GM Exam Revision (April 2014)

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GM Exam Revision (April 2014)

  1. 1. 3 - 1 MKTG 1064 Exam Revision Lecture Notes Global Jan 2014 Semester Note: this hand-out is provided to help students with revision. It does NOT constitute a forecast or prediction of what will come out in the exam. You are strongly advised to read thoroughly the core chapters taught in class and be well prepared across all the key topics. There is NO guarantee provided by reading these revision notes on the outcome of your final exam grade. Good Luck
  2. 2. Exam Advice (posted on RMIT BB 4 March 2014) Posted by: Kathleen Griffiths • Posted to: MKTG1064_1420 Global Marketing • Exam format .Posted on: Tuesday, 4 March 2014 13:45:33 o'clock EST • Your exam will be held in the official exam period. The format is as follows: • 30 MC from the whole course from he 4th edition of the prescribed textbook. Worth 20 marks. This might take you up to 60 minutes to read and complete • 2 short answer essays from as choice of 4. You are expected to answer these in about 30 minutes each and they should therefore be about 2 pages in length each. • Topics for the exams will come from the folowing list: • culture, logistics, research, pricing, economy, politics and market entry.
  3. 3. 30 MCQ covering the whole book • Surely no one can read the whole book • But certain topics from PES , market entry, the 4 Ps will be read in more depth • Some MC questions you will know the answer because you have learnt the topic well • There will be around 2-4 that you wont know the answer so you need to “guess” the best possible option
  4. 4. Essay Questions • There are Seven Topics given • But only Four Essay Questions to Choose Two • So there is some element of RISK • Study very well – Culture – Market Entry – Research – Political – Economic Back up topics (contingency) : this means you skim read the materials and have a basic understanding (then you pray that you are not required to answer them!!) - Pricing - Logistics
  5. 5. Note of Caution! • This set of revision slides is only meant for in- class revision. • These notes are only a REMINDER of the key points for the different topics • These are NOT complete revision notes • You are required to refer to the week lecture notes given by me and discussed in class • Therefore your responsibility is still to read all the exam assigned chapters from the text and my lecture notes (IN FULL)
  6. 6. Writing your answers • Make sure you address all the parts. A question may not show sections BUT the punctuation will indicate there are sections. • Use section headings to clearly indicate the main issues in the answer • At different intervals use the “previously prepared examples/cases (that you should have already done by now) to illustrate your key points • Do not write in point form UNLESS you are listing (in the middle of the main answer) some factors or advantages and disadvantages • Cover around 2-3 pages per question to aim for Distinction!
  7. 7. Starting Point: All must read Chapter One (even if its not tested) • It is after all the INTRO to GM • Key concepts and terms :EPRG, Global Marketing • Definition of the different forms of GM – Export marketing – International marketing – Global marketing • Why do companies go global (factors/drivers)
  8. 8. Culture • Elements • Hosfstede • SRC • High and Low context • How culture affects the marketing mix Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 1
  9. 9. Defining Culture  The A-B-C-D of Culture Access Buyer Behavior Consumption Characteristics Disposal 3-9
  10. 10. 3-10
  11. 11. Elements of Culture 3-11
  12. 12. Elements of Culture  Identity  Material Life  Language  Social Interactions  Aesthetics  Religion  Education  Value Systems 3-12 Read up on each one of the elements from the text/notes and understand how they are related to decisions on marketing mix for international marketing
  13. 13. Cross-cultural comparisons High-context versus low-context cultures  High Context  A culture that communicates mostly through implicit messages Chinese – rich in metaphor  Low Context  A culture that communicates mostly through explicit message English – rich in depth of language 3-13
  14. 14. Cross-cultural comparisons  Hofstede’s classification scheme  Power Distance  Uncertainty avoidance  Individualism versus Collectivism  Masculinity versus Feminity  Long-term orientation 3-14
  15. 15. A key issue to note: Convergence or Divergence? This will have implications on the topics of adaptation and standardization of the marketing programs across country markets 3-15
  16. 16. Adapting to Cultures  Self Reference Criterion (SRC)  Tendency to resort to one’s own cultural experiences to interpret a situation  Important (but difficult) for the marketer to divorce themselves from this How does an American think un-American or a Singaporean think un-Singaporean? ‘out of body’ experience 3-16
  17. 17. Adapting to Cultures  Ethnocentrism  The belief that one’s own culture is superior  Perhaps even more dangerous than SRC Introducing products with too little adaptation in the belief that the home culture will win out Dr Pepper in Australia Disney in France 3-17
  18. 18. Self reference criterion (SRC)  (SRC) is the cultural baggage that the business person takes overseas.  Our perception of the needs of the overseas market is blocked by our own cultural experience  There is a danger that many marketers try to superimpose their home marketing strategies into host country markets (‘what works well back home must surely work well here”)  Recipe for disaster  ‘Ethnocentric approach’ to marketing 3-18
  19. 19. Give examples of how the self-reference criterion might be manifested.  The self-reference criterion is manifested in marketing strategies that fail to differentiate between the cultures of target countries and the culture from which the exports originate.  We impose our cultural values on the other countries when we assume that they will want to purchase any products that are popular domestically.  SRC often results in product failures or advertising campaigns that are perceived by the local market as being distasteful or failing to appreciate local values and customs 3-19
  20. 20. Culture and the Marketing Mix Product Pricing Distribution Promotion 3-20 Impact of Culture in International Marketing Context What should the marketer take careful attention of? What aspects of the MM will be impacted by differences in culture? And what changes need to be made?
  21. 21. Reminder: How culture impacts on Marketing Mix elements (source: Kotler, Armstrong and da Silva; 2006) 3-21
  22. 22.  Product: culture has a direct or indirect impact on the Product element of the marketing mix affecting areas such as  Product design, color and packaging  Brand names and symbols  Adoption behavior (or resistance) to new product innovations Culture and the Marketing Mix 3-22
  23. 23. Culture and the Marketing Mix  Product  Some products are very culturally bound which can be both good and bad Vegemite works well in Australia but nowhere else Skin whitening cream in Asia but suntan lotion in the west Louis Vuitton works well overseas because it is French The ‘country effect’ 3-23
  24. 24. Culture and the Marketing Mix  Price  Determined by the interplay of the 4 C’s 1. Customers 2. Company 3. Competition 4. Collaborators  All of which can vary across cultures  High price might emphasize quality in one culture  But emphasize status in another  Implication: don’t assume that all brands carry the same positioning in all country markets 3-24
  25. 25. Culture and the Marketing Mix  Distribution  There could be many aspects on the Place element Consider impact on retailing Consider impact on working with distributors in the channel (personal networking and relationships)  Cultural implications of certain distribution models ‘direct to customer’ versus ‘High Street retailer’ 3-25
  26. 26. Culture and the Marketing Mix  Promotion  Promotion has probably the greatest impact from culture  Promotions involve language, ideas and symbols  Advertising will be impacted by local languages and customs The challenge would be to create global advertising campaigns 3-26
  27. 27. Culture and the Marketing Mix  Promotion  High context versus low context language based cultures Inferred versus directly stated High power distance cultures and celebrity endorsements Local taboos Swearing in commercials  How appropriate is the Australian Tourism commercial in some parts of Asia? 3-27
  28. 28. Personal contacts and negotiations  Impact of culture on face to face marketing: Personal selling in marketing Developing market entry (partners / JV) Negotiating with Trade channel members Personal selling in consumer markets 3-28
  29. 29. When international marketers take their products or services to overseas markets, they need to consider all cultural elements when investigating the new market. Two of the elements discussed in the text-book are education and language. Using examples, discuss how these two elements would affect the way a company markets its product or service in a foreign country. Specimen Question #1 3-29
  30. 30. Specimen Question #2 Discuss four examples of how elements of a country's culture can affect a global marketer's promotion strategy. Note: this question reminds us of how a topic can be integrated across chapters- this covers BOTH culture and its impact on marketing communications strategies 3-30
  31. 31. Specimen Question #3  What is culture and why is it important in global marketing? Use examples to show your understanding of culture’s complexities 31
  32. 32. Specimen Question #4  What are some possible issues in applying the Power-Distance classification in Hofstede’s classification scheme in a global marketing context? Use your own examples to discuss. 3-32
  33. 33. Specimen Question #5  What is the difference the difference between high and low context cultures? Explain how the marketing communication mix needs to be adapted to cater for these differences. Provide examples that illustrate your understanding. 3-33 Again this question covers BOTH culture and its impact on international marketing communications strategies
  34. 34. Specimen Question #6  For any 3 elements of culture, discuss why each is important in global marketing. Provide examples that illustrate your understanding 3-34
  35. 35. Specimen Question #7  The self-reference criterion has important implications for international marketing. Explain the self-reference criterion and discuss its implications for each element of the marketing mix. 3-35
  36. 36. Political • Types of government systems • Political Risks • Legal Systems • OR this topic could be taken from the chapter on Economic Factors relating to role of government in regulating trade and international business Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 2
  37. 37. Political environment individual governments Structure of government — ideology  Communism  system with strict regulation of private ownership  most enterprises are state owned  Capitalism  system where free enterprise and private ownership is encouraged  Socialism  encourages ownership where the assets are considered critical to the nation
  38. 38. Political Environment Individual Governments  An important role of government is to promote a country’s national interests  They invest in important industries  Offer incentives to a variety of industries  Restrict or block trade  National security  Develop new industries  Protect declining industries 4-38
  39. 39. Areas in which government policies affect business operations Government policy areas  Legal  What level of taxation is required?  Is it different for foreign enterprises?  What are the labor laws?  Can I lay-off staff easily if I have to?  What subsidies will the government provide?  Am I in an industry important enough to attract government subsidy?  Will subsidies provided to local companies create unfair advantage to the foreign firm? 4-39
  40. 40. Political Environment Individual Governments  Government policies and regulation  Macroeconomic policies  Macroeconomic policies determine  cost of capital  level of economic growth  rates of inflation  international exchange rates • Managed through: ― fiscal policy and monetary policy 4-40
  41. 41. Protectionism and Trade Restrictions  Tariffs  Quotas  Orderly marketing arrangements (voluntary export restrictions)  Non-tariff barriers 2-41 Implications: Marketers who want to send products to foreign markets must think of strategies on how to overcome tariff and non-tariff barriers
  42. 42. 4-42 Barriers to Trade Instituted by Governments
  43. 43. Government policy areas and instruments43
  44. 44. Forms of Host Country Controls • Expropriation – Taking of private property with compensation. • Confiscation – Taking of private property without compensation. • Domestication – To gain control over foreign investment through demanding partial transfer of ownership and imposed regulations. – Raise tax rates. – Price controls. 4-44
  45. 45. Politically Sensitive Products and Issues • Products that have or are perceived to have an effect on the environment, exchange rates, national and economic security, and the welfare of people and that are publicly visible or subject to public debate, are more likely to be politically sensitive. • Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concern. • The European Union has banned hormone treated beef for more than a decade. 4-45
  46. 46. 5-46 Political Risk • Risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably When perceived political risk is high, a country will have a difficult time attracting foreign direct investment.
  47. 47. 5-47 Political Risk • Some examples of political risk include: – War – Social unrest – Politically-motivated violence – Transparency – Social conditions (population density and wealth distribution) – Corruption, nepotism – Crime – Labor costs – Tax discrimination
  48. 48. Political environment – social pressures and political risk Table 3.2
  49. 49. Political Risks of Global Business • Confiscation – the seizing of a company’s assets without payment. • Expropriation – where the government seizes an investment but some reimbursement for the assets is made. • Domestication – when host countries gradually cause the transfer of foreign investments to national control and ownership through a series of government decrees by mandating local ownership and greater national involvement in a company’s management. 4-49
  50. 50. Specimen question #1 For a country of your choice demonstrating the use of a democratic political system and a common law legal system, and using your own example/s, show how these systems might affect the marketing mix for your chosen product/service. Note : this question combines the topics of political and legal factors and its impact on marketing mix
  51. 51. Specimen Question #2 List and briefly describe the three main reasons why governments often want to block or restrict trade. Describe three actions a government can take to encourage international trade. 2-51
  52. 52. Why might a foreign government want to discourage or block global marketers, and what actions might they take to do this? 2-52 Specimen Question #3
  53. 53. Specimen Question #4  Why and how would governments restrict trade? Use examples to illustrate. 2-53
  54. 54. Economic • The different classification of economic development • What factors would marketers look for when assessing the economic attractiveness of a country market? • Economic risks • Types of Regional Cooperation Arrangements Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 3
  55. 55. ECONOMIC VARIABLES 1. One area that the chapter does not elaborate sufficiently is that relating to discussion of the “economic variables” 2. This is important for your project since you would need to assess market potential and market demand in order to do country market screening and market entry and marketing strategies 3. The economic factors that you would normally do in a typical PEST analysis are the ones you would consider.
  56. 56. Lee and Carter: Global Marketing Management, 3rd edition The Economic Environment • Market potential can be gauged by assessing population size, growth, density, distribution, age distribution, disposable income and its distribution • An Economic Environmental Analysis can involve asking: – How big is the population and at what rate is it growing? – Where is the population located and how dense is it? – What is the population age and distribution? – What is its disposable income and distribution?
  57. 57. Economic Factors considered in International Marketing  Size of market- population and demographics  National Income (GNP)  Purchasing Power  Availability of Credit Importance: it determines the attractiveness of the market in terms of demand and buying power of the local population. An international marketing firm would gravitate towards countries that have high disposable incomes
  58. 58. Economic Factors in Global Markets  Population demographics  Age distribution, life expectancies, household size, urbanization.  Income  Distribution of low, medium, and high incomes.  Gross domestic product per capita.  Purchasing power parity.  Consumption patterns  Income spent on necessities and luxuries.  Product saturation or diffusion.  Product form differences.
  59. 59. Economic Factors(continued)  Availability and quality of infrastructure  Rail traffic networks for distribution capabilities.  Communication systems for marketing.  Energy (electrical and fuel) consumption.  Impact of the economic environment on social development  Urbanization, life expectancy, literacy rates, etc.  Physical Quality of Life Index (PQLI).
  60. 60. Global Marketing Mix Product Promotion Place Price Reminder :Impact of Economic Factors on the Marketing Mix
  61. 61. Types of Economies  Developed triad Economies  account for 80% of world trade  Emerging Economies  huge and growing consumer demand  government directed economic reforms  ‘dual economy’  Less Developed Countries (LDCs)  low GDP, limited manufacturing base  infrastructure weaknesses  heavy reliance on one product/one trading partner
  62. 62. 2-62 Marketing Opportunities in LDCs • Characterized by a shortage of goods and services • Long-term opportunities must be nurtured in these countries – Look beyond per capita GNP – Consider the LDCs collectively rather than individually (regional cluster) – Consider first mover advantage (get in early) – Set realistic deadlines
  63. 63. 2-63 Mistaken Assumptions about LDCs 1. The poor have no money. 2. The poor will not “waste” money on non- essential goods. 3. Entering developing markets is fruitless because goods there are too cheap to make a profit. 4. People in BOP (bottom of the pyramid) countries cannot use technology. 5. Global companies doing business in BOP countries will be seen as exploiting the poor.
  64. 64. THERE IS MONEY TO BE MADE IN LESS DEVELOPED COUNTRIES Professor C K Prahalad book on marketing to less developed countries could be as lucrative as more affluent countries Refer to link for summary: http://www.12manage.com/methods_prahalad _bottom_of_the_pyramid.html
  65. 65. 2-65 High-Income Countries • GNI per capita: $12,196 or more • Also known as advanced, developed, industrialized, or postindustrial countries • Characteristics: – Sustained economic growth through disciplined innovation – Service sector is more than 50% of GNI – Households have high ownership levels of basic products Tokyo
  66. 66. 2-66 High-Income Countries • Characteristics, continued: – Importance of information processing and exchange – Ascendancy of knowledge over capital, intellectual over machine technology, scientists and professionals over engineers and semiskilled workers – Future oriented – Importance of interpersonal relationships
  67. 67. Economic Risks • Exchange controls – Stem from shortages of foreign exchange held by a country. • Local-content laws – Countries often require a portion of any product sold within the country to have local content. • Import restrictions – Selective restrictions on the import of raw materials to force foreign industry to purchase more supplies within the host country and thereby create markets for local industry 4-67
  68. 68. Economic Risks (continued) • Tax controls – A political risk when used as a means of controlling foreign investments. • Price controls – Essential products that command considerable public interest • Pharmaceuticals • Food • Gasoline • Labor problems – Labor unions have strong government support that they use effectively in obtaining special concessions from business. 4-68
  69. 69. Forms of Economic Integration 2-69
  70. 70. Regional Economic Integration (summary)  Levels of economic integration  Free Trade Area  Least restrictive.  Goods and services are freely trades among all members. Each country maintains its own trade barriers for nonmembers.  Customs Union  Members establish a common trade policy with respect to nonmembers.  Common Market  Factors of production mobility is emphasized. A common external tariff is adopted.  Economic Union  Integration and harmonization of economic and monetary policies is achieved leading to political union. 2-70
  71. 71.  Benefits  Trade Creation  Greater Consensus  Political Cooperation  Drawbacks  Trade Diversion  Shifts in Employment  Loss of National Sovereignty The Effects of Economic Integration 2-71 Can you write such an essay with regards to the current situation facing the crisis in the EU?
  72. 72. Describe the main forms of regional economic cooperation. What factors tend to promote such arrangements? 2-72 Specimen Question # 1 Think about what happens if a marketing company that exists OUTSIDE the trading bloc wants to enter markets in that bloc; how would it affect its marketing operations. How would a trading bloc create opportunities and threats? How would this situation affect the decision on MARKET ENTRY strategy?
  73. 73. Market Entry • Learn all the modes of entry; be prepared to answer on any modes given • Study the advantages and disadvantages of each mode • The factors affecting the choice of market entry mode Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 4
  74. 74. Consider various criteria in choosing the mode of entry  External criteria  market size and growth  risk  government regulations  competitive environment  local infrastructure  Internal criteria  organizational objectives  need for control  internal resources, assets and capabilities  flexibility 6(B)- 74
  75. 75. External criteria  Market size and growth  Not just absolute size but also opportunities for potential growth  Watch out for secondary data when comparing across country markets- what units do we use when we measure “size”?  Risk  Political and economic risks faced (see chapter 3)  Risks also include exit risks 6(B)- 75
  76. 76. External criteria (cont’d)  Government regulations  Host country policies  Affects the mode of entry- example foreign equity participation in joint ventures  Competitive environment  How formidable are the competitors in the domestic market?  Would acquisition be one way in to eliminate the competition? 6(B)- 76
  77. 77. External Decision Criteria Market Attractiveness  Countries can be classified into several types based on their market attractiveness  Platform: gather intelligence/network  Hong Kong and Singapore  Emerging: build presence  Philippines and Vietnam  Growth: offer early mover advantage  China and India  Maturing and Established Countries  South Korea, Taiwan and Japan 6(B)- 77
  78. 78. Internal decision criteria:  Organizational objectives  How aggressive is the international firm in wanting to gain foreign market entry? What is the time frame for gaining market penetration?  Need for control  Exporting (less); overseas subsidiary/manufacturing operations (high control)  Extent of centralization or decentralization in managing overseas businesses 6(B)- 78
  79. 79. Internal decision criteria:  Internal resources and constraints  Small firms with limited resources tend to be more dependent on exporting  Firms that control strong brands or have proprietary technologies can use franchising or licensing  Flexibility  As market conditions and the environment changes, so will the market entry mode 6(B)- 79
  80. 80. The Key Options for Market Entry: 1. Exporting 2. Licensing 3. Franchising 4. Contract Manufacturing 5. Joint Ventures 6. Wholly Owned Subsidiaries 7. Strategic Alliances 6(B)- 80
  81. 81. Choice of Market Entry Strategies Source: Kotler, Armstrong and da Silva (2006) 6(B)- 81 Less Risky Options Greater Control Options
  82. 82. Exporting  Indirect Exporting  The organization uses an intermediary based on its home market to do the exporting  Cooperative Exporting  The organization enters an agreement with another local or foreign organization in which the partner will use its distribution network to sell the exporter’s goods 6(B)- 82
  83. 83. Exporting  Direct exporting  The company sets up its own export organization and relies on an intermediary based in a foreign market (e.g. a foreign distributor) 6(B)- 83
  84. 84. Licensing  A contractual transaction where the organization, the licensor, offers some proprietary assets to a foreign organization, the licensee, in exchange for royalty fees  Giordano, one of Hong Kong’s premier clothing retailers licenses Disney products 6(B)- 84
  85. 85. Licensing  Benefits  Highly profitable penetration strategy  Local governments may favor it  Lower exposure to economic and political conditions  Caveats  Revenue may be dwarfed by potential income earned through outright ownership  Lack of enthusiasm on the part of the licensee  May own competing products 6(B)- 85
  86. 86. Franchising  Franchisor  An organization that gives the franchisee the right to use its trade names, business models and know-how in a given territory for a specific time in return for payment  McDonald’s is possibly the most famous franchisor of all 6(B)- 86
  87. 87. Franchising  Franchisee  Pays a franchisor for the right to use its trade names, business models and know-how in a given territory for a specific time  To the franchisee, this mode of operation gives the business a rapid entry into the marketplace given the reputation of the brand 6(B)- 87
  88. 88. International Franchise Expansion • Reasons for the growth – Market potential – Financial gain – Saturated domestic markets • Problems in franchising – Needs a high degree of standardization – Protection of the total business system from copycat competition – Government intervention – Selection and training of franchisees 6(B)- 88
  89. 89. Franchising  Benefits  Organization capitalizes on a winning formula  Capitalizes on local knowledge of the franchisee  Preserves the capital of the franchisor  Caveats  Revenue may be dwarfed by potential income earned through outright ownership  Finding suitable and experienced franchisees in developing markets could be difficult 6(B)- 89
  90. 90. Contract Manufacturing  The organization arranges with a local manufacturer to manufacture parts or even the entire product Often used in the apparel industry Nike manufacturing some of its products in Cambodia via a local producer 6(B)- 90
  91. 91. Contract Manufacturing  Benefits  Cost saving  Flexibility  Contractor assumes all infrastructural investment risk  Caveats  Possibly nurturing a future competitor  If the contractor breaks the law it reflects on the contract partner as well  Contract partner may have little control over this 6(B)- 91
  92. 92. Foreign Direct Investment (FDI) • Firms invest to enter markets or assure themselves of sources of supply. • Foreign direct investment – An equity investment to create or expand a permanent interest in a foreign enterprise. Protection of the total business system. • Portfolio investment – The purchase of stocks and bonds internationally. Selection and training. 6(B)- 92
  93. 93. Types of Ownership • Ownership patterns may be based on past experiences with similar ownership models. • Full ownership – Full control, full assumption of all risks. – May be desirable, but is not necessary for success internationally. • Joint ventures – Shared control, shared investment risks. – Reasons for joint ventures: • governmental pressure to join with local partners. • mutually beneficial commercial considerations in sharing markets, pooling resources, and local suppliers. 6(B)- 93
  94. 94. Joint Ventures Cooperative joint venture  An agreement between the partners to collaborate, that does not involve any equity investment  Monash University and its Malaysian partner  Macquarie Graduate School of management and its Chinese partners 6(B)- 94
  95. 95. Joint Ventures Equity Joint Venture  An arrangement where the partners agree to raise capital in proportion to the equity stakes agreed upon  GM and the Shanghai government  No 2 car producer in China  SAI Global formed the CQC-SAI Management Technologies, based in Beijing 6(B)- 95
  96. 96. Joint Ventures  Benefits  Has potential for higher returns than either licensing or franchising  Reflecting the investment risk  Higher degree of control  Caveats  Has potential for greater losses than either licensing or franchising  Reflecting the investment risk  Lack of trust  Developing a future competitor 6(B)- 96
  97. 97. Wholly Owned Subsidiaries 6(B)- 97  Owning the business outright can be achieved via two routes  acquisitions  New Zealand based Fletcher Challenge developed strong Asia Pacific presence through national acquisition strategies  Greenfield operations  Westfield shopping centers and Village Roadshow Cinemas
  98. 98. Strategic Alliances  A partnership between businesses with the purpose of achieving common goals while also  minimizing risk  maximizing leverage  benefiting from those facets of their operations that complement one another  McDonald’s and Coca Cola worldwide 6(B)- 98
  99. 99. Timing of Entry 6(B)- 99  Timing of entry can be critical  too early means a lost investment  Hong Kong based restaurant chain Café de Coral’s early investment and subsequent withdrawal from strategic locations in China  too late means lost opportunity  Australian based Gloria Jeans Coffee’s failure to enter the Chinese market has let many competitors steal a march on them  Starbucks headquartered US  Costa Coffee headquartered UK
  100. 100. Summary of the advantages and disadvantages of all the entry modes 6(B)- 100
  101. 101. 6(B)- 101
  102. 102. 6(B)- 102
  103. 103. Specimen Exam Question #1 Starbucks has expanded globally through a variety of market entry modes including joint ventures and company-owned stores. Explain the benefits and limitations of each of these strategies specifically in relation to a company like Starbucks 6(B)- 103
  104. 104. If short-term profit is a major consideration for an organisation, what might be a preferred market entry strategy? Use examples to illustrate your understanding. 6(B)- 104 Specimen Exam Question #2
  105. 105. Specimen Exam Question #3  Compare and contrast the following two market entry strategies – indirect exporting and franchising, illustrating their advantages and disadvantages. Use examples to explain your understanding.
  106. 106. Specimen Exam Question #4  Compare and contrast the following two market entry strategies – joint ventures and strategic alliances and discuss their their advantages and disadvantages. Use examples to illustrate your understanding.
  107. 107. Research • Focus on the problems and challenges of conducting research in international marketing • Problems with Secondary Research • Problems with Primary Research Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 5
  108. 108. International Marketing Research Process – Special problems  Complexity of research design due to environmental differences  Lack and inaccuracy of secondary data  Time and cost requirements to collect primary data 5- 108
  109. 109. International Marketing Research Process – Special problems  Coordination of multi-country research efforts  Difficulty in establishing comparability across multi-country studies  Different practical considerations (example legal aspects, different ethical practices, etc) 5- 109
  110. 110. 5- 110 Figure 6.1
  111. 111. Secondary research Advantages  Less expensive  Less time consuming  Low level of commitment  No constraints by overseas customs  Speed Disadvantages  Non-availability of data  Reliability of data  Data classification  Comparability of data  Data privacy concerns 5- 111
  112. 112. Secondary Marketing Research  Problems with secondary data sources Accuracy of data Age of data Reliability of data over time Comparability of data Lumping data 5- 112
  113. 113. Primary Marketing Research  Quantitative data  Data that represents an attitude or opinion by assigning a number that can be statistically analyzed  Qualitative data  Data that describes attitudes, opinions and motivations in the words of each respondent 5- 113
  114. 114. Collecting Primary Data  Can be collected in 3 ways: 1. Focus Groups 2. Survey Research 3. Test Markets  Covered in New Product Development lecture 5- 114
  115. 115. Problems of Gathering Primary Data • Ability to communicate opinions – It is difficult for a person to formulate needs, attitudes, and opinions about goods whose use may not be understood, that are not in common use within the community. • Gerber • Willingness to respond – Cultural differences – The role of the male, the suitability of personal gender-based inquiries, and other gender-related issues can affect willingness to respond. • Sampling in field surveys – The greatest problem in sampling stems from the lack of adequate demographic data and available lists from which to draw meaningful samples. 5- 115
  116. 116. Problems of Gathering Primary Data (cont’d) • The kinds of problems encountered in drawing a random sample include the following: – No officially recognized census of population – No other listings that can serve as sampling frames – Incomplete and out-of-date telephone directories – No accurate maps of population centers • Language and comprehension – The most universal survey research problem in foreign countries is the language barrier. – Literacy poses yet another problem – Marketers use three different techniques to help ferret out translation errors ahead of time. • Back Translation • Parallel Translation • Decentering 5- 116
  117. 117. Primary Market Research  Survey methods for cross-cultural marketing research  Questionnaire Design Most popular form of gathering data in quantitative market research Cross cultural research does present problems Comparability of survey results across borders could be an issue 5- 117
  118. 118. Primary Market Research  Survey methods for cross-cultural marketing research  Construct Equivalence The degree to which marketing constructs have the same meaning and significance across cultures Bicycles mean different things in different countries and this needs to be reflected in the construction of the research device  Recreation in Australia  Transportation in China 5- 118
  119. 119. Primary Market Research  Survey methods for cross-cultural marketing research  Measure Equivalence Calibration equivalence US is imperial (pounds, inches) Thailand is metric (meters, litres) Translation equivalence Translation from one language to another  Embarrassing mistakes can occur 5- 119
  120. 120. Primary Market Research  Survey methods for cross-cultural marketing research  Measure Equivalence (cont’d)  Parallel Translation  A process in which a document is translated independently by a number of translators and the translations compared to reconcile differences  Scalar (metric) equivalence  The degree to which scores from subjects of different countries have the same meaning and interpretation 5- 120
  121. 121. Exam Topics to prepare for IMR 1. The objectives of undertaking IMR 2. The difficulties of conducting secondary research in IM 3. The difficulties of conducting primary research in IM 4. The challenges of conducting focus groups in IMR 5. The challenges of constructing questionnaires for IMR 121
  122. 122. Logistics • What is international logistics (IL)? • Components of IL : MM and PD • How logistics brings competitive advantage to international marketing • Modes of transportation Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 6
  123. 123. Role of International Logistics  Business operations are today globally dispersed  When organizations start operating internationally, mangers need to coordinate sourcing and shipping of raw materials, components among different manufacturing sites at the most economical and reliable rates  Additionally they need to ship finished goods to customers around the world 9-123
  124. 124. Global supply chain and the “global factory” 9-124
  125. 125. Elements of International Logistics  Like domestic logistics, it encompasses Materials management Physical distribution 9-125
  126. 126. International Logistics Materials Management  Materials Management  The inflow of raw materials, parts and supplies in and through the organization  Consider that over 1 billion parts are shipped to GM’s subsidiary (Holden) in Australia every year 9-126
  127. 127. International Logistics Physical Distribution  Physical Distribution  The movement of organizations finished products to its customers  Covers inventory control, warehousing and storage, materials handling, customer service, containerization and transportation  Influenced greatly by the concept of JIT; minimize stock holding (investment in inventory) 9-127
  128. 128. Physical distribution  Affected by:  Geography  Geographically large countries like US or Australia- higher transport and inventory costs  Small counties in SEA or Japan- tend to incur more costs in warehousing, customer service because a wide variety of products have to be stored to meet varied needs of customers in concentrated areas 9-128
  129. 129. Physical distribution factors:  Distance  Obviously greater distances are covered compared to any domestic logistics situation  Ocean and Air become the only truly global options  Long lead time (see case of Holden on page 395  Long distances means not just higher transport costs but also storage and insurance  Cultural differences  Storage of some food products in Islamic countries such as Malaysia 9-129
  130. 130. Why is international logistics more complex?  Exchange rate fluctuation  The potential for more than one currency to be involved in the process creates complexity  Foreign Intermediaries  Introducing other supply chain partners into the mix; this means more parties are involved in the distribution system  Complexity of networks and connections, especially in Asian countries  Security  Dealing with the unknown in foreign countries  After 9/11, stepped up security at airports and container terminals (threat of terrorist attacks) 9-130
  131. 131. Modes of transportation  Three key factors to consider:  Value- to- volume ratio  How much value is added to the materials used to make the product  Perishability  Degradation of product quality over time  Costs of transportation  Determined by the first two factors 9-131
  132. 132. International Modes of transportation available to companies  Ocean  Relative low cost to weight and/or bulk ratio  Good for heavy, bulky and non- perishables  Three options: linear services (regularly scheduled), bulk shipping and irregular runs  Type of cargo vessel also important, most significant are containers ships  But also RORO (‘roll on- roll off)  In some less developed countries, there are problems of port infrastructure; cant handle modern container/RORO vessels 9-132
  133. 133. International Modes of transportation available to companies  Air  Only 2% of world trade  But 26% by value  Has the advantage of speed  Used for high value goods such semiconductor chips, LCD screens, technology based products  Perishable products such as fresh food and flowers 9-133
  134. 134. Airfreight  Increases in the carrying capacities of new jumbo cargo planes  Modern day logistics- speed and ease of handling for airfreight  Market trends like fashion- short cycle time required in retailing 9-134
  135. 135. International Modes of transportation available to companies  Inter-modal  The seamless transfer of goods from one mode of transport to another without the need for repacking  Shipping containers are a standard size  Easy to shift from ocean to rail upon arrival in a country 9-135
  136. 136. Impact of the Internet  The use of the internet has contributed to the rise of 3rd Party logistics firms. Integration and communication is facilitated by the role of the IT (‘extranets’ – the customers operations systems are integrated with the operations systems of the 3PL provider)  Eli Lilly (Pharmaceuticals) outsources logistics to Danzas  Danzas’ ‘Market Link’ system manages seamless logistic services driven by real time flow of data  Mostly web based 9-136
  137. 137. International Sourcing  Six reasons why organizations adopt an international sourcing strategy: 1. Intense international competition  Computer manufacturers such as Dell establish global supply chains partly in response to competitive pressures 2. Pressure to reduce costs  Primary reason for apparel companies to source offshore 9-137
  138. 138. International Sourcing 3. The need for manufacturing flexibility  Toyota operate a manufacturing plant in Melbourne to tap into a highly educated workforce 4. Shorter product development cycles  Spreading the development load across countries 9-138
  139. 139. Value Chain Concept (M Porter) 9-139 Figure 12.2 Value chain concept
  140. 140. Applying the Value Chain in a Global Supply Chain Context: 1. Different country markets are selected to carry out key business activities according to their competitive advantages 2. The VCs are linked (integration) across country markets in order to produce a global supply chain 9-140
  141. 141. Types of sourcing strategy  Two choices:  Intra-firm sourcing Supplying from parent firm to its subsidiaries  Outsourcing  From independent suppliers on a contractual basis  4 possible types of sourcing strategies can emerge  See Figure 12.3 9-141
  142. 142. Types of sourcing strategy 9-142 Figure 12.3 Types of sourcing strategy
  143. 143. Benefits of outsourcing  Lower operating costs  Enables the company to focus on its core business competences  Access to world-class manufacturing capabilities  Better use of internal resources  Speed to market  Free up capital funds  Reduce tax liabilities  Reduce risks 9-143
  144. 144. Problems of outsourcing services  Negative image to company- loss of thousands of domestic jobs  Poor service delivery / lack of reliability  Note: service has the unique characteristic of ‘variability’ or ‘heterogeneity’  Qantas has had bad press publicity  Locate cabin crew in London  IT jobs gone to India  Outsource entire maintenance to China 9-144
  145. 145. Sample Essay Question  The global logistics manager must understand the specific properties of the different modes of transportation in order to use them optimally. What are the most important factors in determining an optimal mode of transportation? List and briefly describe each of the factors and use examples to discuss. 145 9-145
  146. 146. Pricing • Focus on the problems and challenges of conducting research in international marketing • Problems with Secondary Research • Problems with Primary Research Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic. 7
  147. 147. 10- 147 Pricing concepts  Two views of pricing:  Cost plus (mark ups)  In exporting, imagine the number of margin uplifts added before the product reaches the foreign customer  Market based pricing  Use marketing research to find out what consumers are willing to pay for the product and work backwards down the value chain
  148. 148. 10- 148 Complexity of pricing in international marketing  Pricing is critical to international marketing. Pricing can make or break international market expansion plans  Pricing is the only element in the marketing mix that generates revenue  Many uncontrollable factors impact on prices- taxes, commission/ fees, local market competition, etc.
  149. 149. 10- 149 Complexity of pricing in international marketing  Pricing policy is highly cross-functional; interplay of marketing, finance, tax, logistics and other divisions. Often objectives could be incompatible  Challenge of how to coordinate pricing policy across country markets  Price differentials (lack of coordination) will lead to grey or parallel trading markets  Global (one price policy- often quite difficult to implement) may lead to too high or too low in different markets. Profit opportunities might be missed
  150. 150. 10- 150 Drivers of foreign market pricing  International prices are affected by the 4 Cs:  Company (costs and goals)  Customers (price sensitivity and segments)  Competition (nature and intensity)  Channels (distribution) Government policies are also a major factor
  151. 151. 10- 151 Company factors  Organizational Goals  How do we set strategic marketing goals for the company in the context of global markets?  To achieve satisfactory ROI  To maintain/ increase market share  To meet specific goal target  Goals can change over time  Enter with low price to gain penetration  Use loss leader pricing but sell other higher margin products across the range
  152. 152. 10- 152 Customer (demand)  Customer demand sets the ceiling for prices  Function of buying power, tastes, habits, cultural norms and substitutes  Targeting low income countries  Target mass market  Adapt the product- lower quality or downsizing the product (packaging)  Proctor and Gamble selling small sachets of shampoo in developing markets due to buying power in those countries  Cigarettes : 5 or 10 sticks a pack in less developed markets
  153. 153. 10- 153 Competitors  Number of competitors varies from country to country  Differing degrees of intensity  Nature of competition  Global versus local  Competing against the preferred ‘local champion’  Competitive Position  Market leader at home/market follower abroad
  154. 154. 10- 154 Channels  Direct  Not possible in all countries due to size of market and/or geographic distances required  Better control is achieved, but  Makes direct representation extremely costly  Indirect  Length of channel can affect end price of product/service (additional layers in the channel increases price)
  155. 155. 10- 155 Managing price escalation  The process of covering incremental costs (e.g. shipping, insurance, tariffs, margins of various intermediaries)  Makes the final foreign retail price higher than the domestic retail price
  156. 156. 10- 156 Managing Price Escalation  Strategies for lowering export price:  Rearrange the distribution channel  Shortening the channel in Japan by going directly to the end retailer  Difficult in such a traditional market  Eliminate costly features/make them optional  Offer the ‘no-frills’ version of a Sony Vaio in Cambodia  Give the customer the option to upgrade
  157. 157. 10- 157 Managing Price Escalation  Strategies for lowering export price:  Downsize the product  Make a smaller version of the product  Assemble or manufacture in foreign markets  BMW assemble cars in South Africa
  158. 158. 10- 158 Managing Price Escalation  Strategies for lowering export price: Adapt the product to escape tariffs or tax levies Land Rover is heavier in the US so as to be classified as a truck rather than car Escapes the luxury car tax
  159. 159. 10- 159 Managing Price Escalation  Not all strategies involve lowering the price  Position the product as super premium  Budweiser is costly internationally due to the high cost of transportation  Entry level beer in its home market  Premium beer in Singapore
  160. 160. 10- 160 Pricing in inflationary environments  McDonald’s sells a Big Mac meal in Moscow for 6 Roubles in 1990  Same meal costs 1100 Roubles in 1993
  161. 161. 10- 161 Pricing in inflationary environments  Safeguarding against inflation  Modify components/ingredients  Not all components maybe subject to the same level of inflation  Source material from low cost suppliers  Import from low inflation countries
  162. 162. 10- 162 Pricing in inflationary environments  Safeguarding against inflation  Quote prices in a stable currency  Dollar or Euro  Draw lesson from other countries  Otis Elevators using managers from Latin America to advise on situation in Russia  Experience in one high inflation country can translate into another
  163. 163. 10- 163 Pricing in inflationary environments  Government price controls sometimes imposed to deal with inflation  Zimbabwe freezes prices  Panic buying occurs  Stockpiling products for later sale in the black market  Very rarely overcome the inflationary problem
  164. 164. 10- 164 Pricing in inflationary environments  Overcoming price controls:  Adapt the product line  To diversify into products that are not part of the price control  Lobby  Negotiate with the government  Leave the country (exit strategy)
  165. 165. 10- 165 International pricing and currency movements  Exporters and importers are subject to the whims of currency movements  As currencies strengthen and weaken this has implications for pricing and margins  A strategic view of the problem should be undertaken
  166. 166. 166166166
  167. 167. 10- 167 Currency Gain/Loss pass through  Should exporters pass through gains they make from currency movements to their customers?  Help steal business from domestic competitors  Are they more market share (pass it on) or short term profit oriented (keep it)?  Should they pass through price rises to customers if they suffer currency losses?
  168. 168. 10- 168 Currency Gain/Loss pass through  ‘Pricing to market’  Occurs where companies are more responsive to specific market trends  Make destination specific adjustments of markups in response to exchange rate movements  German auto makers like BMW more likely to take this approach than their short-term profit driven rivals at Toyota
  169. 169. 10- 169 Currency Quotation  Which currency should be used in international business transactions?  Which party should bear the risk?  Quoting a common currency could be a way of sharing the risk  US dollar across countries with their own currency  Trading between Australia and New Zealand
  170. 170. 10- 170  While many of the reasons for transfer pricing are legitimate  A primary reason is to shift the tax burden of a global player to low tax rate regimes  A service provider based in Thailand is ‘billed’ by its Hong Kong sister company  Profits are transferred to Hong Kong and charged at a much lower rate  Governments are wary of this and conduct audits to identify this behavior Transfer pricing
  171. 171. 10- 171 Price coordination  How similar should prices be across markets? This depends on:  Nature of customers  Apple prices globally to cater for a global segment and avoid parallel imports  Amount of product differentiation  Identical products probably need to be priced identically  Nature of channels  How much control over international distributors?
  172. 172. 10- 172 Countertrade  Unconventional trade financing transactions based on trade and not cash  Pepsi swaps cola for vodka in the old Soviet Union  Lack of ‘hard currency’ forces them to innovate on price  Pepsi would not take Roubles so took Stolichnya instead  On-sold in the US market at a profit
  173. 173. 10- 173 Countertrade  Motives  Gain access to new or difficult markets  Overcome lack of hard currency  Overcome low country creditworthiness  Shortcomings  Timely and costly negotiations  Uncertainty and lack of information on future prices
  174. 174. Specimen Essay Question 10- 174 In international marketing price escalation can be a serious problem. Discuss ways that marketers may implement a strategy to address this problem using your own examples
  175. 175. Good Luck on your Final Exam  Read the questions carefully  Decide which you want to do first – MCQ or Essay (your choice)  MCQ can allocate one hour BUT see if you can finish in 45 minutes so that you have a bit longer for essay  Essay questions try to do 2-3 pages. Plan carefully the flow of your answers. Write definitions and theories as close as possible to the book/notes content; do not make up your own definitions.  Examples to be included in between relevant points. A good answer has about 4-5 examples PER Questions. Examples should be different for each question. 10- 175

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