Global marketing management kotabe helsen pdf

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GLOBAL MARKETING MANAGEMENT

5THEDITION

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GLOBAL MARKETING MANAGEMENT

5THEDITION

Masaaki Kotabe Temple University

Kristiaan Helsen Hong Kong University of Science and Technology

JOHNWILEY& SONS, INC.

DEDICATION

To my sons and SDK —M.K.

To my mother and A.V. —K.H.

Vice President & Executive Publisher George Hoffman Executive Editor Lise Johnson Senior Editor Franny Kelly Production Manager Dorothy Sinclair Senior Production Editor Valerie A. Vargas Marketing Manager Diane Mars Creative Director Harry Nolan Senior Designer James O’Shea Production Management Services Elm Street Publishing Services Senior Illustration Editor Anna Melhorn Photo Associate Sheena Goldstein Assistant Editor Maria Guarascio Editorial Assistant Emily McGee Associate Media Editor Elena Santa Maria Cover Photo Credit ª Daniel lvascu/iStockphoto

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ABOUT THE AUTHORS

Masaaki ‘‘Mike’’ Kotabe holds the Washburn Chair Professorship in International Business and Marketing, and is Director of Research at the Institute of Global Management Studies at the Fox School of Business at Temple University. Prior to joining Temple University in 1998, he was Ambassador Edward Clark Centennial Endowed Fellow and Professor of Marketing and International Business at the University of Texas at Austin. Dr. Kotabe also served as Vice President of the Academy of International Business in the 1997–1998 term. He received his Ph.D. in Marketing and International Business at Michigan State University. Dr. Kotabe teaches international marketing, global sourcing strategy (R&D, manufacturing, and marketing interfaces) and Asian business practices at the undergraduate and MBA levels, and teaches theories of international business at the Ph.D. level. He has lectured widely at various business schools around the world, including Austria, Brazil, China, Colombia, Finland, Germany, Indonesia, Japan, Korea, Mexico, Norway, Sweden, and Turkey. For his research, he has worked closely with leading companies such as AT&T, Kohler, NEC, Nissan, Philips, Sony, and Seven & I Holdings (parent of 7-Eleven stores), and served as advisor to the United Nations’ and World Trade Organization’s Executive Forum on National Export Strategies.

Dr. Kotabe has written many scholarly publications. His numerous research papers have appeared in such journals as Journal of Marketing, Journal of International Business Studies, StrategicManagement Journal, andAcademy ofManagement Journal. His books include Global Sourcing Strategy: R&D, Manufacturing, Marketing Inter- faces (1992), Japanese Distribution System (1993), Anticompetitive Practices in Japan (1996), MERCOSUR and Beyond (1997), Marketing Management (2001), Market Revolution in Latin America: Beyond Mexico (2001), Emerging Issues in International Business Research (2002), and Global Supply Chain Management (2006).

He currently serves as Editor of the Journal of InternationalManagement, and also serves and/or has served on the editorial boards of Journal of Marketing, Journal of International Business Studies, Journal of International Marketing, Journal of World Business, Journal of the Academy of Marketing Science, Advances in International Management, Journal of Business Research, and Thunderbird International Business Review, among others. He also serves as Advisor to the Institute of Industrial Policy Studies (IPS) National Competitiveness Report. Dr. Kotabe has been elected a Fellow of the Academy of International Business for his significant contribution to interna- tional business research and education.

Kristiaan Helsen has been an associate professor of marketing at the Hong Kong University of Science and Technology (HKUST) since 1995. Prior to joining HKUST, he was on the faculty of the University of Chicago for five years. He has lectured at Nijenrode University (Netherlands), the International University of Japan, Purdue University, the Catholic University of Lisbon, and China Europe International Busi- ness School (CEIBS) in Shanghai, China. Dr. Helsen received his Ph.D. inMarketing at the Wharton School of the University of Pennsylvania.

His research areas include promotional strategy, competitive strategy, and hazard- ratemodeling. His articles have appeared in journals such asMarketing Science, Journal of Marketing, Journal of Marketing Research, and European Journal of Operations Research, among others. Dr. Helsen is on the editorial board of the International Journal of Research in Marketing.

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Professors Kotabe and Helsen recently published the SAGE Handbook of Inter- national Marketing (2009), an authoritative collection of chapters written by expert researchers from around the world that provides an in-depth analysis of international marketing issues that must be understood and addressed in today’s global and interdependent markets. The Handbook brings together the fundamental questions and themes that have surfaced, and promises to be an essential addition to the study of international marketing.

vi � About the authors

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PREFACE

THREE FUNDAMENTAL ISSUES ADDRESSED IN THE FIFTH EDITION

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We have continued to receive many letters and e-mail messages as well as comments on Amazon.com from instructors and business executives around the world who used the previous editions of Global Marketing Management. Their comments have been unanimously favorable. Thanks to the increased desire in many parts of the world for access to our book in their own languages, our book has been translated into Chinese, Japanese, Portuguese, and Spanish. However, we just cannot be sitting on our laurels. As the world around us has been constantly changing, the contents and context of our book also must change to reflect the climate of the time. Today, the worst global financial crisis since the Great Depression of 1929 has changed the global marketing environment completely. A continued global economic growth has proved to be a false assumption. Now there are even political tides against freer trading environments. Although we currently live in a very unfortunate global economic environment, we are fortunate enough to capture various changes in the marketplace and describe them in this fifth edition of our book.

In our mind, the role of a textbook is not only to describe today’s realities but also to extrapolate logically from them how the future will unfold. After all, that is how marketing executives have to act and make correct decisions based on the facts they have gathered. Today’s realities are a product of past realities, and the future will be an uncharted course of events lying ahead of us. We constantly strive to help you better understand state-of-the-art marketing practices on a global basis with relevant histori- cal background, current marketing environments, and logical explanations based on a massive amount of knowledge generated by marketing executives as well as by academic researchers from around the world.

Therefore, the fifth edition of our book builds on three major changes that have taken place in the last decade or so. First, the landscape of the global economy has changed drastically, particularly as a result of the global financial crisis and ensuing global recession. The emergence of Brazil, Russia, India, and China, among others, as economic superpowers has occurred during the same period. For example, China’s role as the world’s factory is well established; India’s increased role in information technology development is obvious; and Brazil and Russia are still rich in mineral resources that are becoming scarce around the world.

Second, the explosive growth of information technology tools, including the internet and electronic commerce (e-commerce), has had a significant effect on the way we do business internationally. This still continues to be an evolving phenomenon that we need to take a careful look at. On one hand, everyone seems to agree that business transactions will be faster and more global early on. And it is very true. As a result, marketing management techniques, such as customer relationship management and global account management, have become increasingly feasible. However, on the other hand, the more deeply we have examined this issue, the more convinced we have become that certain things will not change, or might even becomemore local as a result of globalization that the internet and e-commerce bestow on us.

Third, it is an underlying human tendency to desire to be different when there are economic and political forces of convergence (often referred to as globalization).When

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the globalization argument (and movement) became fashionable in the 1980s and 1990s, many of us believed that globalization would make global marketing easier. As we explain later in the text, marketing beyond national borders, indeed, has become easier, but it does not necessarily mean that customers want the same products in countries around the world. For example, many more peoples around the world try to emphasize cultural and ethnic differences and accept those differences than ever before. Just think about many new countries being born around the world as well as regional unifications taking place at the same time. Another example is that while e- commerce promotion on the internet goes global, product delivery may need to be fairly local in order to address local competition and exchange-rate fluctuations as well as the complexities of international physical distribution (export declarations, tariffs, and non-tariff barriers). From a supply-side point of view, globalization has brought us more products from all corners of the world. However, from a demand-side (market- ing-side) point of view, customers have a much broader set of goods and services to choose from. In other words, marketers now face all the more divergent customers with divergent preferences—far from a homogeneous group of customers.

Indeed, these changes we have observed in the last decade or so are more than extraordinary. In this fifth edition, we have expanded on these issues in all the chapters wherever relevant. We have added many new examples that have occurred in this period. However, we do not sacrifice logical depth in favor of brand-new examples. This revision required a lot of work, as did previous editions in the past. But it was well worth the effort because we are confident that enlightened readers like you will be very satisfied with the results.

We strongly believe that cases provide students not only with lively discussions of what goes on with many companies but also an in-depth understanding of many marketing-related concepts and tools as used by those companies. In this revision, we added many new cases and retained and updated several cases from earlier editions that our textbook users and their students voted as favorites.. We have more than 40 cases in this edition. The cases represent many products and services and many regions and countries as well as many nationalities. Six cases are included in the textbook itself, and the rest are placed on the textbook website for easy download www.wiley.com/ college/kotabe.

Many users of the previous editions continue to commend our book as probably the most academically rigorous and conceptually sound, and yet full of lively examples with which students can easily identify in order to drive across important points. We combine the academic rigor and relevance (fun of reading) of materials to meet both undergraduate andMBA educational requirements. We keep this tradition in our fifth edition.

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Marketing in the global arena is indeed a very dynamic discipline. Today, there are many international or global marketing management books vying for their respective niches in the market. It is a mature market. As you will learn in our book, in a mature market, firms tend to focus closely—or maybe, too closely—on immediate product features for sources of differentiation and may inadvertently ignore the fundamental changes that may be re-shaping the industry. Often those fundamental changes come from outside the industry. The same logic applies to the textbook market. Whether existing textbooks are titled international marketing or global marketing, they continue to be bound by the traditional bilateral (inter-national) view of competition. While any new textbook has to embrace the traditional coverage of existing text- books, we intend to emphasize the multilateral (global) nature of marketing throughout our book.

Some textbooks have replaced the word, ‘‘international,’’ with ‘‘global.’’ Such a change amounts to a repackaging of an existing product we often see in a mature

viii � Preface

product market, and it does not necessarily make a textbook globally oriented. We need a paradigm shift to accomplish the task of adding truly global dimensions and complex realities to a textbook. You might ask, ‘‘What fundamental changes are needed for a paradigm shift?’’ and then, ‘‘Why do we need fundamental changes to begin with?’’

Our answer is straightforward. Our ultimate objective is to help you prepare for this new century and become an effective manager overseeing global marketing activities in an increasingly competitive environment. You may or may not choose marketing for your career. If you pursue a marketing career, what you will learn in our book will not only have direct relevance but also help you understand how you, as a marketing manager, can affect other business functions for effective corporate per- formance on a global basis. If you choose other functional areas of business for your career, then our book will help you understand how you could work effectively with marketing people for the same corporate goal. Our book is organized as shown in the flowchart.

We believe that our pedagogical orientation not only embraces the existing stock of useful marketing knowledge andmethods but also sets itself apart from the competition in a number of fundamental ways, as follows:

As we indicated at the outset, the term ‘‘global’’ epitomizes the competitive pressure and market opportunities from around the world and the firm’s need to optimize its market performance on a global basis. Whether a company operates domestically or across national boundaries, it can no longer avoid the competitive pressure and market opportunities. For optimal market performance, the firm should also be ready and willing to take advantage of resources on a global basis, and at the same time respond to different needs and wants of consumers. In a way, global marketing is a constant struggle with economies of scale and scope needs of the firm and its responsiveness and sensitivity to different market conditions. While some people call it a ‘‘glocal’’ orientation, we stay with the term, ‘‘global,’’ to emphasize marketing flexibility on a global basis.

Let us take a look at a hypothetical U.S. company exporting finished products to Europe and Japan. Traditionally, this export phenomenon has been treated as a bilateral business transaction between a U.S. company and foreign customers. How- ever, in reality, to the executives of the U.S. company, this export transaction may be nothing more than the last phase of the company’s activities they manage. Indeed, this company procures certain components from long-term suppliers in Japan and Mexico, other components in a business-to-business (B2B) transaction on the internet with a supplier in Korea and from its domestic sources in the United States, and then assembles a finished product in its Singapore plant for export to Europe and Japan as well as back to the United States. Indeed, a Japanese supplier of critical components is a joint venture, majority-owned by this American company, while aMexican supplier has a licensing agreement with the U.S. company that provides most of technical know- how. A domestic supplier in the United States is in fact a subsidiary of a German company. In other words, this particular export transaction by the U.S. company involves a joint venture, a licensing agreement, a B2B transaction, subsidiary operation, local assembly, and R&D, all managed directly or indirectly by the U.S. company—and add the realities of market complexities arising from diverse customer preferences in European, Japanese, and North American markets. Now think about how these arrangements could affect the company’s decisions over product policy, pricing, promotion, and distribution channels.

Many existing textbooks have focused on each of these value-adding activities as if they could be investigated independently. Obviously, in reality they are not indepen- dent of each other and cannot be. We emphasize this multilateral realism by examining these value-adding activities as holistically as possible.

At the same time, we are fully aware of the increased importance of the roles that emerging markets and competitive firms from those markets play in fundamentally

Global Orientation

Our Pedagogical Orientation � ix

Global Marketing Management

5th Edition

1. Globalization Imperative

Globalization

Global Marketing Environment

2. Global Economic Environment 4. Global Cultural Environment and Buying Behavior

5. Political / Legal Environment3. Financial Environment

Development of Competitive Strategy

6. Global Marketing Research

7. Global Segmentation and Positioning

8. Global Marketing Strategies

9. Global Market Entry Strategies

Global Marketing Strategy Development

10. Global Product Policy Decisions 1 11. Global Product Policy Decisions 2

13. Communicating with the World Consumer

14. Sales and Cross-Cultural Management

15. Global Logistics and Distribution 16. Export/Import Management

12. Global Pricing

Managing Global Operations

17. Planning, Organization and Control of Global Marketing Operations

19. Global Marketing and the Internet

18. Marketing in Emerging Markets

x � Preface

reshaping the nature of global competition. In this fifth edition, we have added Chapter 18 to highlight various marketing issues related to the emerging markets.

To complement our global orientation, we offer an interdisciplinary perspective in all relevant chapters. We are of the strong belief that you cannot become a seasoned marketing executive without understanding how other functional areas interface with marketing. The reverse is also true for non-marketing managers. Some of the exem- plary areas in which such a broad understanding of the interface issues is needed are product innovation, designing for manufacturability, product/components standard- ization, and product positioning. In particular, Japanese competition has made us aware of the importance of these issues, and leading-edge business schools have increasingly adopted such an integrated approach to business education. Our book strongly reflects this state-of-the-art orientation.

Market orientation is a fundamental philosophy of marketing. It is an organizational culture that puts customers’ interests first in order to develop a long-term profitable enterprise. In essence, market orientation symbolizes the market-driven firm that is willing to constantly update its strategies using signals from the marketplace. Thus, marketing managers take market cues from the expressed needs and wants of customers. Consequently, the dominant orientation is that of a firm reacting to forces in the marketplace in order to differentiate itself from its competitors. This reactive ‘‘outside-in’’ perspective is reflected in the typical marketing manager’s reliance on marketing intelligence, forecasting, and market research.

While not denying this traditional market orientation, we also believe that market- ing managers should adopt an ‘‘inside-out’’ perspective and capabilities to shape or drive markets. This aspect of the link between strategic planning and marketing implementation has not been sufficiently treated in existing textbooks. For example, recent trends in technology licensing indicate that it is increasingly used as a conscious, proactive component of a firm’s global product strategy. We believe that it is important for marketers to influence those actions of the firm that are some distance away from the customer in the value chain, because such actions have considerable influence on the size of the market and customer choice in intermediate and end product markets.

A book cannot be written devoid of its authors’ background, expertise, and experience. Our book represents an amalgam of our truly diverse background, expertise, and experiences across North and South America, Asia, and Western and Eastern Europe. Given our upbringing and work experience in Asia, Western Europe, and Latin America, as well as our educational background in the United States, we have been sensitive not only to cultural differences and diversities but also to similarities.

Realistically speaking, there are more similarities than differences across many countries. In many cases, most of us tend to focus too much on cultural differences rather than similarities; or else, completely ignore differences or similarities. If you look only at cultural differences, you will be led to believe that country markets are uniquely different, thus requiring marketing strategy adaptations. If, on the other hand, you do not care about, or care to know about, cultural differences, you may be extending a culture-blind, ethnocentric view of the world. Either way, you may not benefit from the economies of scale and scope accruing from exploiting cultural similarities—and differences.

Over the years, two fundamental counteracting forces have shaped the nature of marketing in the international arena. The same counteracting forces have been revisited by many authors in such terms as ‘‘standardization vs. adaptation’’ (1960s), ‘‘globalization vs. localization’’ (1970s), ‘‘global integration vs. local respon- siveness’’ (1980s), ‘‘scale vs. sensitivity’’ (1990s), and more recently—let us add our own—‘‘online scale vs. offline market sensitivity.’’ Terms have changed, but the quintessence of the strategic dilemma that multinational companies (MNCs) face today has not changed and will probably remain unchanged for years to come.

Interdisciplinary Perspective

Proactive Orientation

Cultural Sensitivity

Our Pedagogical Orientation � xi

However, the terminology no longer expresses an either/or issue. Forward-looking, proactive firms have the ability and willingness to accomplish both tasks simulta- neously. As we explain later in the text, Honda, for example, developed its Accord car to satisfy the universal customer needs for reliability, drivability, and comfort, but marketed it as a family sedan in Japan, as a commuter car in theUnited States, and as an inexpensive sports car in Germany, thereby addressing cultural differences in the way people of different nationalities perceive and drive what is essentially the same car.

With our emphasis on global and proactive orientations, however, we will share with you how to hone your expertise, be culturally sensitive, and be able to see how to benefit from cultural similarities and differences.

We strongly believe that theory is useful to the extent that it helps in practice. And there are many useful theories for international marketing practices. Some of the practical theories are a logical extension of generic marketing theories you may have encountered in a marketing course. Others are, however, very much unique to the international environment.

Many people believe—rather erroneously—that international or global market- ing is just a logical extension of domestic marketing, and that if you have taken a generic marketing course, you would not need to learn anything international. The international arena is just like a Pandora’s box. Once you move into the international arena, there are many more facts, concepts, and frameworks you need to learn than you ever thought necessary in order to become a seasoned marketing manager working globally. To assist you in acquiring this new knowledge, various theories provide you with the conceptual tools that enable you to abstract, analyze, under- stand, and predict phenomena, and formulate effective decisions. Theories also provide you with an effective means to convey your logic to your peers and bosses with a strong, convincing power.

We also apply those theories in our own extensive international work advising corporate executives, helping them design effective global strategies, and teaching our students at various business schools around the world. Our role as educators is to convey sometimes-complex theories in everyday language. Our effort is reflected well in our textbook. This leads to our next orientation.

Not only is this book designed to be user-friendly, but it also emphasizes practice. We believe in experiential learning and practical applications. Rote learning of facts, concepts, and theories is not sufficient. A good marketing manager should be able to put these to practice. We use many examples and anecdotes, as well as our own observations and experiences, to vividly portray practical applications. This book also contains real-life, lively cases so you can further apply your newly acquired knowledge in practice, and experience for yourself what it takes to be an effective international marketing manager.

Therefore, this book has been written for both upper-level undergraduate and MBA students who wish to learn practical applications of marketing and related logic, and subsequently work internationally. Although we overview foundation materials in this book, we expect that students have completed a basic marketing course.

To further enhance your learning experience, Professor SyedAnwar ofWest Texas A&M University kindly shares his excellent international marketing one-stop search website, Marketing & International Links1 with you.

As we stated earlier, we extensively address the implications of the internet and e- commerce in global marketing activities. E-commerce is very promising, but various environmental differences—particularly cultural and legal as well as consumer-needs differences—are bound to prevent it from becoming an instantaneous freewheeling tool for global marketing. What we need to learn is how to manage online scale and

1 http://wtfaculty.wtamu.edu/�sanwar.bus/otherlinks.htm#Marketing_&_International_Business_Links

Research Orientation

Practical Orientation

Internet Implications

xii � Preface

http://wtfaculty.wtamu.edu/sanwar.bus/otherlinks.htm#Marketing_&_International_Business_Links
scope economies and offline sensitivities to different market requirements. We try our best to help you become internet-savvy. The internet is addressed in all the chapters where relevant. In particular, Chapter 19 provides an in-depth analysis of global marketing issues in the age of the internet. We admit that there are many more unknowns than knowns about the impact of the internet on global marketing activities. That is why we point out areas in which the internet is likely to affect the way we do business and have you think seriously about the imminent managerial issues that you will be dealing with upon graduation. Chapter 19 serves not as an epilogue to the fifth edition but as a prologue to your exciting career ahead of you.

While this book is designed to be user-friendly, it also emphasizes practice. We believe in Instructor Support Materials. To accomplish our stated goals and orienta- tions, we have made a major effort to provide the instructor and the student with practical theories and their explanations using examples, anecdotes, and cases to maximize the student’s learning experience. Some of the specific teaching features are:

� Global Perspectives—Included in every chapter, Global Perspectives provide con- crete examples from the global marketing environment into the classroom. They are designed to highlight some of the hottest global topics that students should be aware of and may actually act on in their careers. The instructor can use these inserts to exemplify theory or use them as mini-cases for class discussion.

� Long Cases—Long Cases are designed to challenge students with real and current business problems and issues. They require in-depth analysis and discussion of various topics covered in the chapters, and help students to experience how the knowledge they have gained can be applied in real-life situations. There are more than 40 cases covering various aspects of marketing situations as well as products, regions, and nationalities of firms. Six of them are included at the end of the text and the rest are placed on the textbook website for easy download.

� Short Cases—Short Cases are included at the end of each chapter and designed to address various specific issues explained in the chapters. These cases are useful in demonstrating to students the relevance of newly learned subject matters and are useful for open class discussions.

� Maps—The maps provided show the economic geography of the world. Students should be knowledgeable about where various economic resources are available and how they shape the nature of trade and investment and thus the nature of global competition. Global marketing cannot be appreciated without an understanding economic geography.

� Review Questions—Students may use the review questions to test themselves on and summarize the facts, concepts, theories, and other chapter materials in their own words. We strongly believe that by doing so, students will gain active working knowledge, rather than passive knowledge acquired by rote learning.

� Discussion Questions—These questions facilitate discussions that can help students apply the specific knowledge they learned in each chapter to actual business situa- tions. They are designed to serve as mini-cases. Most of the issues presented in these questions are acute problems multinational marketing managers are facing, and have been adapted from recent issues of leading business newspapers and magazines.

� The Instructor’s Manual—The Instructor’s Manual is designed to provide major assistance to the instructor while allowing flexibility in course scheduling and teaching emphasis. The materials in the manual include the following: a. Teaching Plans—Alternative teaching plans and syllabi are included to accom-

modate the instructor’s preferred course structure and teaching schedules. Alter- native teaching schedules are developed for the course to be taught in a semester format, on a quarter bases, or as an executive seminar.

b. Discussion Guidelines—For each chapter, specific teaching objectives and guide- lines are developed to help stimulate classroom discussion.

Our Pedagogical Orientation � xiii

c. Test Bank—A test bank consists of short essay questions and multiple-choice questions. This test bank is also computerized and available to adopters on IBM compatible computer diskettes.

d. PowerPoint Slides—These are available on the web to assist the instructor in preparing presentation materials.

e. Home Page on the Web—Make sure to visit our website http://www.wiley.com/ college/kotabe/ for useful instructional information.

f. Global Marketing Management System Online, 3.0 (GMMS03)—developed by Dr. Basil J. Janavaras, professor of International Business at Minnesota State University, is a Web-based global marketing management research and planning program. As a bonus, each student who purchases the fifth edition of Global Marketing Management will receive a complimentary registration code that will provide access to the software. This practical, realistic program guides students through the systematic and integrative process of gathering, evaluating, and using certain types of information to help them to determine which markets to enter with a particular product or service and to create a marketing plan for the country with the optimal market environment for penetration. It is both interactive and experiential. More specifically, the program enables students to do the following:

� Perform a situation analysis of a company in a global context. � Research global markets. � Identify high potential country markets for selected products or services. � Conduct in-depth market and competitive analysis. � Determine the best entry mode strategies. � Develop international marketing plans and strategies. A Student Guide, Glossary, and targeted Web-based resources are provided in

sample student projects asmodels to guide first-time users through theGMMSOprocess. An Instructor’s Manual is also available to those who use the GMMSO. It includes the following:

� Frequently asked questions/answers/suggestions. � Schedules for quarters and semester modules. � Table that correlates the software content with the content in the text. � Outlines for the presentation and the final paper. � PowerPoint presentation of the entire GMMSO for instructional purposes.

Additional benefits for Instructors:

� Monitor both individual & group-progress and review completed projects online. � Integrate knowledge from this and other courses. � Bridge the gap between theory and the real world of business. � Obtain technical support. If you are interested in using the GMMSO class project, register online at www.

gmmso3.com or contact your local Wiley representative for details at: www.wiley.com/ college/rep

Finally, we are delighted to share our teaching experience with you through this book. Our teaching experience is an amalgam of our own learning and knowledge gained through continued discussion with our colleagues, our students, and our executive friends. We would also like to learn from you, instructor and students, who use our book. Not only do we wish for you to learn from our book but we also believe that there are many more things that we can also learn from you. We welcome your sincere comments and questions. Our contact addresses are as follows:

Masaaki Kotabe Ph. (215) 204-7704

e-mail: mkotabe@temple.edu

Kristiaan Helsen Ph. (852) 2358-7720

e-mail: mkhel@ust.hk

xiv � Preface

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ACKNOWLEDGMENTS

This book would have never materialized without the guidance, assistance, and encour- agement of many of our mentors, colleagues, students, and executives with and from whomwe have worked and learned over the years. We are truly indebted to each one of them.Wealso thank themany reviewers for their constructive comments and suggestions that helped us improve our argument and clarity, and raise the quality of our book.

Thefirst co-authorwould like to extend thanks tohis colleagues around theworld.At Temple University, Dean Moshe Porat at the Fox School of Business, for emphasizing international business education and research as the school’s primary focus of excellence, and providing plentiful opportunities for this co-author to meet with and discuss with leading practitioners/executives of international business those emerging issues that are shaping and re-shaping the way business is conducted around the world. A good deal of credit also goes to Dan Zhang for having educated me with so many fascinating business examples and cases from around the world throughout the revision process.

Various colleagues outside Temple University have helped the first co-author in the writing process. Tim Wilkinson (Montana State University) offered an interesting insight into the workings of the European Union and its marketing peculiarities. Amal Karunaratna (University of Adelaide, Australia) assisted in providing interesting examples from ‘‘Down Under.’’ Taro Yaguchi (Omori & Yaguchi Law Firm, Phila- delphia) offered an update on ever-changing laws and treaties that affect firms marketing internationally. Sae-Woon Park (Changwon National University, Korea), who has many years of export management and export financing practices, assisted in documenting the most up-to-date and state-of-the-art export practices in use today.

The second co-author would like to extend his thanks to MBA students at the University of Chicago, Nijenrode University, Hong Kong University of Science and Technology, andMIM students at Thammasat University (Bangkok). He also acknowl- edges the valuable comments on Chapter 13 from Chris Beaumont and John Mackay, both with McCann-Erickson, Japan. Professor Niraj Dawar (University of Western Ontario, Canada) offered helpful insights on marketing in emerging markets. A word of gratitude for their feedback and encouragement is given to two colleagues who spent their sabbatical at HKUST: Jerry Albaum (University of Oregon) and Al Shocker (University of Minnesota); and special thanks to Romualdo Leones for some of the photo materials used in the new edition.

The textbook becomes ever more useful when accompanied by good resources for instructors and students. Preparing good resources is no small task. Chip Miller of Drake University deserves a special credit not only for preparing the excellent Resource Guide and Test Bank to go with the book but also for providing useful examples and insights throughout the revision process.

A very special word of appreciation goes to the staff of John Wiley & Sons, Inc., particularly, Franny Kelly and Maria Guarascio, and Cynthia Mondgock of iD8 Publishing Services, for their continued enthusiasm and support throughout the course of this project.

Finally and most importantly, we are deeply grateful to you, the professors, students, and professionals, for using this book. We stand by our book, and sincerely hope that our book adds to your knowledge and expertise. We would also like to continuously improve our product in the future.

As we indicated in the Preface, we would like to hear from you, our valued customers. Thank you!

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BRIEF CONTENTS

1 r GLOBALIZATION IMPERATIVE 1

2 r ECONOMICENVIRONMENT 32

3 r FINANCIALENVIRONMENT 66

4 r GLOBALCULTURALENVIRONMENTAND BUYINGBEHAVIOR 103

5 r POLITICALAND LEGALENVIRONMENT 141

6 r GLOBALMARKETINGRESEARCH 192

7 r GLOBAL SEGMENTATIONAND POSITIONING 221

8 r GLOBALMARKETING STRATEGIES 249

9 r GLOBALMARKETENTRYSTRATEGIES 290

10 r GLOBALPRODUCTPOLICYDECISIONS I:DEVELOPINGNEWPRODUCTS FOR GLOBALMARKETS 330

11 r GLOBALPRODUCTPOLICYDECISIONS II: MARKETINGPRODUCTS AND SERVICES 360

12 r GLOBALPRICING 395

13 r COMMUNICATING WITH THE WORLDCONSUMER 426

14 r SALES AND CROSS-CULTURALMANAGEMENT 465

15 r GLOBALLOGISTICS AND DISTRIBUTION 498

16 r EXPORTAND IMPORTMANAGEMENT 541

17 r PLANNING,ORGANIZATION, AND CONTROL OF GLOBALMARKETINGOPERATIONS 575

18 r MARKETING STRATEGIES FOR EMERGINGMARKETS 597

19 r GLOBALMARKETING AND THE INTERNET 626

Cases 659

Subject Index 691

Author Index 709

Company Index 717

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CONTENTS

1^GLOBALIZATION IMPERATIVE 1 Why Global Marketing is Imperative 2

Globalization of Markets: Convergence and Divergence 8

International Trade versus International Business 11

Who Manages International Trade? 12

Evolution of Global Marketing 13

What is Marketing? 13

Domestic Marketing 14

Export Marketing 16

International Marketing 17

Multinational Marketing 17

Global Marketing 18

The Impact of Economic Geography and Climate on Global Marketing 19

Short Cases 23

Appendix: Theories of International Trade and the Multinational Enterprise 25

2^ECONOMICENVIRONMENT 32 Intertwined World Economy 34

Foreign Direct Investment 36

Portfolio Investment 38

Country Competitiveness 39

Changing Country Competitiveness 39

Human Resources and Technology 40

Emerging Economies 42

Evolution of Cooperative Global Trade Agreements 45

General Agreements on Tariffs and Trade 45

World Trade Organization 46

Information Technology and the Changing Nature of Competition 51

Value of Intellectual Property in InformationAge 52

Proliferation of E-Commerce and Regulations 53

Regional Economic Arrangements 54

Free Trade Area 55

Customs Union 57

Common Market 57

Monetary Union 58

Political Union 58

Multinational Corporations 58

Short Cases 63

3^FINANCIALENVIRONMENT 66 Historical Role of the U.S. Dollar 67

Development of Today’s International Monetary System 68

The Bretton Woods Conference 68

The International Monetary Fund 69

The International Bank for Reconstruction and Development 71

Fixed versus Floating Exchange Rates 71

Currency Blocs 72

Foreign Exchange and Foreign Exchange Rates 74

Purchasing Power Parity 74

Forecasting Exchange Rate Fluctuation 75

Coping with Exchange Rate Fluctuations 75

Spot versus Forward Foreign Exchange 78

Exchange Rate Pass-Through 79

Balance of Payments 81

The Internal and External Adjustments 84

Economic and Financial Turmoil Around the World 85

Asian Financial Crisis and Its Aftermath 85

The South American Financial Crisis and Its Aftermath 86

The U.S. Subprime Mortgage Loan Crisis and the Subsequent Global Financial Crisis 87

Financial Crises in Perspective 88

Responses to the Regional Financial Crises 88

Marketing in the Euro Area 92

Historical Background 92

Ramifications of the Euro for Marketers 95

Short Cases 100

4^GLOBAL CULTURAL ENVIRONMENT AND BUYING BEHAVIOR 103 Definition of Culture 105

Elements of Culture 106

Material Life 106

Language 108

Social Interactions 111

Aesthetics 112

Religion 114

Education 115

Value Systems 117

xviii

Cross-Cultural Comparisons 118

High- versus Low-Context Cultures 118

Hofstede’s Classification Scheme 119

Project GLOBE 121

World Value Survey (WVS) 122

Adapting to Cultures 123

Culture and the Marketing Mix 125

Product Policy 126

Pricing 127

Distribution 128

Promotion 128

Organizational Cultures 130

Global Account Management (GAM) 132

Global Accounts’ Requirements 133

Managing Global Account Relationships 133

Global Customer Relationship Management (CRM) 134

Motivations 135

Gains from CRM 135

Challenges 136

Guidelines for Successful CRM Implementation 136

Short Cases 139

5^POLITICAL AND LEGALENVIRONMENT 141 Political Environment—Individual Governments 142

Home Country versus Host Country 142

Structure of Government 144

Government Policies and Regulations 146

Political Environment—Social Pressures and Political Risk 155

Social Pressures and Special Interests 155

Managing the Political Environment 158

Terrorism and the World Economy International Agreements 162

International Agreements 163

Group of Seven (G7), Group of Eight (G8), and Group of Eight plus Five (G8+5) 164

Wassenaar Arrangement 166

International Law and Local Legal Environment 167

International Law 167

Local Legal Systems and Laws 167

Jurisdiction 171

Issues Transcending National Boundaries 171

ISO 9000 and 14000 171

Intellectual Property Protection 172

International Treaties for Intellectual Property Protection 176

Antitrust Laws of the United States 180

Antitrust Laws of the European Union 182

U.S. Foreign Corrupt Practices Act of 1977 182

Short Cases 188

6^GLOBALMARKETINGRESEARCH 192 Research Problem Formulation 195

Secondary Global Marketing Research 197

Secondary Data Sources 197

Problems with Secondary Data Research 199

Primary Global Marketing Research 200

Focus Groups 200

Survey Methods for Cross-Cultural Marketing Research 202

Observational Research 206

Leveraging the Internet for Global Market Research Studies 206

Market Size Assessment 209

Method of Analogy 209

Trade Audit 210

Chain Ratio Method 211

Cross-Sectional Regression Analysis 212

NewMarket Information Technologies 213

Managing Global Marketing Research 215

Selecting a Research Agency 215

Coordination of Multicountry Research 216

7^GLOBAL SEGMENTATION AND POSITIONING 221 Reasons for International Market Segmentation 222

Country Screening 222

Global Marketing Research 223

Entry Decisions 223

Positioning Strategy 223

Resource Allocation 224

Marketing Mix Policy 224

International Market Segmentation Approaches 225

Segmentation Scenarios 227

Bases for International Market Segmentation 229

Demographics 230

Socioeconomic Variables 231

Behavior-Based Segmentation 234

Lifestyle 235

International Positioning Strategies 236

Uniform versus Localized Positioning Strategies 236

Universal Positioning Appeals 239

Global, Foreign, and Local Consumer Culture Positioning 240

Short Cases 244

Appendix: Segmentation Tools 247

8^GLOBALMARKETING STRATEGIES 249 Information Technology and Global

Competition 250

Real-Time Management 250

Online Communication 251

Electronic Commerce (E-Commerce) 251

Contents � xix

E-Company 253

Faster Product Diffusion 253

Global Citizenship 253

Global Strategy 254

Global Industry 254

Competitive Industry Structure 257

Competitive Advantage 259

Hypercompetition 264

Interdependency 264

Global Marketing Strategy 265

Benefits of Global Marketing 266

Limits to Global Marketing 268

R&D, Operations, and Marketing Interfaces 270

R&D/Operations Interface 272

Operations/Marketing Interface 273

Marketing/R&D Interface 275

Regionalization of Global Marketing Strategy 276

Cross-Subsidization of Markets 278

Identification of Weak Market Segments 278

Use of the ‘‘Lead Market’’ Concept 279

Marketing Strategies for Emerging Markets 280

Competitive Analysis 283

Short Cases 286

9^GLOBALMARKETENTRY STRATEGIES 290 Target Market Selection 291

Choosing the Mode of Entry 294

Decision Criteria for Mode of Entry 294

Mode-of-Entry Choice—Two Opposing Paradigms: A Transaction Costs versus Resource-Based View 297

Exporting 299

Licensing 301

Benefits 301

Caveats 302

Franchising 303

Benefits 304

Caveats 304

Contract Manufacturing (Outsourcing) 305

Benefits 305

Caveats 305

Expanding Through Joint Ventures 306

Benefits 307

Caveats 307

Drivers Behind Successful International Joint Ventures 308

Wholly Owned Subsidiaries 312

Benefits 312

Caveats 312

Acquisitions and Mergers 313

Greenfield Operations 315

Strategic Alliances 315

Types of Strategic Alliances 315

The Logic behind Strategic Alliances 316

Cross-Border Alliances That Succeed 316

Timing of Entry 317

Exit Strategies 319

Reasons for Exit 319

Risks of Exit 321

Guidelines 322

Short Cases 326

Appendix: Alternative Country Screening Procedure 329

10^GLOBALPRODUCTPOLICYDECISIONS I: DEVELOPING NEW PRODUCTS FORGLOBAL MARKETS 330 Global Product Strategies 332

Strategic Option 1: Product and Communication Extension—Dual Extension 332

Strategic Option 2: Product Extension— Communications Adaptation 333

Strategic Option 3: Product Adaptation— Communications Extension 333

Strategic Option 4: Product and Communications Adaptation—Dual Adaptation 333

Strategic Option 5: Product Invention 333

Standardization versus Customization 334

Drivers Toward Standardization 334

Two Alternatives—Modular and Core Product Approach 338

Back-of-the-envelope Calculations—Incremental Break-even Analysis (IBEA) 339

Multinational Diffusion 342

Developing New Products for Global Markets 344

Identifying New Product Ideas 344

Screening 346

Concept Testing 347

Test Marketing 347

Timing of Entry: Waterfall versus Sprinkler Strategies 348

Truly Global Product Development 351

Short Cases 355

Appendix: Using Conjoint Analysis for concept testing in Global New Product Development 357

11^GLOBALPRODUCTPOLICYDECISIONS II: MARKETING PRODUCTS AND SERVICES 360 Global Branding Strategies 362

Global Branding 362

Local Branding 366

Global or Local Branding? 367

Brand-Name Changeover Strategies 371

xx � Contents

Management of Multinational Product Lines 374

Product Piracy 378

Strategic Options against Product Piracy 380

Country-of-Origin (COO) Effects 382

Country-of-Origin (COO) Influences on Consumers 383

Strategies to Cope with COO Stereotypes 385

Global Marketing of Services 386

Challenges in Marketing Services Internationally 386

Opportunities in the Global Service Industries 387

Global Service Marketing Strategies 388

Short Cases 391

12^GLOBALPRICING 395 Drivers of Foreign Market Pricing 396

Company Goals 396

Company Costs 397

Customer Demand 398

Competition 398

Distribution Channels 400

Government Policies 401

Managing Price Escalation 402

Pricing in Inflationary Environments 403

Global Pricing and Currency Fluctuations 405

Currency Gain/Loss Pass Through 406

Currency Quotation 409

Transfer Pricing 409

Determinants of Transfer Prices 409

Setting Transfer Prices 410

Minimizing the Risk of Transfer Pricing Tax Audits 411

Global Pricing and Anti-dumping Regulation 412

Price Coordination 413

Global-Pricing Contracts (GPCs) 415

Aligning Pan-Regional Prices 415

Implementing Price Coordination 417

Countertrade 418

Forms of Countertrade 418

Motives behind Countertrade 420

Shortcomings of Countertrade 421

Short Cases 424

13^COMMUNICATING WITH THE WORLD CONSUMER 426 Global Advertising and Culture 427

Language Barriers 427

Other Cultural Barriers 429

Communication and Cultural Values 430

Setting the Global Advertising Budget 430

Budgeting Rules 431

Resource Allocation 433

Creative Strategy 434

The ‘‘Standardization’’ versus ‘‘Adaptation’’ Debate 434

Merits of Standardization 435

Barriers to Standardization 437

Approaches to Creating Advertising Copy 438

Global Media Decisions 440

Media Infrastructure 440

Media Limitations 441

Recent Trends in the Global Media Landscape 442

Advertising Regulations 444

Choosing an Advertising Agency 447

Other Means of Communication 449

Sales Promotions 449

Direct Marketing 451

Global Sponsorships 451

Mobile (Brand-in-the-Hand) Marketing 443

Trade Shows 443

Product Placement 454

Viral Marketing 455

Global Public Relations (PR) and Publicity 456

Globally Integrated Marketing Communications (GIMC) 457

Short Cases 461

14^ SALESANDCROSS-CULTURALMANAGEMENT 465 Market Entry Options and Salesforce Strategy 467

Role of Foreign Governments 470

Cultural Considerations 471

Personal Selling 471

Cultural Generalization 472

Corporate (Organizational) Culture 473

Relationship Marketing 473

Myers–Briggs Type Indicator 474

Impact of Culture on Sales Management and Personal Selling Process 475

Salesforce Objectives 476

Salesforce Strategy 477

Recruitment and Selection 478

Training 479

Supervision 480

Evaluation 482

Cross-Cultural Negotiations 482

Stages of Negotiation Process 482

Cross-Cultural Negotiation Strategies 483

Expatriates 486

Advantages of Expatriates 487

The Return of the Expatriate—Repatriation 492

Generalizations about When Using Expatriates Is Positive/Negative 493

Short Cases 495

Contents � xxi

15^GLOBALLOGISTICS AND DISTRIBUTION 498 Definition of Global Logistics 500

Managing Physical Distribution 502

Modes of Transportation 503

Warehousing and Inventory Management 505

Third-Party Logistic (3PL) Management 509

Logistical Revolution with the Internet 510

Managing Sourcing Strategy 511

Procurement: Types of Sourcing Strategy 512

Outsourcing of Service Activities 518

Free Trade Zones 520

International Distribution Channel 523

Channel Configurations 523

Channel Management 524

International Retailing 525

Private-Label Branding (Store Brands) 527

‘‘Push’’ versus ‘‘Pull’’ 528

On-Time Retail Information Management 529

Retailing Differences across the World 530

Short Cases 536

Appendix: Maquiladora Operation 539

16^EXPORT AND IMPORTMANAGEMENT 541 Organizing for Exports 543

Research for Exports 543

Export Market Segments 544

Indirect Exporting 545

Direct Exporting 547

Mechanics of Exporting 548

Legality of Exports 549

Export Transactions 550

Terms of Shipment and Sale 550

Payment Terms 551

Currency Hedging 553

Role of the Government in Promoting Exports 553

Export–Import Bank 556

Tariff Concessions 557

Export Regulations 557

Managing Imports—The Other Side of the Coin 559

Mechanics of Importing 561

Import Documents and Delivery 561

Import Duties 562

Gray Markets 563

Short Cases 572

17^PLANNING, ORGANIZATION, AND CONTROL OF GLOBALMARKETING OPERATIONS 575 Global Strategic Marketing Planning 576

Bottom-Up versus Top-Down Strategic Planning 576

Pitfalls 576

Key Criteria in Global Organizational Design 577

Environmental Factors 577

Firm-Specific Factors 578

Organizational Design Options 578

International Division Structure 579

Global Product Division Structure 579

Geographic Structure 580

Matrix Structure 583

The Global Network Solution 585

Organizing for Global Brand Management 587

Global Branding Committee 587

Brand Champion 587

Global Brand Manager 587

Informal, Ad Hoc Branding Meetings 587

Life Cycle of Organization Structures 588

Control of Global Marketing Efforts 590

Formal (‘‘Bureaucratic’’) Control Systems 590

Informal Control Methods 591

‘‘Soft’’ versus ‘‘Hard’’ Levers 592

Short Cases 595

18^MARKETING STRATEGIES FOREMERGING MARKETS 597 Emerging Markets 598

Definition 598

Characteristics of Emerging Markets 599

Competing with the New Champions 603

The New Champions 603

Computing Against the Newcomers 607

Targeting/Positioning Strategies in Emerging Markets—BOP or No BOP 608

Entry Strategies for Emerging Markets 611

Timing of Entry 611

Entry Mode 612

Product Policy 612

Product Design 612

Branding 613

Packaging 614

Pricing Strategy 615

The Distribution Challenge 616

Creating Distribution Systems 617

Managing Distributor Relationships 618

Communication Strategies for Emerging Markets 619

Push versus Pull Activities 619

Mass Media versus Non-Traditional Marketing Approaches 619

Short Cases 623

19^GLOBALMARKETING AND THE INTERNET 626 Barriers to Global Internet Marketing 627

Language Barriers 627

xxii � Contents

Cultural Barriers 628

Infrastructure 629

Knowledge Barrier 631

Access Charges 632

Legal Environment and Government Regulations 632

Competitive Advantage and Cyberspace 633

Global Internet Consumers 634

Globally Integrated versus Locally Responsive Internet Marketing Strategies 637

The Internet and Global Product Policy 641

Global Branding and the Internet 641

Web-based Global New Product Development 642

Web-based Marketing of Services 643

Global Pricing and the Web 644

Global Distribution Strategies and the Internet 645

Role of Existing Channels 645

E-Tailing Landscape 647

The Role of the Internet for Global Communication Strategies 648

Online Advertising 648

Non-Traditional (NT) Web-based Communication 650

Online Monitoring 652

Short Cases 655

CASES 659 Carrefour: Entry into India 660

Wal-Mart’s Rising Sun? A Case on Wal-Mart’s Entry into Japan 665

Arla Foods and the Mohammed Cartoon Controversy 671

Club Med: Going Upscale 674

Honda in Europe 679

SUBJECT INDEX 691

AUTHOR INDEX 711

COMPANY INDEX 719

The following additional cases appear on the textbook’s website:

Volkswagen AG Navigates China The Coca-Cola Company in Japan Wal-Mart Operations in Brazil Sony PS3 on the Run Nintendo: Expanding the Gaming

Population through Innovation Subway Restaurant Entry in Japan Virgin America Lands in the United States Kirin in Search of Growth Strategy Louis Vuitton in Japan: The Magic Touch Starbucks Coffee: Expansion in Asia Gap Inc. Motorola: China Experience iPod in Japan: Can Apple Sustain Japan’s

iPod Craze? NTT DoCoMo: Can i-Mode Go Global? The Future of Nokia Maybelline’s Entry into India Yahoo! Japan AOL Goes Far East Danone: Marketing the Glacier in the U.S.

BMWMarketing Innovation Herman Miller, Inc. vs. ASAL GmbH Nova Incorporated Ceras Desérticas and Mitsuba Trading Company The Headaches of GlaxoWelcome Benetton Two Dogs Bites into the World Market: Focus on

Japan ABC Chemical Company Goes Global DaimlerChrysler for East Asia Shiseido, Ltd.: Facing Global Competition SMS Pacs Daimler-Benz Ag: The A-Class and the

“Moose-Test” Pepsi One Unisys Ford Motor Company and Die Development Citibank in Japan Kao Corporation: Direction for the 21st Century Planet Hollywood: The Plate is Empty Hoechst Marion Roussel: Rabipur Rabies Vaccine

Contents � xxiii

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GLOBALIZATION IMPERATIVE

CHAPTER OVERVIEW 1. WHYGLOBALMARKETING IS IMPERATIVE

2. GLOBALIZATION OFMARKETS: CONVERGENCE ANDDIVERGENCE

3. EVOLUTION OF GLOBALMARKETING

4. APPENDIX: THEORIES OF INTERNATIONALTRADE AND THEMULTI-

NATIONAL ENTERPRISE

Marketing products and services around the world, transcending national and political boundaries, is a fascinating phenomenon. The phenomenon, however, is not entirely new. Products have been traded across borders throughout recorded civilization, extending back beyond the Silk Road that once connected East with West from Xian to Rome on land, and the recently excavated sea trade route between the Roman Empire and India that existed 2,000 years ago. However, since the end ofWorldWar II, the world economy has experienced a spectacular growth rate never witnessed before in human history, primarily led by large U.S. companies in the 1950s and 1960s, then by European and Japanese companies in the 1970s and 1980s, and most recently by new emerging market firms, such as Lenovo, Mittal Steel, and Cemex. In particular, competition coming recently from the so-called BRIC countries (Brazil, Russia, India, China) has given the notion of global competition a touch of extra urgency and significance that you see almost daily in print media such as the Wall Street Journal, Financial Times, Nikkei Shimbun, and Folha de S~ao Paulo, as well as in TV media such as BBC, NBC, and CNN. With a few exceptions, such as Korea’s Samsung Electronics (consumer electronics) and China’s Haier (home appliances), most emerging-market multinational companies are not yet household names in the industrialized world, but from India’s Infosys Technologies (IT services) to Brazil’s Embraer (light jet aircrafts), and from Taiwan’s Acer (computers) to Mexico’s Cemex (building materials), a new class of formidable competitors is rising.1

1 ‘‘A New Threat to America Inc.’’ Business Week, July 25, 2005, p. 114; and also read Martin Roll, Asian Brand Strategy: How Asia Builds Strong Brands, New York: Palgrave Macmillan, 2006.

1

In this chapter, we will introduce to you the complex and constantly evolving realities of global marketing. Global marketing refers to a strategy for achieving one or more of four major categories of potential globalization benefits: cost reduction, improved quality of products and programs, enhanced customer preference, and increased competitive advantage on a global basis. The objective is to make you think beyond exporting and importing. As you will learn shortly, despite widemedia attention to them, exporting and importing constitute a relatively small portion of international business.We are not saying, however, that exporting and importing are not important. In 2006, the volume of world merchandise trade grew by 8 percent, while world gross domestic product recorded a 3.5 percent increase, which confirms that the trend in world merchandise trade grows by twice the annual growth rate of output since 2000. Total merchandise trade volume reached $16.3 trillion in 2008, compared to $6 trillion in 2000.2 In recent years, improved market conditions in the United States and Europe, as well as strong growth in the Emerging Markets, such as China and India, steadily improved the world economy after the devastating terrorist attacks in the United States on September 11, 2001. However, the aftermath of theU.S.-led war against Iraq, the high oil prices, and most recently, the unprecedented global recession triggered by the subprime mortgage crisis in the United States in 2008, among other things, continue to curb a full-fledged recovery in the world economy. Indeed, at the time of this writing in early 2009, as the global economy is currently experiencing the worst recession since the Great Depression of 1929–1932, World Bank predicts that the world trade volume will shrink in 2009 for the first time in over 25 years,3 and the specter of economic nationalism—the country’s urge to protect domestic jobs and keep capital at home instead of promoting freer international trade—is hampering further globalization.4

Although sometimes bumpy, it is expected that the drive for globalization will continue to be promoted through more free trade, more Internet commerce, more networking of businesses, schools and communities, and more advanced technologies.5

r r r r r r r r WHYGLOBALMARKETING IS IMPERATIVE

We frequently hear terms such as global markets, global competition, global technology, and global competitiveness. In the past, we heard similar words with international or multinational instead of global attached to them. What has happened since the 1980s? Are these terms just fashionable concepts of the time without some deep meanings? Or has something inherently changed in our society?

Saturation of Domestic Markets. First, and at the most fundamental level, the saturation of domestic markets in the industrialized parts of the world forced many companies to look for marketing opportunities beyond their national boundaries. The economic and population growths in developing countries also gave those companies an additional incentive to venture abroad. Now companies from emerging economies, such as Korea’s Samsung and Hyundai and Mexico’s Cemex and Grupo Modelo, have made inroads into the developed markets around the

2 The World Factbook 2009, https://www.cia.gov/library/publications/the-world-factbook/index.html. 3World Bank, Global Economic Prospect 2009, www.worldbank.org/gep2009. 4 ‘‘The Return of Economic Nationalism,’’ Economist, February 7, 2009, pp. 9–10. 5The reader needs to be cautioned that there may be limits to the benefit of globalization for two primary reasons. First, firms in poor countries with very weak economic and financial infrastructures may not be able to (afford to) adjust fast enough to the forces of globalization. Second, poor countries could be made worse off by trade liberalization because trade tends to be opened for high-tech goods and services exported by rich countries – such as computers and financial services – but remains protected in areas where those poor countries could compete, such as agricultural goods, textiles or construction. See, for example, Joseph E. Stiglitz, Globalization and Its Discontents, New York: W.W. Norton & Co., 2003. For an excellent treatise on various paradoxes of globalization, refer to Terry Clark, Monica Hodis, and Paul D’Angelo, ‘‘The Ancient Road: An Overview of Globalization,’’ in Masaaki Kotabe and Kristiaan Helsen, ed., The SAGE Handbook of International Marketing, London: Sage Publications, 2009, pp. 15–35.

2 � Chapter 1 � Globalization Imperative

https://www.cia.gov/library/publications/the-world-factbook/index.html
world. The same logic applies equally to companies from developed countries, such as Australia and New Zealand, geographically isolated from the other major industrialized parts of the world. Dôme Coffees Australia is building a multi- national coffee shop empire by expanding into Asia and the Middle East. Inevita- bly, the day will come when Starbucks from the United States and Dôme Coffees from Australia will compete head-on for global dominance.6

Emerging Markets. During the twentieth century, the large economies and large trading partners have been located mostly in the Triad Regions of the world (North America, Western Europe, and Japan), collectively producing over 80 percent of world gross domestic product (GDP) with only 20 percent of theWorld’s population.7

However, in the next 10 to 20 years, the greatest commercial opportunities are expected to be found increasingly in ten Big Emerging Markets (BEMs)—the Chinese Economic Area, India, Commonwealth of Independent States (Russia, Central Asia, and Caucasus states), South Korea, Mexico, Brazil, Argentina, South Africa, Central European countries, Turkey, and the Association of Southeast Asian Nations (Indonesia, Brunei, Malaysia, Singapore, Thailand, the Philippines, and Vietnam). Accordingly, an increasing number of competitors are expected to origi- nate from those ten emerging economies. In the past 20 years, China’s real annual GDP growth rate has averaged 9.5 percent a year; while India’s has been 5.7 percent, compared to the average 3 percent GDP growth in the United States. Clearly, the milieu of the world economy has changed significantly and over the next two decades the markets that hold the greatest potential for dramatic increases in U.S. exports are not the traditional trading partners in Europe, Canada, and Japan, which now account for the overwhelming bulk of the international trade of the United States. But they will be those BEMs and other developing countries that constitute some 80 percent of the ‘‘bottom of the pyramid.’’8 As the traditional developed markets have become increasingly competitive, such emerging markets promise to offer better growth opportunities to many firms.

Global Competition. We believe something profound has indeed happened in our view of competition around the world. About thirty years ago, the world’s greatest automobile manufacturers wereGeneralMotors, Ford, and Chrysler. Today, companies like Toyota, Honda, BMW, Renault, and Hyundai, among others, stand out as competitive nameplates in the global automobile market. Now with a 15-percent market share in the United States, Toyota’s market share is larger than Ford’s 14 percent. In early 2008, Toyota surpassed General Motors to become the world’s largest automaker in terms of worldwide output.9 Similarly, while personal computers had been almost synonymous with IBM, which had previously dominated the PC business around the world, today, the computer market is crowded with Dell and Hewlett- Packard (HP) from the United States, Sony and Toshiba from Japan, Samsung from Korea, Acer from Taiwan,10 and so on. Indeed, Lenovo, a personal computer company from China, acquired the IBM PC division in 2005, and now sells the ThinkPad series under the Lenovo brand. The deal not only puts Lenovo into third place in the industry, it also challenges the world top players, Dell and HP/Compaq, respectively.11 Nike is a

6 ‘‘Bean Countess,’’ Australian Magazine, December 9–10, 2000, p. 50+. 7L. Bryan,Race for theWorld: Strategies to Build AGreat Global Firm, Boston, MA: Harvard Business School Press, 1999. 8C. K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Philadelphia, PA: Wharton School Publishing, 2004. 9 ‘‘Toyota’s Global Sales Top GM by 277,000 Units in 1st Half,’’ Nikkeinet Interactive, www.nni.nikkei.co.jp, July 24, 2008.Catches GM in Global Sales,’’ CNNMoney.com, January 23 2008. 10 ‘‘Why Taiwan Matters: The Global Economy Couldn’t Function without It, but Can It Really Find Peace with

China?’’ Business Week, May 16, 2005, pp. 74–81. 11 ‘‘Can China’s Lenovo Brand in the Land of Dell?’’ B to B, October 10, 2005, p. 1 and p. 45.

Why Global Marketing Is Imperative � 3

U.S. company with a truly all-American shoe brand, but all its shoes are made in foreign countries and exported to many countries. Pillsbury (known for its Betty Crocker recipes and H€aagen-Dazs ice cream brand) and 7-Eleven convenience stores are two American institutions owned and managed, respectively, by Diageo from the United Kingdom and Seven & i Holdings Co. from Japan. On the other hand, the world of media, led by U.S. media giants, has become equally global in reach. MTV, targeting teenage audiences, has 35 channels worldwide, 15 of them in Europe, produces a large part of its channel contents locally. CNN has 22 different versions. In 1996, 70 percent of the English-language version of CNN International was American; today that share has shrunk to about 8 percent.12 The video game industry is truly global from day one; Nintendo’sWii, Sony’s Playstation 3, andMicrosoft’s Xbox now vie for customers in the Triad regions simultaneously.

Global Cooperation. Global competition also brings about global cooperation. This is most obvious in the information technology industry. IBM and Japan’s Fujitsu used to be archrivals. Beginning in 1982, they battled each other for fifteen years in such areas as software copyright. But in October 2001, they developed a comprehen- sive tie-up involving the joint development of software and themutual use of computer technology. IBM would share its PC server technology with Fujitsu and the Japanese company would supply routers to IBM.13 Japan’s Sony, Toshiba, and U.S. computer maker IBM are jointly developing advanced semiconductor processing technologies for next-generation chips. As part of the project, IBM transfers its latest technologies to Sony and Toshiba, and the partner companies each send engineers to IBM’s research center in New York to work on the joint project.14 Similarly, in the automo- tive industry, in 1999 French carmaker Renault SA took a 36.8 percent stake in Japanese carmaker Nissan Motor Corp. The two companies began producing cars on joint platforms in 2005. To help pave the way for that, in March, 2001 the two carmakers decided that they would combine their procurement operations in a joint-venture company that would eventually handle 70 percent of the companies’ global purchasing. The joint venture is headquartered in Paris, with offices in Japan and the United States.15

Globe-trotting companies are vying for customers’ ‘‘mind share’’ in many parts of the world such as in Piccadilly Circus, London, England.

JTB Photo/Photolibrary Group Limited

12 ‘‘Think Global,’’ Economist, April 11,2002.

13 ‘‘Fujitsu, IBM Negotiate Comprehensive Tie-up,’’ Nikkei Interactive Net, www.nni.nikkei.co.jp, October 18, 2001.

14 ‘‘IBM, Sony, Toshiba Broaden and Extend Successful Semiconductor Technology Alliance,’’ IBM Press Room,

http://www-03.ibm.com/press/us/en/pressrelease/19103.wss, January 12, 2006,’’ Nikkei Interactive Net, www.nni .nikkei.co.jp, April 2, 2002. 15 ‘‘Nissan and Renault Look to Boost Joint Procurement Efforts,’’ Japan Times, November 29, 2002.

4 � Chapter 1 � Globalization Imperative

http://www-03.ibm.com/press/us/en/pressrelease/19103.wss
Internet Revolution. The proliferation of the Internet and e-commerce is wide reaching. The number of Internet users in the world reached 1.4 billion by March 2008, which amounts to almost three times that of 2000. According to Internet World Stat,16

41.2 percent of the Internet users come from Asia, followed by 24.6 percent and 15.7 percent from Europe and North America, respectively. Although the Middle East and Africa account for only 6.3 percent of Internet users, these two regions rank top two in their usage growth of over ten times between 2000 and 2008. In the same period, Internet usage in Asia and Latin America/Caribbean grew by 475 percent and 861 percent, respectively. As a result, the total global e-commerce turnover balloonedmore than 33 times from $385 billion in 2000 to $12.8 trillion in 2006, taking up 18 percent of the global trade of commodities in 2006. Developed countries led by the United States are still leading players in this field, while developing countries like China are emerging, becoming an important force in the global e-commerce market.17

Compared to business-to-consumer (B2C) e-commerce, business-to-business (B2B) e-commerce is larger, growing faster, and has less unequal geographical distribution globally.18 Increases in the freedom of the movements of goods, services, capital, technology, and people, coupled with rapid technological development, resulted in an explosion of global B2B e-commerce. The share a country is likely to receive of the global B2B e-commerce, on the other hand, depends upon country-level factors such as income and population size, the availability of credit, venture capital, and telecom and logistical infrastructure; tax and other incentives, tariff/nontariff barriers, government emphasis on the development of human capital, regulations to influence firms’ investment in R&D, organizational level politics, language, and the activities of international agencies.19

Who could have anticipated the expansion of today’s e-commerce companies, including Amazon, eBay, and Yahoo in the United States; QXLRicardo and Kelkoo in Europe; Rakuten and 7dream in Japan, and Baidu in China? The Internet opened the gates for companies to sell direct-to-consumers easily across national boundaries.Many argue that e-commerce is less intimate than face-to-face retail; however, it actually provides more targeted demographic and psychographic information.

Manufacturers that traditionally sell through the retail channel may benefit the most from e-commerce. Most importantly, the data allow for the development of relevant marketing messages aimed at important customers and initiate loyal relation- ships on a global basis.20 With the onset of satellite communications, consumers in developing countries are equally familiar with global brands as consumers in developed countries, and as a result, there is tremendous pent-up demand for products marketed by multinational companies (which we also refer to as MNCs).21