable place to work. Executives were awarded well- appointed corporate suites and traveled on corporate jets; many had secretaries as well as executive assistants. When managers took commercial flights, they flew first class. Most employees received beer for free and could count on dona- tions of beer and merchandise for community events. Tickets to Cardinals home games were also used as a marketing tool. A-B spent heavily on advertising and promotion; various advertising agencies produced about 100 new ads for A-B each year. Given these facts, what changes, if any, would you expect A-B’s new owners to make? Why?

1-16. In 2009, Italy’s Fiat acquired a 20 percent stake in Chrysler, another iconic American company. Are you familiar with Fiat? What do you think CEO Sergio Marchionne hoped to accomplish with this deal? How might Chrysler benefit from the alliance?

1-17. Ben & Jerry’s Homemade is a quirky ice cream marketer based in Burlington, Vermont. Founders Ben Cohen and Jerry Greenfield are legendary for their enlightened business prac- tices, which include a three-part mission statement: product mission, financial mission, and social mission. When the company was acquired by consumer products giant Unilever, some of the brand’s loyal customers were alarmed. What do you think was the source of their concern?

_______ 1. Firestone Tire & Rubber a. Germany _______ 2. Ray-Ban b. France _______ 3. Rolls-Royce c. Japan _______ 4. RCA d. Great Britain _______ 5. Budweiser e. United States _______ 6. Ben & Jerry’s Homemade f. Switzerland _______ 7. Gerber g. Italy _______ 8. Miller Beer h. Sweden _______ 9. Rollerblade i. Finland _______ 10. Case New Holland j. China _______ 11. Weed Eater k. Netherlands _______ 12. Holiday Inn l. Belgium _______ 13. Wild Turkey bourbon m. India _______ 14. ThinkPad n. Brazil _______ 15. Wilson Sporting Goods o. South Korea _______ 16. Right Guard _______ 17. BFGoodrich _______ 18. Jaguar _______ 19. Burger King _______ 20. Jenny Craig _______ 21. The Body Shop _______ 22. Titleist _______ 23. Swift _______ 24. Gaggia _______ 25. Church’s English shoes

Answers:

1. Japan (Bridgestone) 2. Italy (Luxottica SpA) 3. Germany (Volkswagen) 4. China (TTE) 5. Belgium (Anheuser-Busch InBev) 6. Great Britain/Netherlands (Unilever) 7. Switzerland (Nestlé) 8. Great Britain (SABMiller) 9. Italy (Benetton) 10. Italy (Fiat) 11. Sweden (AB Electrolux) 12. Great Britain (InterContinental Hotels Group PLC) 13. Italy (Campari) 14. China (Lenovo) 15. Finland (Amer Group) 16. Germany (Henkel) 17. France (Michelin) 18. India (Tata Motors) 19. Brazil (3G Capital) 20. Switzerland (Nestlé) 21. France (L’Oréal) 22. South Korea (Fila Korea) 23. Brazil (JBS) 24. Netherlands (Philips) 25. Italy (Prada Group)

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Exhibit 1-11 Source: Hasan Jamali/AP Wide World Photos.

case 1-2

McDonald’s expands Globally While adjusting Its Local recipe

McDonald’s Corporation is a fast-food legend whose famous golden arches can be found in 118 different countries. The company is the undisputed leader in the quick-service restaurant (QSR) segment of the hospitality industry, with more than twice the system-wide revenues of Burger King. McDonald’s built its reputation by promising and delivering three things to customers: inexpensive food with consistent taste regardless of location; quick service; and a clean, familiar environment.

The company was also a pioneer in the development of conve- nience-oriented features such as drive-through windows and indoor playgrounds for children. Today, thanks to memorable advertising and intensive promotion efforts, McDonald’s is one of the world’s most valuable brands: In 2012, Interbrand ranked it as the world’s number 7 brand overall (Coca-Cola is number 1). The golden arches are said to be the second-most-recognized symbol in the world, behind the Olympic rings. In the United States alone, McDonald’s typically spends about twice as much on advertising as Burger King and Wendy’s.

Today, however, the company faces competitive attacks from several directions. During the 1990s, a wide range of upscale food and beverage purveyors arrived on the scene. For example, consum- ers began flocking to Starbucks coffee bars, where they spend freely on lattes and other coffee-based specialty drinks. The “fast-casual” segment of the industry, which includes companies such as Panera Bread, Cosi, and Baja Fresh, is attracting customers seeking higher- quality menu items in more comfortable surroundings. Meanwhile, Subway overtook McDonald’s as the restaurant chain with the most outlets in the United States. Some industry observers suggested that, in terms of both food offerings and marketing, McDonald’s was losing touch with modern American lifestyles.

Until recently, the picture appeared brighter outside the United States. Thanks to changing lifestyles around the globe, more peo- ple are embracing the Western-style fast-food culture. McDonald’s responded to the opportunity by stepping up its rate of new unit openings. McDonald’s International is organized into three geo- graphic regions: (1) Europe; (2) Asia/Pacific, Middle East, and Africa (APMEA); and (3) Other Countries. In 2005, the offices of the country heads for Europe and Asia were moved from the U.S. headquarters to their respective regions; now, for example, the head of APMEA man- ages his business from Hong Kong. Commenting on the change, Ken Koziol, vice president of worldwide restaurant innovation, explained, “McDonald’s was built on a strong foundation of a core menu that we took around the world but we need to make sure we are more locally relevant. Taste profiles and desires are changing.”

asia-Pacific The Indian market appears to hold huge potential for McDonald’s. In fall 1996, the company opened its first restaurants in New Delhi and Bombay. In Delhi, McDonald’s competes with Nirula’s, a QSR chain with several dozen outlets; in addition, there are hundreds of smaller regional chains throughout India. The U.S.-based Subway chain opened its first Indian location in 2001; Pizza Hut, KFC, and Domino’s Pizza have also entered the market. The Pizza Hut on Juhu Road in Bombay is housed in a three-story-tall building with large plate glass windows and central air conditioning. On most nights a long line of customers forms outside.

Indian demand for meals from the major food chains is grow- ing at a double-digit rate; annual total sales exceed $1 billion. With those trends in mind, McDonald’s identifies strategic locations in areas with heavy pedestrian traffic, such as the shopping street in Bandra in the Bombay suburbs. Other restaurant locations include a site near a college in Vile Parle and another opposite the Andheri train station; in all, McDonald’s India operated more than 250 locations at the end of 2012. Prices are lower than in other countries; most sandwiches cost about 40 rupees (less than $1). Drinks cost 15 rupees, and a packet of French fries is 25 rupees. A complete meal costs the equivalent of about $2.

Because the Hindu religion prohibits eating beef, McDonald’s developed the Chicken Maharaja Mac specifically for India. Despite protests from several Hindu nationalist groups, the first McDonald’s attracted huge crowds to its site near the Victoria railway terminal; customers included many tourists from across India and from abroad as well as locals commuting to and from work. In short order, however, Hindu activists renewed their protests, this time accusing the company of using beef tallow in its cooking. Management responded by posting signs reading, “No beef or beef products sold here,” but the doubts raised by the controversy kept many potential customers away.

Since that time, McDonald’s has worked steadily to prove that it is sensitive to Indian tastes and traditions. As is true throughout the world, McDonald’s emphasizes that most of the food ingredients it uses—as much as 95 percent—are produced locally. In addition, to accommodate vegetarians, each restaurant has two separate food preparation areas. The “green” kitchen is devoted to vegetarian fare such as the spicy McAloo Tikka potato burger, Pizza McPuff, and Paneer Salsa McWrap. Meat items are prepared on the red side. Even the mayonnaise is made without eggs. Some of the new menu items developed for India are now being introduced in Europe and the United States.

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56 Part 1 • IntroductIon

are in muted colors rather than the chain’s signature red and yellow, and the golden arches are displayed more subtly. Overall, the restaurants don’t look like McDonald’s retaurants elsewhere. The first redesigned restaurant is located on the Champs-Élysées on a site previously occupied by a Burger King; called “Music,” the restaurant provides diners with the opportunity to listen to music on iPods and watch music videos on TV monitors. In some locations, lime green Danish designer armchairs have replaced plastic seats. As McDonald’s locations in France undergo style makeovers, some franchisees report sales increases of 10 to 20 percent. Encouraged by these results, McDonald’s has embarked on an ambitious program to refurbish several thousand outlets in various countries.

Central and eastern europe January 31, 2010, marked the 20th anniversary of McDonald’s ar- rival in the Soviet Union. The first Moscow McDonald’s was built on Pushkin Square, near a major metro station just a few blocks from the Kremlin. It has 700 indoor seats and another 200 outside. It boasts 800 employees and features a 70-foot counter with 27 cash registers, equivalent to 20 ordinary McDonald’s restaurants rolled into one. For its 20th-birthday celebration, the Pushkin Square location offered cus- tomers a “buy one, get one free” hamburger promotion; accordion- wielding musicians provided background music.

Khamzat Khazbulatov was selected to manage the first restau- rant; today, he is director of McDonald’s operations for all of Russia. At present, there are 235 McDonald’s restaurants in Russia, and the com- pany employs more than 25,000 people. To ensure a steady supply of high-quality raw materials, the company built McComplex, a huge, $50 million processing facility on the outskirts of Moscow. McDonald’s also worked closely with local farmers to boost yields and quality. Now the facility has been turned over to private companies that today provide 80 percent of the ingredients used in Russia. For example, Wimm-Bill-Dann supplies dairy products to McDonald’s; in 2002, it became the first Russian company to be listed on the New York Stock Exchange. Overall, 100,000 people are employed by companies in McDonald’s supply chain.

Ukraine and Belarus are among the other members of the Commonwealth of Independent States with newly opened restau- rants. The first Ukrainian McDonald’s opened in Kiev in 1997; by 2007, the chain had expanded to 57 locations in 16 cities. Plans call for up to 100 restaurants, for a total investment of $120 million.

McDonald’s has also set its sights on Central Europe, where plans call for hundreds of new restaurants to be opened in Croatia, Slovakia, Romania, and other countries. In 2010, McDonald’s Czech Republic restaurants featured a special lineup of New York–themed sandwiches that were promoted with the iconic “I Heart NY” logo. Advertisements promised, “Another burger each week”; the offer- ings included Wall Street Beef (“grilled beef, cheese, crispy bacon, fresh lettuce and onion with BBQ sauce on an oval bun topped with sesame seeds”); Broadway Chicken; SoHo Grande; Manhattan Grilled Chicken; and Brooklyn Classic.

“McDonald’s comes off as uncool. If you want to be chic, you eat sushi. Indian food is even more cutting edge.

McDonald’s is like white bread.”

—Daniel, a 26-year-old architectural draftsman in San Francisco

refocusing on the U.S. Market Disappointing financial results led to a management shakeup in 2002, and Jim Cantalupo became CEO. Cantalupo was a retired vice chairman whose 28-year career at McDonald’s included consider- able international experience. He vowed to get the company back

China is currently home to the world’s largest McDonald’s; China is also the fastest-growing market in terms of the number of new restaurant openings. The first Chinese location opened in mid-1992 in central Beijing, a few blocks from Tiananmen Square. Despite having a 20-year lease for the site, McDonald’s found itself in the middle of a dispute between the central government and Beijing’s city govern- ment. City officials decided to build a new $1.2 billion commercial complex in the city center and demanded that McDonald’s vacate the site. McDonald’s was forced to abandon the location. Despite the turbulent start, McDonald’s now has more than 1,500 restaurants in China. The restaurants purchase 95 percent of their supplies, includ- ing lettuce, from local sources.

“The tastes of the urban, upwardly mobile Indian are evolving, and more Indians are looking to eat out and experiment. The potential Indian customer base for a McDonald’s or a Subway

is larger than the size of entire developed countries.”

—Sapna Nayak, food analyst at Raobank India

In Asia and elsewhere, McDonald’s protects itself from currency fluctuations by purchasing as much as possible from local suppliers. For example, the company’s Singapore locations now buy chicken patties from Thailand rather than from the United States. However, French fries must still be imported from Australia or the United States. To help offset higher costs, McDonald’s offers customers the choice of rice as a side dish at a lower price.

Western europe The golden arches are a familiar sight in Europe, particularly in France, Germany, and the United Kingdom. There is even a four-star Golden Arch hotel in Zurich. Overall, Europe contributes about 40 percent of both revenue and operating income, making it a key world region.

France’s tradition of culinary excellence makes it a special case in Europe; French dining options range from legendary three-star Michelin restaurants to humble neighborhood bistros. From the time McDonald’s opened its first French outlet in 1972, policymak- ers and media commentators have voiced concerns about the impact of fast food on French culture. Even so, with more than 1,200 loca- tions, France today represents McDonald’s second-largest market (the United States ranks number 1).

However, controversy has kept the company in the public eye. For example, some French citizens objected when McDonald’s became the official food of the World Cup finals that were held in France in 1998. In August 1999, a sheep farmer named Jose Bové led a protest against construction of the 851st French McDonald’s near the village of Millau. The group used construction tools to dismantle the partially finished structure. Bové told the press that the group had singled out McDonald’s because, in his words, it is a symbol of America, “the place where they not only promote globalization and industrially produced food but also unfairly penalize our peasants.” Ten years ago, executives at McDonald’s France even ran an ad in Femme Actuelle magazine suggesting that children should eat only one meal at McDonald’s per week.

McDonald’s French franchisees experience some of the same com- petitive pressures facing the U.S. units; there are also key differences. For example, local bistro operators have enjoyed great success selling fresh-baked baguettes filled with ham and brie, effectively neutraliz- ing McDonald’s advantage of fast service and low prices. In response, executives hired an architecture firm to develop new restaurant designs and reimage the French operations.

A total of eight different themes were developed; many of the rede- signed restaurants have hardwood floors and exposed brick walls. Signs

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chaPter 1 • IntroductIon to Global MarketInG 57

Despite the challenging economic environment, McDonald’s total stock return for the three-year period 2007 through 2009 was the highest among the 30 companies that comprise the Dow Jones Industrial Average. The company’s strong financial results have given it the resources to move forward with a remodeling initiative for restau- rants in the United States. The price tag: A whopping $1 billion. The upgrades are partly a response to the positive results from revamped European operations; the makeover also reflects an appreciation for the retail design principles used by Apple, Starbucks, and other trendsetters. By 2015, most of McDonald’s 14,000 U.S. restaurants will be updated.

McDonald’s executives intend to create a modern, streamlined environment that will encourage customers to stay longer and spend more. Some of the changes are dramatic: Gone are the red roofs and splashes of neon yellow that many associate with iconic spokes-clown Ronald McDonald. The new color palette includes subtle shades of orange, yellow, and green. Also on tap: softer lighting and comfort- able, stylish new furniture. As Jim Carras, a senior U.S. executive, noted, “McDonald’s has to change with the times. And we have to do so faster than we ever have before.”

Discussion Questions 1-18. Identify the key elements in McDonald’s global marketing

strategy. In particular, how does McDonald’s approach the issue of standardization? Does McDonald’s think globally and act locally? Does it also think locally and act globally?

1-19. Do you think government officials in developing countries such as Russia, China, and India welcome McDonald’s? Do consumers in these countries welcome McDonald’s? Why or why not?

1-20. The Plan to Win initiative is built around five factors that drive McDonald’s business: people, products, place, price, and promotion. As a student of marketing, what can you say about these factors?

1-21. Is it realistic to expect that McDonald’s—or any well-known company—can expand globally without occasionally making mistakes or generating controversy? Why do antiglobalization protesters around the world frequently target McDonald’s?

Visit the Web Site

See www.mcdonalds.com for a directory to country-specific sites.

Sources: Maureen Morrison, “Is McDonald’s Losing That Lovin’ Feeling?” Advertising Age (February 20, 2012), pp. 1, 20; Bruce Horovitz, “McDonald’s Revamps Stores to Look More Upscale,” USA Today (May 8, 2011), pp. 1B, 2B; Andrew E. Kramer, “Russia’s Evolution, as Seen Through the Golden Arches,” The New York Times (February 2, 2010), p. B3; Janet Adamy, “As Burgers Boom in Russia, McDonald’s Touts Discipline,” The Wall Street Journal (October 16, 2007), pp. A1, A17; Jenny Wiggins, “Burger, Fries, and a Shake-Up,” Financial Times (January 27, 2007), p. 7; Steven Gray, “Beyond Burgers: McDonald’s Menu Upgrade Boosts Meal Prices and Results,” The Wall Street Journal (February 18–19, 2006), pp. A1, A7; Jeremy Grant, “Golden Arches Bridge Local Tastes,” Financial Times (February 9, 2006), p. 10; Saritha Rai, “Tastes of India in U.S. Wrappers,” The New York Times (April 29, 2003), pp. W1, W7; Bruce Horovitz, “It’s Back to Basics for McDonald’s,” USA Today (May 21, 2003), pp. 1B, 2B; Sherri Day, “After Years at Top, McDonald’s Strives to Regain Ground,” The New York Times (March 3, 2003), pp. A1, A19; Sherri Day and Stuart Elliot, “At McDonald’s, an Effort to Restore Lost Luster,” The New York Times (April 8, 2003), pp. B1, B4; Shirley Leung and Suzanne Vranica, “Happy Meals Are No Longer Bringing Smiles at McDonald’s,” The Wall Street Journal (January 31, 2003), p. B1; Shirley Leung and Ron Lieber, “The New Menu Option at McDonald’s: Plastic,” The Wall Street Journal (November 26, 2002), pp. D1, D2; Shirley Leung, “McHaute Cuisine: Armchairs, TVs and Espresso—Is It McDonald’s?” The Wall Street Journal (August 30, 2002), pp. A1, A6; Bruce Horovitz, “McDonald’s Tries a New Recipe to Revive Sales,” USA Today (July 10, 2001), pp. 1A, 2A; Geoff Winestock and Yaroslav Trofimov, “McDonald’s Reassures Italians About Beef,” The Wall Street Journal (January 16, 2001), pp. A3, A6.

on track by focusing on the basics, namely, customer service, clean restaurants, and reliable food. Unhappy with the company’s “Smile” advertising theme, Cantalupo took the extraordinary step of calling a summit meeting of senior creative personnel from 14 advertising agencies representing McDonald’s 10 largest international markets. Foremost among them was New York–based DDB Worldwide, the lead agency on the McDonald’s account that handles advertising in 34 countries, including Australia, the United States, and Germany. In addition, Leo Burnett is responsible for ads targeting children. McDonald’s marketing and advertising managers from key countries were also summoned to the meeting at company headquarters in Oak Brook, Illinois.

As Larry Light, then-global chief marketing officer for McDonald’s, noted:

Creative talent is a rare talent, and creative people don’t belong to geographies, to Brazil or France or Australia. We’re going to challenge our agencies to be more open-minded about sharing between geographies.

Charlie Bell, a former executive at McDonald’s Europe who was promoted to chief operating officer, didn’t mince words about the company’s advertising. “For one of the world’s best brands, we have missed the mark,” he said before the summit meeting. In June 2002, the company announced that it had picked the phrase “i’m lovin’ it” as its new global marketing theme; the copy was proposed by Heye & Partner, a DDB Worldwide unit located in Germany. Tragically, within a few months, both Cantalupo and Bell died unexpectedly.

Jim Skinner, who then became the company’s chief executive officer, instituted a “Plan to Win” initiative to increase McDonald’s momentum. The core idea was to make McDonald’s “better, not just bigger.” Skinner identified five main drivers of McDonald’s: people, products, place, price, and promotion.

Even as McDonald’s executives attempted to come to grips with the problems facing their company, various business experts were offering advice of their own. In the mid-1990s, one market analyst said, “McDonald’s is similar to Coca-Cola 10 years ago. It’s on the verge of becoming an international giant, with the United States as a major market, but overseas as the driving force.” Adrian J. Slywotzky, author of Value Migration, noted, “McDonald’s needs to move the question from ‘How can we sell more hamburgers?’ to ‘What does our brand allow us to consider selling to our customers?’” Mark DiMassimo, chief executive of a New York–based company that specializes in brand advertising, called McDonald’s “a large lost orga- nization that is searching for a strategy.” In his view, “The company must focus, focus, focus, and stand for one thing.”

There is ample evidence that, 11 years after its implementation, the Plan to Win strategy has been a success. Consumer Reports lauded the company’s efforts to upgrade its coffee program. Consumers have embraced “better-for-you” menu items such as salads and sand- wiches. The company is also seeking ways to be more environmentally conscious by using less plastic packaging and recycling more. Denis Hennequin, the executive in charge of European operations, is pleased with the results of his reimaging campaign. He said, “I’m changing the story. We’ve got to be loyal to our roots, we have to be affordable, we have to be convenient . . . but we have to add new dimensions.”

“For a market leader, they’ve been really aggressive in a pretty fundamental way, but at the same time

not losing the core of who McDonald’s is.”

—Kevin Lane Keller, Professor of Marketing Tuck School of Business, Dartmouth College

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58 Part 1 • IntroductIon

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. Apple, the company Jobs cofounded, was a pioneer in the consumer electron- ics world; 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, 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, however, industry observers began to wonder whether Apple’s hot streak of hit prod- uct introductions was starting to cool. Apple’s reputation was based on its proven ability to disrupt existing markets (for example, the music and telecommunications industries) and create new markets with technical and design innovations. However, in some circles the 2012 launch of the iPhone 5 was viewed as an evolutionary, rather than a revolutionary, breakthrough. In fact, many consumers opted to buy the slower, cheaper iPhone 4 or 4S rather than upgrade to the iPhone 5.

As growth in the key smartphone sector began to slow, Apple was being challenged by various competitors. First and foremost was Samsung Electronics, a division of Korean industrial giant Samsung Group, whose products range from semiconductors 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. The rivalry 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, Samsung launched the Galaxy S III in Europe. In 2013, Samsung staged a lavish event at Radio City Music Hall in New York to launch the Galaxy S 4. 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 important market for us . . . I’m not satisfied with our U.S. market share.”

In many developing countries, there is strong demand for inex- pensive mobile phones. Some Android-based models from Samsung and other companies sell for much less than the iPhone 5. Apple does not offer a lower-cost version of the iPhone. In the United States, wireless carriers such as Verizon and AT&T usually subsidize the price of the iPhone for consumers who sign a multiyear service contract. That’s why an American iPhone 5 sells for $199. By con- trast, in other countries consumers pay the full price of the iPhone but are not tied to a contract. Moreover, the iPhone 5 is the same in every world market. By contrast, Samsung makes several versions of the Galaxy S 4—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. While Apple currently commands almost a 50 percent share of the market for phones selling for $480 and up, CEO Tim Cook is not satisfied. Distribution is critical, and Cook is aggres- sively expanding the number of outlets in China that sell iPhones. Negotiations are ongoing with China Mobile, the largest carrier in the region and the world’s largest carrier overall.

As growth in China and Europe slows, India, the number 3 smart- phone market, is becoming increasingly important. Here, however, Apple lags far behind Samsung in terms of smartphone shipments. Samsung offers an Android phone for about $100; by contrast, Indian consumers pay $500 for an iPhone 4 and about $850 for the iPhone 5.

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; 60,000 staff members work 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 pro- motion than Apple. For example, Samsung has a major presence at

Exhibit 1-12 Apple co-founder Steve Jobs wore many hats during his illustri- ous career, including inventor, entrepreneur, CEO, and visionary technologist. He was also a master showman, a storyteller, and marketing genius. His appearances at product launches are the stuff of legend, and under his guid- ance Apple’s must-have products—including the iPod, the iPhone, and the iPad—were, simply put, the epitome of “cool.”

As Silicon Valley venture capitalist Roger McNamee has pointed out, there was another side to Jobs. In McNamee’s words, “Steve’s the last of the great builders. What makes him different is he’s creating jobs and economic activ- ity out of thin air while just about every other CEO in America is working out ways to cut costs and lay people off.” Source: Bloomberg via Getty Images.

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chaPter 1 • IntroductIon to Global MarketInG 59

1-24. Do you think Apple can continue to grow by developing breakthrough products that create new markets, as it did with the iPod, iPhone, and iPad?

1-25. How has Samsung’s global marketing strategy enabled it to compete so effectively against Apple?

Sources: Sam Grobart, “Think Colossal: How Samsung Became the World’s No. 1 Smartphone Maker,” Cover Story, Bloomberg Businessweek (April 1–7, 2013), pp. 58–64; Yun-Hee Kim, “Samsung Targets Apple’s Home Turf,” The Wall Street Journal (March 15, 2013), pp. B1, B4; Dhanya Ann Thoppil, “In India, iPhone Lags Far Behind,” The Wall Street Journal (February 27, 2013), pp. B1, B4; Brian X. Chen, “Challenging Apple’s Cool,” The New York Times (February 11, 2013), pp. B1, B6; Anton Troianovski, “Fight to Unseat iPhone Intensifies,” The Wall Street Journal (January 25, 2013), pp. B1, B6; Rolfe Winkler, “Apple’s Power Within,” The Wall Street Journal (December 7, 2013), p. C1.

the SXSW Interactive, Film, and Music conference held each March in Austin, Texas. In 2013, Samsung sponsored the TechSet Blogger Lounge and presented a concert showcase by Prince; Samsung users got preferred access to tickets. Although many SXSW attendees use iPhones and iPads, Apple has no visible corporate presence at the conference.

Discussion Questions 1-22. Do you own a smartphone? If so, which brand did you buy,

and why? 1-23. Should Apple introduce a lower-cost iPhone to attract con-

sumers who are not willing or able to pay a premium for an Apple device?

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Exhibit 2-1 John Maynard Keynes (left) and Friedrich August von Hayek were two of the twentieth century’s most important economists. Keynes advocated government intervention in markets; by contrast, Hayek believed that markets should function without government interference. This “battle of ideas” is at the heart of the current policy debate about solving the global economic crisis. Sources: Paul J. Richards/AFP/Newscom and Album/Oronoz/Newscom.

2 The Global Economic Environment

The history of twentieth-century world economic thought has been called a “battle of ideas.” Following the Bolshevik Revolution of 1917, the leaders of the Soviet Union established a centrally planned economy and put themselves in charge. In the West, by contrast, free market capi- talism was the order of the day. After the stock market collapse of 1925 and the Great Depression of the 1930s, however, the wisdom of laissez-faire economic policies and free markets was called into question. Maybe the Soviet model was the best one? Should the government, in fact, play a central role in the economy?

To reboot the world economy in the 1930s, governments heeded the advice of economist John Maynard Keynes and embarked on massive spending programs (see Exhibit 2-1). In the United

case 2-1

A New Front in the Battle of Ideas

PArT Two

The Global Marketing Environment

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1The “BRIC” designation first appeared in a 2001 report published by Goldman Sachs, the New York–based investment bank, hedge fund, and private equity firm. Investment strategists and developmental economists have advanced proposals for expanding the framework. For example, BRIC-IT includes Indonesia, the fourth-most- populous country in the world and one of the fastest growing. “T” is for Turkey, a candidate for membership in the European Union and another fast-growing country that is the envy of the Arab world. Both Turkey and Indonesia are Islamic countries and have demonstrated that Islam is not incompatible with democracy and growth.

PArT Two

The Global Marketing Environment

Learning Objectives

1 Identify and briefly explain the major changes in the world economy that have occurred during the past few decades.

2 Compare and contrast the main types of economic systems that are found in different regions of the world.

3 Explain the categories of economic development used by the World Bank and identify the key

emerging country markets at each stage of devel- opment.

4 Discuss the significance of balance of payments sta- tistics for the world’s major economies.

5 Identify the countries that are the world’s leading exporters.

6 Briefly explain how exchange rates impact a com- pany’s opportunities in different parts of the world.

slowed. The story was repeated around the globe, in Greece, Ireland, Italy, Spain, and elsewhere. Case 2-1 describes the chal- lenges of the recent economic slowdown in more detail. (When you are done reading the chapter, study the case and answer the discussion questions.) Needless to say, the recent economic downturn has created both challenges and opportunities for global marketers.

The global economic crisis illustrates vividly the dynamic, integrated nature of today’s economic environment. Recall the basic definition of a market: people or organizations with needs and wants and the willingness and ability to buy or sell. As noted in Chapter 1, many companies engage in global marketing in an effort to reach new customers outside their home countries and thereby increase sales, profits, and market share. Brazil, Russia, India, China, and South Korea deserve special mention; collectively referred to as BRICS, these five country markets are especially dynamic and represent important opportunities.1 The BRICS nations and other emerging markets are also home to com- panies that are challenging established global giants at home and abroad.

This chapter will identify the most salient characteristics of the world economic environment, starting with an overview of the world economy. We then present a survey of economic system types, a discussion of the stages of market development, and an explanation of balance of payments. Foreign exchange is dis- cussed in the final section of the chapter. Throughout the chapter, we will discuss the implications of the recent worldwide economic downturn on global marketing strategies.

States, for example, President Franklin Roosevelt launched the Works Progress Administration (WPA) and put millions of Americans back to work. Fiscal stimulus programs were also the order of the day in Europe, Latin America, and especially in Germany and Japan, where governments were preparing for war. Government leaders were willing to accept moderate inflation rates provided unemployment was kept down. The results were impressive: Economic growth began to accelerate. The outbreak of World War II required massive increases in manufacturing out- put, and high unemployment gave way to full employment and worker shortages.

The Cold War decades that followed World War II saw the East and the West jockeying for geopolitical advantage. In the 1970s, Western economies were suffering from “stagflation”: high inflation and high unemployment. The Soviet Union, led by an aging Leonid Brezhnev, was also hobbled by economic stag- nation and malaise. In the 1980s, U.S. President Ronald Reagan and Prime Minister Margaret Thatcher of Great Britain took bold steps to revive their respective countries’ economies, but this time the approach was different. Both leaders substantially reduced the role of government in their respective countries. Suddenly, Friedrich von Hayek’s economic theories were in vogue.

As Western economies rebounded, Mikhail Gorbachev launched an economic restructuring program in the Soviet Union known as perestroika. But it was too little, too late. Within the space of just a few short years, the Berlin Wall came down, the two Germanys were reunited, and the Soviet Union broke apart into 15 separate countries. As the twenty-first century began, it appeared as though free market ideology had prevailed over the central-planning model.

By 2008, however, an economic crisis that had its roots in lax subprime mortgage lending practices and greed-driven deal making in unregulated financial markets began to spread around the globe. In the United States, where the crisis began, eco- nomic misery was widespread: The housing market collapsed, real estate values plummeted, credit tightened, and job growth

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62 Part 2 • the Global MarketinG environMent

The world Economy—An overview The world economy has changed profoundly since world war II.2 Perhaps the most fundamental change is the emergence of global markets; responding to new opportunities, global competitors have steadily displaced or absorbed local competitors. Concurrently, the integration of the world economy has increased significantly. Economic integration stood at 10 percent at the beginning of the twentieth century; today, it is approximately 50 percent. Integration is particularly striking in the European Union (EU) and the North American Free Trade Area.

Just 65 years ago, the world was far less integrated than it is today. As evidence of the changes that have taken place, consider the automobile. Cars with European nameplates such as renault, Citroën, Peugeot, Morris, Volvo, and others were radically different from the American cars from Chevrolet, Ford, or Plymouth or the Japanese models from Toyota or Nissan. These were local cars built by local companies, mostly destined for local or regional markets. Even today, global and regional auto companies make cars for their home-country car buyers that are not marketed abroad. However, it is also true that the global car is a reality for BMw, Ford, Honda, Hyundai, Kia, and Toyota. Product changes reflect organizational changes as well: The world’s largest automakers have, for the most part, evolved into global companies. Ford is a case in point: In 2008, the company unveiled an updated version of the Fiesta that is being marketed throughout the world. As Mark Fields, an executive vice president at Ford, explained, “we’ve had cars with the same name, like Escort and Focus, but the products themselves were very regional. This is a real shift point for us in that it’s a real global car.”3

During the past two decades, the world economic environment has become increasingly dynamic; change has been dramatic and far-reaching. To achieve success, executives and market- ers must take into account the following new realities:4

● Capital movements have replaced trade as the driving force of the world economy. ● Production has become “uncoupled” from employment. ● The world economy dominates the scene; individual country economies play a subordinate

role. ● The struggle between capitalism and socialism that began in 1917 is over. ● The growth of e-commerce diminishes the importance of national barriers and forces com-

panies to reevaluate their business models.

The first change is the increased volume of capital movements. The dollar value of world trade in goods and services was $25 trillion in 2009. However, the Bank for International Settlements has calculated that foreign exchange transactions worth approximately $4 trillion are booked every day. This works out to more than $1 quadrillion annually, a figure that far surpasses the dollar value of world trade in goods and services.5 An inescapable conclusion resides in these data: Global capital movements far exceed the dollar volume of global trade. In other words, currency trading represents the world’s largest market.

The second change concerns the relationship between productivity and employment. To illustrate this relationship, it is necessary to review some basic macroeconomics. Gross domestic product (GDP), a measure of a nation’s economic activity, is calculated by adding consumer spending (C), investment spending (I), government purchases (G), and net exports (NX):

C + I + G + NX = GDP

Economic growth, as measured by GDP, reflects increases in a nation’s productivity. Until the recent economic crisis, employment in manufacturing had remained steady or declined

2Numerous books and articles survey this subject, for example, Lowell Bryan et al., Race for the World: Strategies to Build a Great Global Firm (Boston: Harvard Business School Press, 1999). 3Bill Vlasic, “Ford Introduces one Small Car for a world of Markets,” The New York Times (February 15, 2008), p. C3. 4william Greider offers a thought-provoking analysis of these new realities in One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon & Schuster, 1997). 5Tom Lauricella, “Currency Trading Soars,” The Wall Street Journal (September 1, 2010), p. A1.

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chaPter 2 • the Global econoMic environMent 63

while productivity continued to grow. Employment rates declined in countries where a bubble economy of misallocated resources in housing and real estate collapsed. In the United States, manufacturing’s share of GDP declined from 19.2 percent in 1989 to 13 percent in 2009.6 In 2011, manufacturing employment accounted for about 9 percent of the U.S. workforce; in 1971, the figure was 26 percent. During that 40-year period, productivity increased dramatically. Similar trends can be found in many other major industrial economies as well. In the United Kingdom, for example, manufacturing’s share of jobs is only 8 percent, compared with 24 per- cent in 1980.7 one recent study of 20 large economies found that between 1995 and 2002, more than 22 million factory jobs were eliminated. Manufacturing is not in decline—it is employment in manufacturing that is in decline.8 Creating new jobs is one of the most important tasks facing policymakers today.

The third major change is the emergence of the world economy as the dominant economic unit. Company executives and national leaders who recognize this have the greatest chance of success. For example, the real secret of the economic success of Germany and Japan is the fact that business leaders and policymakers focus on world markets and their respective countries’ competitive positions in that world economy. This change has brought two questions to the fore: How does the global economy work, and who is in charge? Unfortunately, the answers to these questions are not clear-cut.

The fourth change is the end of the Cold war. The demise of communism as an economic and political system can be explained in a straightforward manner: Communism is not an effective economic system. The overwhelmingly superior performance of the world’s market economies has given leaders in socialist countries little choice but to renounce their ideology. A key policy change in such countries has been the abandonment of futile attempts to manage national economies with a single central plan. This policy change frequently goes hand in hand with governmental efforts to foster increased public participation in matters of state by introduc- ing democratic reforms.10

Finally, the personal computer revolution and the advent of the Internet era have in some ways diminished the importance of national boundaries. worldwide, an estimated 1 billion people use personal computers. In the so-called Information Age, barriers of time and place have been subverted by a transnational cyberworld that functions “24/7.” Amazon.com, eBay, Facebook, Google, Groupon, iTunes, Priceline, Twitter, and YouTube are just a few of the com- panies that are pushing the envelope in this brave new world.

Economic Systems Traditionally, economists identified four main types of economic systems: market capitalism, centrally planned socialism, centrally planned capitalism, and market socialism. As shown in Figure 2-1, this classification was based on the dominant method of resource allocation (market versus command) and the dominant form of resource ownership (private versus state). Thanks to

“Only an outbreak of protectionist policies or a sharp rise in international shipping costs could slow or temporarily reverse manufacturing’s declining share of employment in the United States.”9

—Steven J. Davis, Professor of Economics, University of Chicago

9Tracey Taylor, “A Label of Pride That Pays,” The New York Times (April 23, 2009), p. B4.

6Another economic indicator, gross national income (GNI), comprises GDP plus income generated from nonresident sources. A third metric, gross national product (GNP), is the total value of all final goods and services produced in a country by its residents and domestic business enterprises, plus the value of output produced by citizens working abroad, plus income generated by capital held abroad, minus transfers of net earnings by global companies operating in the country. GDP also measures economic activity; however, GDP includes all income produced within a country’s bor- ders by its residents and domestic enterprises as well as foreign-owned enterprises. Income earned by citizens working abroad is not included. For example, Ireland has attracted a great deal of foreign investment, and foreign-owned firms account for nearly 90 percent of Ireland’s exports. This helps explain the fact that, in 2010, Ireland’s GDP totaled €155 billion ($204 billion) while GNP was €128 billion ($168 billion). However, as a practical matter, GNP, GDP, and GNI figures for many countries will be roughly the same. 7Brian Groom, “Balance and Power,” Financial Times (July 22, 2010), p. 7. 8Jon E. Hilsenrath and rebecca Buckman, “Factory Employment Is Falling world-wide,” The Wall Street Journal (october 20, 2003), p. A2. Some companies have cut employment by outsourcing or subcontracting nonmanufacturing activities such as data processing, accounting, and customer service.

10Marcus w. Brauchli, “Poll Vaults: More Nations Embrace Democracy—and Find It Can often Be Messy,” The Wall Street Journal (June 25, 1996), pp. A1, A6.

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64 Part 2 • the Global MarketinG environMent

globalization, however, economic systems are harder to categorize within the confines of a four- cell matrix. Alternatively, more robust, descriptive criteria include the following:11

● Type of economy. Is the nation an advanced industrial state, an emerging economy, a transi- tion economy, or a developing nation?

● Type of government. Is the nation ruled by a monarchy, a dictatorship, or a tyrant? Is there an autocratic, one-party system? Is the nation dominated by another state, or is it a democ- racy with a multiparty system? Is it an unstable or terrorist nation?

● Trade and capital flows. Is the nation characterized by almost completely free trade or incomplete free trade, and is it part of a trading bloc? Is there a currency board, or are there exchange controls? Is there no trade, or does the government dominate trade possibilities?

● The commanding heights (e.g., the transportation, communications, and energy sectors). Are these sectors state owned and operated? Is there a mix of state and private ownership? Are they all private, with or without controlled prices?

● Services provided by the state and funded through taxes. Are pensions, health care, and education provided? Pensions and education but not health care? Do privatized systems dominate?

● Institutions. Is the nation characterized by transparency, standards, the absence of cor- ruption, and the presence of a free press and strong courts? or is corruption a fact of life and the press controlled by the government? Are standards ignored and the court system compromised?

● Markets. Does the nation have a free market system characterized by high-risk/high-reward entrepreneurial dynamism? Is it a free market that is dominated by monopolies, cartels, and concentrated industries? Is it a socialized market with cooperation among business, govern- ment, and labor (but with little entrepreneurial support)? or is planning, including price and wage controls, dominated by the government?

Market Capitalism Market capitalism is an economic system in which individuals and firms allocate resources and production resources are privately owned. Simply put, consumers decide what goods they desire and firms determine what and how much of those goods to produce; the role of the state in market capitalism is to promote competition among firms and to ensure consumer protection. Today, market capitalism is widely practiced around the world, most notably in North America and the EU (see Table 2-1).

It would be a gross oversimplification, however, to assume that all market-oriented econo- mies function in an identical manner. Economist Paul Krugman has remarked that the United States is distinguished by its competitive, “wild free-for-all,” and decentralized initiative. By contrast, outsiders sometimes refer to Japan as “Japan Inc.” The label can be interpreted in dif- ferent ways, but it basically refers to a tightly run, highly regulated economic system that is also market oriented.

11The authors are indebted to Professor Emeritus Francis J. Colella, Department of Economics, Simpson College, for suggesting these criteria.

Market

Market capitalism

Private

Resource Ownership

Resource Allocation

State

Command

Centrally planned

capitalism

Market socialism

Centrally planned socialism

Figure 2-1 Economic Systems

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chaPter 2 • the Global econoMic environMent 65

Centrally Planned Socialism At the opposite end of the spectrum from market capitalism is centrally planned socialism. In this type of economic system, the state has broad powers to serve the public interest as it sees fit. State planners make “top-down” decisions about what goods and services are produced and in what quantities; consumers can spend their money on what is available. Government ownership of entire industries as well as individual enterprises is characteristic of centrally planned social- ism. Because demand typically exceeds supply, the elements of the marketing mix are not used as strategic variables.13 Little reliance is placed on product differentiation, advertising, or pro- motion; to eliminate “exploitation” by intermediaries, the government also controls distribution.

The clear superiority of market capitalism in delivering the goods and services that people need and want has led to its adoption in many formerly socialist countries. This socialist ideol- ogy, developed in the nineteenth century by Marx and perpetuated in the twentieth century by Lenin and others, has been resoundingly refuted. As william Greider writes:

Marxism is utterly vanquished, if not yet entirely extinct, as an alternative economic sys- tem. Capitalism is triumphant. The ideological conflict first joined in the mid-nineteenth century in response to the rise of industrial capitalism, the deep argument that has preoc- cupied political imagination for 150 years, is ended.14

For decades, the economies of China, the former Soviet Union, and India functioned accord- ing to the tenets of centrally planned socialism. All three countries are now engaged in economic reforms characterized, in varying proportions, by increased reliance on market-allocation and private ownership. Even as China’s leaders attempt to maintain control over society, they acknowledge the importance of economic reform (see Exhibit 2-2). At a recent assembly, the Chinese Communist Party said that reform “is an inevitable road for invigorating the country’s economy and promoting social progress, and a great pioneering undertaking without parallel in history.”

Centrally Planned Capitalism and Market Socialism In reality, market capitalism and centrally planned socialism do not exist in “pure” form. In most countries, to a greater or lesser degree, command and market resource allocation are prac- ticed simultaneously, as are private and state resource ownership. The role of government in modern market economies varies widely. An economic system in which command resource allo- cation is utilized extensively in an overall environment of private resource ownership can be

tabLe 2-1 Western Market Systems

Type of System key characteristics countries

Anglo-Saxon model Private ownership; free enterprise economy; capitalism; minimal social safety net; highly flexible employment policies

United States, Canada, Great Britain

Social market economy model

Private ownership; “social partners” orientation that includes employer groups, unions, and banks; unions and corporations are involved in government, and vice versa; inflexible employment policies

Germany, France, Italy

Nordic model Mix of state ownership and private ownership; high taxes; some market regulation; generous social safety net

Sweden, Norway

“Countries with planned economies have never been part of economic globalization. China’s economy must become a market economy.”12

—Long Yongtu, chief WTO negotiator for China

12Nicholas r. Lardy, Integrating China into the Global Economy (washington, D.C.: The Brookings Institution, 2003), p. 21. 13Peggy A. Golden, Patricia M. Doney, Denise M. Johnson, and Jerald r. Smith, “The Dynamics of a Marketing orientation in Transition Economies: A Study of russian Firms,” Journal of International Marketing 3, no. 2 (1995), pp. 29–49. 14william Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon & Schuster, 1997), p. 37.

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66 Part 2 • the Global MarketinG environMent

called centrally planned capitalism. A fourth variant, market socialism, is also possible. In such a system, market-allocation policies are permitted within an overall environment of state ownership.

In Sweden, for example, where the government controls two-thirds of all expenditures, resource allocation is more “voter” oriented than “market” oriented. Also, as indicated in Table 2-2, the Swedish government has significant holdings in key business sectors. Thus, Sweden’s so-called “welfare state” has a hybrid economic system that incorporates elements of both centrally planned socialism and capitalism. The Swedish government is embarking on a privatization plan that calls for selling its stakes in some of the businesses listed in Table 2-2.15 For example, in 2008 Vin & Spirit was sold to France’s Pernod ricard for $8.34 billion.

As noted previously, China is an example of state-directed socialism. However, China’s Communist leadership has given considerable freedom to businesses and individuals in the Guangdong Province to operate within a market system. Today, China’s private sector accounts for approximately 70 percent of national output. Even so, state enterprises still receive more than two-thirds of the credit available from the country’s banks.

Market reforms and nascent capitalism in many parts of the world are creating opportuni- ties for large-scale investments by global companies. Indeed, Coca-Cola returned to India in 1994, two decades after being forced out by the government. A new law allowing 100 percent foreign ownership of enterprises helped pave the way. By contrast, Cuba stands as one of the last

tabLe 2-2 Examples of Government Resource Ownership in Sweden

company industry Sector State ownership %

TeliaSonera Telecom 45

SAS Airline 21

Nordea Banking 20

oMX Stock exchange 7

Vin & Spirit Alcohol 100*

*Sold in 2008.

Exhibit 2-2 In 2003, the Rolling Stones’ “40 Licks” CD was released in China. However, some of the band’s most famous hits —”Brown Sugar,” “Beast of Burden,” “Honky Tonk Women,” and “Let’s Spend the Night Together”— were left off because officials viewed them as promoting social permissiveness. The Stones were scheduled to bring their fortieth anni- versary tour to Beijing and Shanghai in 2003. However, the concerts were postponed due to the SARS outbreak.

Overall, the Licks tour grossed $311 million, and the band played to an audience of nearly 3.5 million people. When Mick, Keith and com- pany finally did perform in China in 2006, government officials ordered the band to omit five songs from its set list. Source: AP Images.

15Joel Sherwood and Terence roth, “Defeat of Sweden’s ruling Party Clears way for Sales of State Assets,” The Wall Street Journal (September 19, 2006), p. A8.

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chaPter 2 • the Global econoMic environMent 67

bastions of the command allocation approach. Daniel Yergin and Joseph Stanislaw sum up the situation this way:

Socialists are embracing capitalism, governments are selling off companies they had nationalized, and countries are seeking to entice multinational corporations expelled just two decades earlier. Today, politicians on the left admit that their governments can no longer afford the expansive welfare state. . . . The decamping of the state from the “com- manding heights” marks a great divide between the twentieth and twenty-first centuries. It is opening the doors of many formerly closed countries to trade and investment, and vastly increasing the global market.16

The washington, D.C.–based Heritage Foundation, a conservative think tank, takes a more conventional approach to classifying economies: It compiles a survey of more than 175 coun- tries ranked by degree of economic freedom (Table 2-3). A number of key economic variables are considered: trade policy, taxation policy, government consumption of economic output, monetary policy, capital flows and foreign investment, banking policy, wage and price controls, property rights, regulations, and the black market. Hong Kong and Singapore are ranked first and second in terms of economic freedom; Zimbabwe, Cuba, and North Korea are ranked lowest (see Exhibit 2-3). Coincidentally, Cuba and North Korea are the only two countries where Coca-Cola is not available through authorized channels!

A high correlation exists between the degree of economic freedom and the extent to which a nation’s mixed economy is market oriented. However, the criteria for the ranking have been subject to some debate. For example, author william Greider has observed that the authoritarian state capitalism practiced in Singapore deprives the nation’s citizens of free speech, a free press, and free assembly. Indeed, Singapore once banned the import, manufacture, and sale of chewing gum, because discarded wads of gum were making a mess in public places. Today, gum is avail- able at pharmacies; before buying a pack, however, consumers must register their names and addresses. Greider notes, “Singaporeans are comfortably provided for by a harshly autocratic government that administers paranoid control over press and politics and an effective welfare state that keeps everyone well housed and fed, but not free.”17 As Greider’s observation makes clear, some aspects of “free economies” bear more than a passing resemblance to command-style economic systems.

16Daniel Yergin and Joseph Stanislaw, “Sale of the Century,” Financial Times Weekend (January 24–25, 1998), p. I.

Exhibit 2-3 For decades, Singapore has been an important trade hub in Asia. The city-state is now being remade as a cultural destination. Leaders have embarked upon an ambi- tious real estate development program designed to keep Singapore up to date and competitive with Doha, Dubai, and other popular tourist centers. Sentosa Cove, a mixed-use, integrated resort, features thousands of apartments and villas, as well as hotels, a casino complex, and numerous retail shops. Unfortunately, many development proj- ects are now in jeopardy, victims of the global recession. Source: Tim Brown/Getty Images.

17william Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon & Schuster, 1997), pp. 36–37. See also John Burton, “Singapore’s Social Contract Shows Signs of Strain,” Financial Times (August 19–20, 2006), p. 3.

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68 Part 2 • the Global MarketinG environMent

1. Hong Kong 2. Singapore 3. Australia 4. New Zealand 5. Switzerland 6. Canada 7. Chile 8. Mauritius 9. Denmark 10. United States 11. Ireland 12. Bahrain 13. Estonia 14. United Kingdom 15. Luxembourg 16. Finland 17. The Netherlands 18. Sweden 19. Germany 20. Taiwan 21. Georgia 22. Lithuania 23. Iceland 24. Japan 25. Austria 26. Macau 27. Qatar 28. United Arab Emirates 29. Czech republic 30. Botswana 31. Norway 32. Saint Lucia 33. Jordan 34. South Korea 35. The Bahamas

Moderately Free 36. Uruguay 37. Colombia 38. Armenia 39. Barbados 40. Belgium 41. Cyprus 42. Slovakia 43. Macedonia 44. Peru 45. oman

46. Spain 47. Malta 48. Hungary 49. Costa rica 50. Mexico 51. Israel 52. Jamaica 53. El Salvador 54. Saint Vincent and

the Grenadines 55. Latvia 56. Malaysia 57. Poland 58. Albania 59. romania 60. Bulgaria 61. Thailand 62. France 63. rwanda 64. Dominica 65. Cape Verde 66. Kuwait 67. Portugal 68. Kazakhstan 69. Turkey 70. Montenegro 71. Panama 72. Trinidad and Tobago 73. Madagascar 74. South Africa 75. Mongolia 76. Slovenia 77. Ghana 78. Croatia 79. Uganda 80. Paraguay 81. Sri Lanka 82. Saudi Arabia 83. Italy 84. Namibia 85. Guatemala

Mostly Unfree 86. Burkina Faso 87. Dominican republic 88. Azerbaijan 89. Kyrgyz republic

90. Morocco 91. Lebanon 92. The Gambia 93. Zambia 94. Serbia 95. Cambodia 96. Honduras 97. The Philippines 98. Tanzania 99. Gabon 100. Brazil 101. Benin 102. Belize 103. Bosnia and Herzegovina 104. Swaziland 105. Fiji 106. Samoa 107. Tunisia 108. Indonesia 109. Vanuatu 110. Nicaragua 111. Mali 112. Tonga 113. Yemen 114. Kenya 115. Moldova 116. Senegal 117. Greece 118. Malawi 119. India 120. Nigeria 121. Pakistan 122. Bhutan 123. Mozambique 124. Seychelles 125. Egypt 126. Côte d’Ivoire 127. Djibouti 128. Niger 129. Guyana 130. Papua New Guinea 131. Tajikistan 132. Bangladesh 133. Cameroon 134. Mauritania 135. Suriname

136. China 137. Guinea 138. Guinea-Bissau 139. russia 140. Vietnam 141. Nepal 142. Central African

republic 143. Micronesia 144. Laos

Repressed 145. Algeria 146. Ethiopia 147. Liberia 148. Burundi 149. Maldives 150. Togo 151. Sierra Leone 152. Haiti 153. São Tomé and

Príncipe 154. Belarus 155. Lesotho 156. Bolivia 157. Comoros 158. Angola 159. Ecuador 160. Argentina 161. Ukraine 162. Uzbekistan 163. Kiribati 164. Chad 165. Solomon Islands 166. Timor-Leste 167. republic of Congo 168. Iran 169. Turkmenistan 170. Equatorial Guinea 171. Democratic republic

of Congo 172. Burma 173. Eritrea 174. Venezuela 175. Zimbabwe 176. Cuba 177. North Korea

tabLe 2-3 Index of Economic Freedom—2013 Rankings

NOT RANKED

Afghanistan Iraq

Kosovo Libya

Liechtenstein Somalia

Sudan Syria

Source: Terry Miller and Kim R. Holmes, 2013 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2013), available at: www.heritage.org/index (accessed February 1, 2013).

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chaPter 2 • the Global econoMic environMent 69

The death of Venezuelan President Hugo Chávez in March 2013 marked the end of an era. After assuming the presidency in 1999, Chávez toyed with the idea of pur- suing a “third way” to economic growth. That approach, suggested by then–British Prime Minister Tony Blair, was a mashup of socialism and capitalism—i.e., “capitalism with a human face.” However, it wasn’t long before Chávez began espousing socialist policies for his country while vilify- ing the United States. Venezuela’s rich oil reserves provided resources for Chávez to rally popular support in his own coun- try. Chávez also provided Cuba and other Latin American neighbors with aid, mostly in the form of cheap oil through an energy pact known as Petrocaribe.

American filmmaker Oliver Stone has spent a significant part of his career documenting Latin America’s political environ- ment. Some observers criticized Stone’s 2003 film Comandante for making an anti-American statement while painting a sympa- thetic portrait of Cuban leader Fidel Castro as a moral individual. Stone’s most recent documentary is titled South of the Border. This time around, the filmmaker turned his camera on several South American leaders, including President Chávez and Bolivia’s

Evo Morales. Stone objected to media descriptions of Chávez and his peers as “dictators.” On the contrary, the director portrayed these lead- ers as champions of the poor who worked to return their respective nations’ natural resources “back to the people” (see Exhibit 2-4).

Chávez, a former military officer, minced few words when express- ing his disdain for American politicians and American-style, free mar- ket economic policies. Speaking about former U.S. President George W. Bush in South of the Border, Chavéz says, “You are a donkey, Mr. Bush.” In an interview Chávez remarked, “I’m not loved by [former U.S. Secretary of State] Hillary Clinton . . . and I don’t love her either.” Why didn’t Mrs. Clinton love President Chávez? For one, Chávez’s eco- nomic policies included nationalization of international companies and the imposition of currency controls. Meanwhile, in Chávez’s words,

“U.S. capitalism is broken . . . we need to change the system . . . the future of capital- ism in Venezuela is in the cemetery.”

Chávez had plenty more to say about capitalism. “It is not a temporary crisis of the capitalist system—it is a structural cri- sis,” he said. “When you live in a democ- racy in such an unequal region as Latin America, you need to have a socialist vision. I believe in economies with mar-

kets—not in market economies. There is a difference.” Guillermo Zuloaga, owner of the Globovision television station,

has a different view. Globovision reaches nearly half of Venezuela’s television households, and Zuloaga is proud that his station has an independent voice. As he told The Wall Street Journal, “The quality of Venezuelan life is deteriorating considerably. . . . We have problems with electricity, problems with water, the highest crime rate of any place. . . . The Chávez government has infringed almost every article of the constitution.” As a result of his willingness to speak critically about the Chávez government, Zuloaga was arrested and charged with slander.

What was daily life like in Venezuela like after 15 years under Chávez? The government allowed many import permits to expire, resulting in shortages of food and other necessities. Foreign exchange controls meant that importers lacked the dollars necessary to bring in a variety of consumer goods. Venezuela shares nearly 1,400 miles of border with Colombia; many goods had to be transshipped by trucks from Colombia’s ports because ports in Puerto Cabello and elsewhere had deteriorated. One positive: The government subsidized gasoline production, so a gallon of premium gas cost only about 5.6 cents.

Sources: Ángel González, “Almost-Free Gas Comes at a High Cost,” The Wall Street Journal (April 12, 2013), pp. A1, 12; “Hugo Chávez,” Editorial, The Wall Street Journal (March 6, 2013), p. A20; Sara Schaefer Munoz, “Chávez’s Stamp Most Keenly Felt on Farms,” The Wall Street Journal (October 6–7, 2012), p. A7; Mary Anastasia O’Grady, “Chávez’s Assault on the Press,” The Wall Street Journal (July 12, 2010), p. A13; Matthew Garrahan, “When Hugo Met Oliver,” Financial Times (June 19/20, 2010), pp. 1, 2; Matthew Garrahan, “Chávez Attacks Economic Critics,” Financial Times (June 17, 2010), p. 2; Mary Anastasia O’Grady, “Chavismo Meets the Market,” The Wall Street Journal (June 7, 2010), p. A17.

the cuLturaL cOntext

Venezuela after Chávez

M yM

ar ke

tin gL

n c

• t

h in

k •

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a r

Exhibit 2-4 Motion picture director Oliver Stone (right) with Venezuelan President Hugo Chávez. Chávez was proud of his accomplishments as president, noting that Venezuela’s economy grew under his leadership. Even so, some observers at home and abroad were alarmed by the president’s economic policies. It is unclear what direction the country will take after elections in April 2013. Source: © Allstar Picture Library/Alamy.

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70 Part 2 • the Global MarketinG environMent

Stages of Market Development At any point in time, individual country markets are at different stages of economic develop- ment. The world Bank has developed a four-category classification system that uses per capita gross national income (GNI) as a base. The income definition for each of the stages is derived from the world Bank’s lending categories, and countries within a given category generally have a number of characteristics in common. Thus, the stages provide a useful basis for global market segmentation and target marketing. The categories are shown in Table 2-4.

A decade ago, a number of countries in Central Europe, Latin America, and Asia were expected to experience rapid economic growth. Known as big emerging markets (BEMs), the list included China, India, Indonesia, South Korea, Brazil, Mexico, Argentina, South Africa, Poland, and Turkey.18 Today, much attention is focused on opportunities in Brazil, russia, India, China, and South Africa. As previously noted, these five countries are collectively known as BrICS. Experts predict that the BrICS nations will be key players in global trade even as their track records on human rights, environmental protection, and other issues come under closer scrutiny by their trading partners. The BrICS government leaders will also come under pressure at home as their developing market economies create greater income disparity. For each of the stages of economic development discussed here, special attention is given to the BrICS countries.

Low-Income Countries Low-income countries have a GNI per capita of $1,025 or less. The general characteristics shared by countries at this income level are:

1. Limited industrialization and a high percentage of the population engaged in agriculture and subsistence farming

2. High birth rates, short life expectancy 3. Low literacy rates 4. Heavy reliance on foreign aid 5. Political instability and unrest 6. Concentration in Africa south of the Sahara

About 13 percent of the world’s population is included in this economic category. Many low-income countries have such serious economic, social, and political problems that they represent extremely limited opportunities for investment and operations. Some are no-growth economies, such as Burundi and rwanda, with a high percentage of the population living at the

tabLe 2-4 Stages of Market Development

income Group by per capita Gni 2011 GDP

($ millions)

2011 Gni per capita

($) World

GDP (%)

2011 Population (millions)

High-income countries (OECD)

GNI per capita ≥$12,476 43,890,000 41,225 62 1,039

High-income countries (non-OECD)

GNI per capita ≥$12,476 2,752,000 25,372 3 96

Upper-middle countries

GNI per capita ≥$4,036 to ≤$12,475

Lower-middle-income countries

18,240,000 6,563 26 2,489

GNI per capita ≥$1,026 but ≤$4,035 4,768,000 1,764 7 2,533

Low-income countries

GNI per capita ≤$1,025 472.8 569 .67 816

18For an excellent discussion of BEMs, see Jeffrey E. Garten, The Big Ten: The Big Emerging Markets and How They Will Change Our Lives (New York: Basic Books, 1997).

“In a global market, you’re not going to gain your profit by sitting tight in the United States in a flat and declining market. You’re going to make your money in China and Russia and India and Brazil.”19

Tom Pirko, President of BevMark, commenting on InBev’s acquisition of Anheuser-Busch

19Sarah Theodore, “Beer Has Big Changes on Tap,” Beverage Industry (September 2008), p. 24.

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chaPter 2 • the Global econoMic environMent 71

national poverty line. others were once relatively stable countries with growing economies that have become divided by political struggles. The result is an unstable environment characterized by civil strife, flat income, and considerable danger to residents. Countries embroiled in civil wars are dangerous areas; most companies find it prudent to avoid them.

other low-income countries represent genuine market opportunities. Bangladesh is a case in point: GNI per capita is approximately $780, and the garment industry is enjoying burgeoning exports. Finished clothing exports doubled between 2004 and 2009; buyers include Gap, H&M, Tesco, walmart, Zara, and other retailers. Garments represent fully 80 percent of the country’s exports; the president of the Bangladesh Garment Manufacturers and Exporters Association expected that exports would total $25 billion by 2013. Despite that, workers in Bangladesh cur- rently have the lowest wages in the global garment industry. In fall 2010, the government-mandated minimum wage was raised from $24 per month to $44. An estimated 3 million Bangladeshis— mostly women—work in the industry. Bangladesh’s garment sector has benefited from labor unrest, rising wages, and a stronger currency in China.20 Tragically, there has been a rash of fatal accidents at clothing factories in Bangladesh in recent years. In January 2013, seven workers were killed when fire broke out at a factory in Dhaka operated by Smart Export Garments. Labor activ- ists are renewing calls for increased oversight and improved safety standards.21

Some of the smaller countries from the former Soviet Union, including Tajikistan and Uzbekistan, fall into the low- and lower-middle income categories. Sometimes referred to collec- tively as “the Stans,” they present marketers with an interesting challenge. Incomes are low, there is considerable economic hardship, and the potential for disruption is certainly high. Are they problem cases, or are they attractive opportunities with good potential for economic growth? These countries present an interesting risk–reward trade-off; some companies have taken the plunge, but many others are still assessing whether to take the risk.

Lower-Middle-Income Countries The United Nations designates 50 countries in the bottom ranks of the low-income category as least-developed countries (LDCs); the term is sometimes used to indicate a contrast with devel- oping (i.e., upper ranks of low-income plus lower-middle- and upper-middle-income) countries and developed (high-income) countries. Lower-middle-income countries are those with a GNI per capita between $1,026 and $4,035. Consumer markets in these countries are expanding rapidly. Countries such as Indonesia and Thailand represent an increasing competitive threat as they mobilize their relatively cheap—and often highly motivated—labor forces to serve target markets in the rest of the world. The developing countries in the lower-middle-income category have a major competitive advantage in mature, standardized, labor-intensive light industry sec- tors such as footwear, textiles, and toys.

with a 2011 GNI per capita of $1,410, India has transitioned out of the low-income category and now is classified as a lower-middle-income country. In 2007, India commemorated the 60th anniversary of its independence from Great Britain. For many decades, economic growth was weak. As the 1990s began, India was in the throes of an economic crisis: Inflation was high, and foreign exchange reserves were low. Country leaders opened India’s economy to trade and investment and dramatically improved market opportunities. Manmohan Singh was placed in charge of India’s economy. Singh, former governor of the Indian central bank and finance min- ister, believed that India had been taking the wrong road. Accordingly, he set about dismantling the planned economy by eliminating import licensing requirements for many products, reducing tariffs, easing restrictions on foreign investment, and liberalizing the rupee.

Yashwant Sinha, the country’s former finance minister, once declared that the twenty-first century would be “the century of India.” His words appear prescient; India is now home to a number of world-class companies with growing global reach, including Infosys, Mahindra & Mahindra, Tata, and wipro. Meanwhile, the list of global companies operating in India is

20Vikas Bajaj, “Bangladesh, with Low Pay, Moves in on China,” The New York Times (July 17, 2010), p. A1; see also Mahtab Haider, “Defying Predictions, Bangladesh’s Garment Factories Thrive,” The Christian Science Monitor (February 7, 2006), p. 4. 21Julfikar Ali Manik and Jim Yardley, “Bangladesh Clothing Factory, Site of Fire that Killed 7, Made European Brands,” The New York Times (January 18, 2013), p. A5.

“As the saying goes, if you are not manufacturing in China or selling in India, you are as good as finished.”22

—Dipankar Halder, Associate Director, KSA Technopak, India

“It may feel like the temperature has only risen a couple of degrees so far, but this heralds the end of India’s economic Ice Age.”23

—Vivek Paul, Vice Chairman, Wipro

22Saritha rai, “Tastes of India in U.S. wrappers,” The New York Times (April 29, 2003), p. w7. 23Manjeet Kirpalani, “The Factories Are Humming,” Businessweek (october 18, 2004), pp. 54–55.

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